How Transactional Leadership Works in Business

Transactional leadership is a type of leadership that emphasizes routine workflows, clear job descriptions, a system of rewards for strong employee performance, and a system of punishments for employee failure.

Transactional leaders thrive atop a formal chain of command. They set goals for their teams—particularly short-term goals. They often cut deals that help them achieve such goals, both with team members and with other companies. Transactional leaders treat employees with respect, but they may spend less time considering employee morale than other types of leaders.

Transactional leadership is associated with strong leaders who manage structured environments. Transactional leadership characteristics include:

1. 1. Strong chain of command: Transactional leadership theory starts with a strong chain of command that features clear job titles and purviews. A transactional leader gives instructions to their direct reports, who in turn will lead their own direct reports.
2. 2. Established procedures: Transactional leadership works when organizations have well-established workflows. In these organizations, the status quo often reigns supreme, and change can be difficult.
3. 3. Workers with intrinsic motivation: Transactional leaders do best with team members who equate organizational success with their own self-interest. These leaders rarely serve as sources of extrinsic motivation.
4. 4. Contingent rewards and punishments: Transactional leaders reward strong employee performance and they take corrective action against employee failure.
5. 5. A light day-to-day touch: Transactional leaders subscribe to passive management by exception. Taking a generally hands-off approach, they do not insert themselves into company workflow unless unforeseen issues arise. This does not mean that transactional leaders are laissez-faire managers; rather they empower workers to do their duties as prescribed.
6. 6. Leadership foresight: Transactional leaders also subscribe to certain types of active management. They do this by anticipating problems and enacting process changes to obviate future issues.

A transactional leadership style can bring notable benefits to an organization. They include:

1. 1. Clarity of expectations: Transactional leaders push for clearly defined roles within their organization. Employees who report to this type of leader tend to enjoy clarity about their status within the broader organization.
2. 2. Stability in crisis situations: Thanks to well-established workflows and a strong chain of command, organizations led by transactional leaders can hope for stable responses in the case of crisis.
3. 3. Incentives for employees: Transactional leaders regularly conduct employee assessments. When employees fare well in these assessments, they can expect anything ranging from small perks to major items like a promotion or raise.

Certain disadvantages of transactional leadership make it inappropriate for some types of organizations. Those disadvantages include:

1. 1. Rigidity: Transactional leaders may become wedded to the status quo. These leaders, and their direct reports, can be resistant to change.
2. 2. Limited team input: Some transactional leaders can veer into autocratic management that gives almost no space for employee input.
3. 3. Minimal investment in employees’ professional growth: Transactional leaders do not have a reputation for emotionally investing in their employees. In order to advance, thrive, and be seen within the organization, everyday workers may need help from their company’s human resources department.

The concepts of transactional leadership and transformational leadership trace back to twentieth-century scholarship from authors like sociologist Max Weber, political scientist James McGregor Burns, management theorists Robert R. Blake and Jane Mouton, and management theorists Bernard M. Bass and Bruce J. Avolio. These academics identified multiple leadership models used in organizations, including transactional leadership and transformational leadership. Here are the notable distinctions between transactional leadership and transformational leadership.

1. 1. Transformational leadership emphasizes collective efforts. Transformational leaders emphasize inspirational motivation, passion for the work at hand, and an ability to clearly communicate common goals. Under this style of leadership, workers are encouraged to think creatively and effect positive change. What’s more, transformational leaders build one-on-one relationships with their team members and work to advance employees’ own leadership development.
2. 2. Transactional leadership prioritizes organizational objectives. Transactional leaders see the value in individual team members, but they particularly focus on how these individuals serve their team’s overall objectives. Workers may be viewed as more easily replaceable. While transactional leaders treat their employees with respect, they do not often call on them to help strategize or think outside the box.

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