Transactional vs Transformational Leadership

Transactional and transformational leadership are two of the leading leadership styles in organizations today. Let's define each one, differentiate them from each other, and compare which is the better leadership style.

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The importance of leadership cannot be overstated. It is a common notion that leadership just applies to the business environment, case in point the Blake and Mouton Managerial Grid. But leadership is, in fact, part of every setting where people work together. Even academic, health, and creative industries rely on effective leadership for good performance. Because of its importance, researchers and theorists have been continuously searching for the best leadership style. Many styles have been identified, but two which more recently came to prominence are transactional leadership and transformational leadership. While it is easy to confuse them and think that they are the same, these two styles have significant differences. In any case, an overview of these two can help you figure out how to be an effective leader. In this post, we provide a brief discussion of the two styles.

Transformational Leadership Vs. Transactional Leadership

Transactional Leadership

Transactional leadership is a style that focuses on managing operations through rewards and punishments. As the term itself suggests, this style involves using incentives and disciplinary measures to “transact” with followers and eventually achieve compliance. This style of leadership is based on the theory that people have needs and that behavior is influenced by consequences. Hence, under transactional leadership, rewards are given to followers for good performance while punishments are meted out for deviations. In particular, transactional leaders employ extrinsic motivators that satisfy more basic needs. An example of an extrinsic motivator is financial compensation. The effects of these consequences eventually reinforce desired behavior and discourage undesired behavior. The goal of transactional leadership is usually to manage daily operations and maintain a desired level of performance. It is not concerned with achieving long-term growth but instead seeks to retain the status quo.

Transformational Leadership

Whereas transactional leadership involves transacting with followers, transformational leadership seeks to elevate the level of performance of the followers by “transforming” how they see themselves and the work they do. Transformational leadership creates a shared vision for the future, and followers are inspired by the leader to improve in a manner that surpasses expectations and eventually achieve this vision. Transformational leaders often rely on intrinsic motivators that satisfy higher needs. For example, such leaders may encourage followers to go beyond personal interests or basic needs and instead elevate themselves by attaining self-actualization, taking pride in their work, and seeing themselves as integral parts of the team. This style promotes engagement, confidence, and growth. Unlike transactional leadership which focuses on maintaining the status quo, transformational leadership seeks long-term success.

Transactional vs. Transformational Leadership

Although it may seem that transformational leadership is better than transactional leadership, each has its strengths depending on the situation.

Transactional leadership is useful for reaching short-term goals and generating immediate results. In particular, this style is useful in managing day-to-day activities and maintaining productivity. For instance, frontline managers may find the transactional style useful in ensuring that tasks are performed. This style is also advantageous when resolving crises, during emergency situations, or when dealing with tight deadlines of PowerPoint presentations.

By contrast, transformational leadership is useful for facilitating long-term success. As the style involves inspiring followers to look beyond self-interest, the development of strong intrinsic motivation can help in building a team that is engaged, dedicated, and passionate. Transformational leadership is also more ideal for senior management. For example, CEOs who establish the vision of his or her company can inspire employees to consider the creation of value for customers as the primary goal with profit as more of a consequence.

In the end, though, transformational leadership has been consistently singled out by theorists and researchers as the more effective between the two. Although it comes with its own drawbacks, transformational leadership’s emphasis on intrinsic motivation yields better and longer-lasting results.

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