Does a Transactional Leadership Style Work Today?
A transactional leader prefers to lead with order and structure. They are likely to be in charge of military operations, large enterprises, or global projects with rules and regulations for meeting deadlines or moving personnel and goods in an orderly manner.
The function of supervision, organization, and group performance are all emphasized in transactional leadership. Leaders who employ this approach focus on specific tasks and utility incentives and consequences to push their followers.
Big corporations typically employ a large number of transactional leaders. These companies have a strong market position and urge their leaders to demand system compliance. Transactional leaders do not fit well in environments that value creativity and new ideas.
The leaders regularly set goals for their teams. They appreciate it when their subordinates perform well and meet their goals. If employees don’t meet their goals, they can find the door.
According to a 2006 study that looked into the impact of leadership styles on small firms, a transactional leadership style negatively impacts the performance of employees in these companies. However, the transactional leadership style has several benefits that large, mid-size, and small businesses can take advantage of.
Here, I look to determine whether a transactional style can work in today’s work culture using the available literature, the characteristics of a transactional leader, the pros and cons of this leadership style, and real-world examples.
What Is Transactional Leadership Style?
Transactional leadership styles are most focused on keeping things running smoothly. Employees are encouraged to perform at their best by transactional leaders who utilize disciplinary power and various incentives to achieve this objective.
The term “transactional” alludes to the fact that this type of leader primarily motivates subordinates by exchanging rewards for performance. A transactional leader isn’t interested in strategically leading a firm to market leadership; instead, these executives ensure that everything runs well “right now”.
In short, it is a leadership style that involves establishing clear goals and objectives for followers and using rewards and penalties to ensure compliance. The idea behind transactional leadership is that the leader, who has power and control over their workers or followers, gives them incentives to accomplish what the leader wants.
Many transactional leaders tend to govern in a “hands-off” manner. These leaders do not meddle as long as things are running well. Instead, they keep a careful eye on the operation to identify issues as they arise.
Take, for example, Bill Gates, a transactional leader. Gates makes periodic visits to monitor operations and ensure that everything is running well. He wants to make sure that he achieves high performance and that nothing gets lost in the shuffle. This approach seems to have worked well for Gates because Microsoft has practically revolutionized the world under his leadership.
The Characteristics of a Facilitative Leader
Transformational leadership compares with transactional leadership. However, there are apparent differences between the two.
Transactional leadership requires subordinates/followers to be self-motivated and perform effectively in a structured, guided environment. On the other hand, transformational leadership aims to encourage and inspire employees rather than directing them. Let’s define the following characteristics of a transactional leader to determine the differences.
1. They Establish Structure
One of the most critical functions of a transactional leader is to establish structure. Procedures, systems, and policies ensure that all work can be completed efficiently by individuals and teams. Things can easily slide through the gaps, or miscommunication can occur without this level of organization.
2. They Act With Urgency
Transactional leaders can act quickly. They are great executors when they are at their best. They take command, can turn around the tide, and are incredibly adept in times of crisis. That is because they utilize their authority to take decisive action, even when the situation is ambiguous.
3. They Make Expectations Clear
The goal of transactional leadership is to achieve results. As a result, a transactional leader always communicates their expectations to the team. They clarify what they want to accomplish, the performance objectives, and the incentives and consequences of actions.
It eliminates any ambiguity regarding what constitutes success at their company. Transactional leaders frequently use tools like one-on-one meetings and performance reviews to track progress to ensure that expectations are clear.
Pros and Cons of a Transactional Leader
Your company will reap numerous benefits if you implement transactional leadership correctly, as a system of rewards and punishments tends to work in many organizations. However, this type of system might inhibit creativity because it does not work for everyone. In short, there are both pros and cons of a transactional leadership style. Some of them are detailed below.
- The organization’s objectives and goals are linked to every subordinate’s standard rules, processes, and targets by transactional leaders to provide a more precise direction.
- This leadership style allows for the quick attainment of short-term objectives. Reward and punishment incentives encourage subordinates to perform at their highest levels as quickly as possible, allowing them to accomplish great results.
- Employees can quickly recognize their impact on the organization if they work toward specific goals linked to business success.
- Reward and punishment encourage people to complete tasks; however, it may eliminate the motivation for people to be more creative and innovative.
- Leaders only step in when subordinates fail to fulfill expectations or satisfy standards. They only try to follow processes and do not think outside the box.
- When there is money involved or when they want to avoid punishment, subordinates will comply. It is not because of a solid commitment to a shared vision (as in transformational leadership) or because of charisma (as in charismatic leadership).
When used in the right circumstances, transactional leadership can be quite effective. Understanding this approach to leadership and comparing it to the other leadership styles I have covered in this series can help you grow as a more well-rounded and adaptive leader.
Founder and CEO of Best Practice Institute, partner to Newsweek on America’s Most Loved Workplaces, and the author of more than 10 books on best practices in leadership and management, including Change Champion’s Field Guide, In Great Company, and Best Practices in Talent Management. Thought leaders and executives voted him as one of Global Gurus Top 10 Organizational Culture thinkers worldwide, and his feedback and benchmarking software has won HR Tech’s top product of the year award. Louis has been featured in Forbes, Investors Business Daily, Newsweek, MSNBC, Fast Company, and interviewed widely. For more information on Carter’s story see, “Meet the Fixer” and GoSolo.