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Transactional leadership style: What it is, plus the pros and cons

a team of three people are talking about how to nest use transactional leadership style

There are 11 identified types of leadership styles, with the transactional leadership style often viewed through the prism of someone who values order and structure. A transactional leader focuses on results, conforms to the existing structure of an organization and measures success according to that organization's system of rewards and penalties.

When expectations need to be super clear and processes matter a great deal, the transactional leadership style is ideal. The entire concept of transactional leadership is deeply rooted in contingent reward, which is the idea that expectations are set and workers get rewarded for meeting said expectations.

Another dimension of transactional leadership is passive management by exception, where a manager does not interfere with workflow unless an issue arises. The counter concept is active management by exception, in which managers anticipate problems, monitor progress and issue corrective measures. Each transactional leader can vary a bit in terms of specific approach.

Transactional leadership is often contrasted with transformational leadership. These leaders have their sights set on finding better ways to do things. They aren’t content with the status quo, and lean on the contributions of their team to make improvements and transform the workplace. Out-of-the-box ideas are welcomed, and even encouraged. The transformational leadership style works best in organizations with more autonomy and less of a need for control and micromanagement. Employees contribute ideas, and iterate and experiment.

Transactional leadership and transformational leadership are at odds because of when they work best and don't work well at all. Transactional leadership models tend to fail when a high degree of innovation is required, because this rigid approach can decrease psychological safety to try new methods. That's exactly when transformational leadership models tend to do well. On the flip side, transformational leadership models tend to be problematic when a team and work environment is resistant to change and would rather stick with the old way of doing things -- and in those moments, transactional leadership can be a good bet.

Former U.S. general Norman Schwarzkopf has a good quote to summarize transactional leadership: "When placed in command, take charge."

Let's dig a little deeper on transactional leadership, though.

What are the origins of transactional leadership?

Max Weber, a 20th-century German sociologist, made an extensive study of leadership styles and divided them into three categories: traditional, charismatic and rational-legal, or bureaucratic. In 1947, Weber was the first to describe rational-legal leadership — the style that would come to be known as transactional leadership — as "the exercise of control on the basis of knowledge."

Political scientist James McGregor Burns was one of the most prominent authors to advance Weber's theories. In his 1978 book "Leadership," Burns argued that both transactional and transformational leaders must be moral and have a higher purpose. In Burns's model, transactional leaders espouse honesty, fairness, responsibility, and honoring commitments.

What are some of the defining traits of a transactional leader?

In general:

  • Focused on short-term goals
  • Favor structured policies and procedures
  • Thrive on following rules
  • Process and efficiency are very important
  • Very left-brained
  • Tend to be inflexible
  • Opposed to change

You can begin to see some of the pros and cons of a transactional leader once you consider the above list. This leadership style has notable pros (good!), including rewarding those motivated by self-interest to follow instructions. As much as we want to talk about intrinsic benefits and cultural elements of leadership these days, the sheer fact remains that a lot of people are motivated by the ability to get and achieve more for their individual family. A transactional leader understands this, and uses it to their advantage in terms of securing increased productivity.

In a large organization, the transactional leader makes a lot of sense too -- because that type of leader sets up repetitive tasks and infinitely reproducible environments, which helps organizations scale.

Short-term goal achievement is another positive of transactional leadership as well. Because it's more of a command-driven model as opposed to a "servant leader" model, tasks and immediate goals tend to be achieved pretty fast. You see this success rate sometimes in transformational leadership, but because of the influx of ideas in transformational leadership models, sometimes short-term goal achievement can suffer.

What are the cons of a transactional leadership model, then?

The biggest downside to transactional leadership might be that the employee is ultimately only rewarded on a transactional, practical level only -- money and perks. There's no real focus on intrinsic elements of work, belonging, emotional benefits, etc. It's very direct. You do this, you get this.

In general, transactional leadership does not reward personal initiative. In fact, the basic tenets of transactional leadership theory can actually punish personal initiative. If you see something wrong with your organization, and you go and attempt to fix it, that should be a good thing in the eyes of your manager, no? In the model of transactional leadership, though, it's often not a good thing -- because the goal of transactional leadership is about hitting short-term goals explicitly defined for you by the leader of the team. Finding things to work on outside of the transactional style? That's a no-no. So if you're a person with a high degree of self-initiative, it's better to navigate to working for a transformational leader, who may better understand your motivations and approaches to work.

In the same vein, creativity tends to be limited in transactional leadership styles because the goals and objectives are already plainly set. There's not a lot of room to color outside the lines, if you will.

Taking all this together, some of the best applications of transactional leadership include the military, policing organizations, and first responders. For those types of organizations, this style of leadership makes sense in terms of consistency. It is also easier to apply in a crisis situation, where everyone must know exactly what is required of them and how a task is to be done under pressure.

In more free-form, innovative situations -- or situations that need a lot of ideas and experimentation -- transactional leadership does not work as well as the primary leadership style, and transformational leadership is probably for the best.

What about transactional leadership and employee performance?

A transactional leader should ideally be quick to reward high-quality performance, since linking performance to recognition will make it clear to employees and followers the type of outcome that’s expected. The goal of the leader should be to get similar results in the future -- that's how transactional leadership keeps working. So in this leadership style, acknowledge and reward short-term performance as much as possible, even if those rewards are inherently somewhat transactional.

Now, within transactional leadership, the leader also has the harder job of managing poor performance. There have to be clear consequences associated with unmet expectations – this can come in the form of not being considered for promotions, being put on performance improvement plans, or – in the worst-case scenario – can be grounds for termination. The leadership style -- in reality, no leadership style -- works well without consequences for poor performance. And while no one wants to overtly discuss terminations and layoffs in an uncertain economic climate globally, the fact is that a leader often has to make tough calls, and model what good and bad looks like for their team. That's a core tenet of every leadership style, but especially of transactional leadership.

What are some real-world examples of transactional style?

Here's one, via Torch.io:

Your team was recently given instructions for a complex product launch that need to be followed precisely to ensure a good outcome. Applying the transactional leadership style can be helpful in this situation since it’ll require control, organization, and short-term planning to complete the project in an effective way.

Here's another, per same source:

Your company is dealing with a cybersecurity crisis that jeopardizes the privacy of your customers. Thankfully, the team has an emergency plan ready to go for situations like this. But implementing it will require a leader who can provide stability, carefully monitor the situation, and quickly intervene if things don’t go as planned. This is exactly the type of situation where a transactional leadership style could be immensely useful.

You will see different leadership publications that ascribe the transactional leadership style to different examples of a well-known leader. Usually in terms of this specific leadership style, it's going to be a general or military official, but you will see Bill Gates linked as this type of leader periodically. That's a little bit off because Gates created Microsoft, which was ultimately both an innovative and transformational company, but some of his approaches as Microsoft scaled were very much in the transactional bucket. It just goes to show that leadership theory can't be applied perfectly.

Is transactional leadership the same thing as laissez faire leadership?

Not really, no.

Laissez-faire leaders have more of  attitude of trust and reliance on their employees. They don't micromanage or get too involved, they don't give too much instruction or guidance. ... They give guidance and take responsibility where needed, but this leadership style means that subordinates and team members have the real leader role. That's less true in transactional models.

Does transactional leadership perpetuate the status quo and reduce a focus on organizational goals?

It can if not handled correctly. You need a balance between the transactional and the transformative. If you lean too far in the former direction, everything can be choppy and short-term. If you lean too far in the latter direction, you can get too caught up in ideation and innovation and miss immediate goals and short-term performance needs. Effective leadership is a mix of both.

How can Fingerprint for Success help you with the transactional leadership style?

We have a program focusing on personal power, i.e. how to make your mark without selling your soul. Personal power is your ability to attract, influence and lead people in a positive way. It's a combination of your interpersonal skills and professional competence, and is the opposite of 'positional power' - that which comes through hierarchies, job titles and other bureaucratic power dynamics.

The personal power coaching program is focused on:

  • Ignoring the sabotaging rules we have about "power"
  • Understanding the power of context
  • Discovering more healthy ways to embrace competition
  • Developing executive presence
  • Learning how to own your own "seat at the table"
  • Mastering the politics of stakeholder management to get more done in your organization

Sign up today for the personal power coaching program and learn how to be the leader that your team deserves, whatever leadership style you choose to embrace!

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