Laura Berlinsky-Schine
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Although transactional leadership has existed for ages, it was first described as a theory by Max Weber, a sociologist, in 1947. The idea conceptualizes leadership as an exchange or quid pro quo scenario. While the model has its detractors, there are many prominent leaders and organizations that use it today.

What exactly is transactional leadership, and when is it most appropriate to use it? Let’s take a look. 

Definition and examples.

Transactional leadership is a results-driven style. It’s based on a system of reward and punishment, hierarchy and formal structure. The leader establishes expectations for their subordinates and has absolute control. Subordinates who meet these expectations are rewarded, while those who don’t are punished. In the case of a workplace, this might mean promotions versus dismissals. There’s not a lot of room for change; for the most part, the model adheres to the status quo.

Some prominent leaders and organizations who have used transactional leadership in the past or in the present day include:

  • Hewlett-Packard
  • Starbucks (and Howard Shultz)
  • Bill Gates
  • Joseph McCarthy
  • Charles de Gaulle

Transactional leadership is also common in the military and sports teams, where rigid expectations and reward-and-punishment scenarios can serve to motivate units and teams.

What are the characteristics of transactional leadership?

There are a number of qualities and characteristics associated with transactional leadership, such as:

  • Highly-structured policies and rules
  • Established chain of command
  • Rigidity
  • Clear expectations for team members and the leader
  • The use of rewards and punishments
  • Monitoring of subordinates
  • Little room for change
  • Focus on task completion
  • Expectation of results
  • Practicality over creativity
  • Clear direction
  • Little room for independence or independent thinking

What is the difference between transactional and transformational leadership?

There are many comparisons between transaction leadership and transformational leadership, two of the most common leadership styles. In fact, the styles are very different. Transactional leadership motivates subordinates externally through a reward and punishment system, setting out clear criteria for success and defining expectations. Transformational leadership, on the other hand, is less rigid, with the leader motivating subordinates through inspiration. It is much less rigid, with the leader attempting to influence and persuade subordinates rather than direct them.

Moreover, transactional leadership puts the interests of the leader and organization first, while transformational leadership focuses on the needs of the team. While the end goal is still fulfilling the needs of the organization, the means of getting there is quite different. With the transactional style, team members are motivated by external rewards, while the transformational style appeals to their sense of morality and commitment to bettering the organization. The latter style also encourages innovation, unlike the former. 

Why is transactional leadership important?

In some situations, order and structure are important. Many scenarios also require prompt and decisive responses. Many teams need a clear path to follow, and that’s where transactional leadership comes into play. Many individuals also need to be motivated by external rewards, as opposed to a sense of duty or obligation. This is why transactional leadership is important — it allows teams to follow a clear, outlined path and proceed in an organized fashion.

4 scenarios where transactional leadership works.

1. Teams are comprised of junior-level employees.

Transactional leadership can be very effective when managers are overseeing inexperienced employees. These individuals likely need direction and established objectives for their work. This is a better approach than, say, hand-holding.

2. Team members have different interests or goals.

Sometimes, team members may not share a common purpose. Perhaps they come from very different backgrounds or have different approaches or work styles. In this case, it can be useful to define the ultimate goals and expectations for them.

3. The environment is high-stakes and high-pressure.

For teams that constantly deal with emergency situations, such as the military or first responders, It usually not possible to debate decisions or work together to come up with a solution that works for everyone. Instead, one authority needs to direct others and map out a clear path for getting the desired results. Team members are assigned individual tasks and know what they need to do.

4. Team members are motivated by extrinsic rewards.

If you know that your employees or team members will respond well to perks like money and promotions, the transactional leadership model can work very well. This is nothing to judge or frown at — many people enjoy perks and have needs to attend to that these perks can fulfill. It can be helpful for them to know exactly what they need to do in order to enjoy these rewards. 

4 scenarios where it’s detrimental.

1. Creativity is essential.

In environments that demand a high level of creativity, transactional leadership is likely to fail. The leadership style is highly structure and does not provide room for people to innovate and develop their own ideas or approaches. 

2. Workers are highly experienced.

Employees with considerable experience and a high skill level may resent being told exactly what to do and how to do it. This may cause tension. It also may simply not be the best way to utilize the skills of your subordinates.

3. Workers are self-motivated.

The transactional style uses a reward and punishment system for motivating subordinates. This is not necessary if workers are self-motivated and driven by intrinsic factors, such as a sense of duty to the company or their own work ethic. In this case, the transformational style is probably a better bet. 

4. The organization is constantly changing.

Transactional leadership depends on sticking to the status quo. If the organization is experiencing a great deal of change, policies, rules and requirements will probably need to change, too, something this style of leadership doesn’t account for.

Is transactional leadership effective?

In some situations, especially those that demand structure, transactional leadership can be very effective. Many employees and organizations thrive under this leadership style. However, organizations that rely on the creativity and innovation of their employees are not well-suited to it. Moreover, some employees may find the style too rigid. Leaders who practice it can be perceived as insensitive and inflexible to the different needs of their employees and their work styles.

Therefore, in many contexts, it may be appropriate to use transactional leadership in conjunction with another style as the situation calls for it. Perhaps, for example, some scenarios might demand a situational approach — it’s up to you as a leader to determine what’s best for your organization.

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