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What Is Transactional Leadership and Why It Matters

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Summary: Transactional leadership focuses on influencing others, instead of directing others. Discover what this leadership type is about and why it matters.

When it comes to determining which leadership style is the best leadership style, there is no end to the different theories and suggestions on how to lead others. The truth of the matter is, no matter how fervently certain individuals believe in their preferred style of leadership, there is no one right way to lead others.

While experienced leaders may have found success with a specific type of leadership style — whether it be charismatic, transformational, or transactional leadership — sometimes different situations and different team members require different approaches to leadership. This is why it is so important to understand the different types of leadership out there and how they compare to other leadership styles.

When it comes to traditional forms of leadership, one of the most common approaches used is known as transactional leadership. This form of leadership can have a great effect on many types of individuals as it values both order and structure, which can often deliver results.

Why learning about transactional leadership is important? If you are a manager, boss, coach, team member, or leader, understanding the values of transactional leadership and what makes this leadership style so effective can only help you in your future pursuits.

What Is Transactional Leadership Theory?

What Is Transactional Leadership Theory?

Simply put, transactional leadership theory believes that leaders should conform to the existing structure of an organization.

It focuses on results, on measuring success based on existing rewards and penalties, and on maintaining formal authority positions.

In order for transactional leadership to work, it depends on self-motivated individuals to do their jobs as instructed in a very directed and structured environment.

What are the characteristics of transactional leadership?

Typically, when transactional leadership theory is utilized, you will see the following:

  • Performance reviews to judge employee performance
  • Focus on short-term goals
  • Emphasis on following rules
  • Focus on policies and procedures
  • Detailed work criteria that meets previously defined requirements
  • Structured routines
  • Reward-penalty system
  • Focus on the status quo of an organization

Overall, the transactional leadership theory operates under the assumption that people are motivated by a reward or by punishment and that everything works best under a clear chain of command.

There is a great emphasis on managers holding power and those “under” them ceding to that power as a subordinate.

Advantages and Disadvantages of a Transactional Leadership Style

The real question is, is transactional leadership effective?

In some work environments, especially large ones, transactional leadership can be very effective. In such environments, it can actually be the only way to get things done and its emphasis on a structure can be very beneficial. However, in other more open, creative, or laid-back environments, this type of leadership may not be best for everyone involved.

You will typically find transactional leadership styles applied in the military, law enforcement, large corporations, or multinational organizations where not all employees speak the same language. This is because the transactional leadership approach is so straightforward, easy to learn, and easy to understand.

Before either applying this type of leadership style or completely ruling it out, it is essential to take a look at some of the advantages and disadvantages of transactional leadership.

Some advantages of transactional leadership

  • It rewards individuals who are self-motivated and follow instructions
  • It tends to work when quickly achieving short-term goals
  • Workers have clearly defined rewards and penalties
  • It encourages productivity
  • It provides a clear and easy-to-understand structure
  • It is great for work environments where structure and systems need to be reproduced
  • It keeps everyone in large organizations on the same page

Some disadvantages of transactional leadership

  • It does not work well in flexible work environments
  • It only rewards workers with perks or money, no other real motivators are used
  • It does not reward individuals who take personal initiative
  • It is often seen as limiting and not personal
  • Creativity is limited
  • It can be rigid
  • There is no room for flexibility with goals and objectives
transactional leadership traits

Traits of a Transactional Leader

One of the best ways to describe a transactional leader is someone who values order and structure — similar to a military commander. These are not the types of leaders that you traditionally find in more creative workspaces, but rather those who you see in more traditional settings with larger corporations. Some of the traits of a transactional leader include:

  • Very left-brained
  • Inflexible
  • Not welcome to change
  • Loves to follow rules
  • Very detail-oriented
  • Thrives in efficiency

Transactional leaders also tend to be passive, because their focus typically lies in maintaining the status quo. They are directive and want to make sure everything goes as planned but typically they only react to things that happen and are not of the proactive type.

Examples of Transactional Leadership

Many times, the best way to truly understand leadership theory in action is to see examples of how this leadership style has been utilized in the past. One of the most commonly referenced transactional leaders in our world today is Bill Gates, who has been known for his emphasis on rigid structure, hierarchy, and on his reward and punishment system in order to achieve results. He had strict standards of what he wanted in order to make Microsoft the success that it is today, and he worked to make sure that employees did not deviate from these standards.

A great way to describe the effectiveness of transactional leadership is to use the coaching example. The coach of a basketball team will likely set up rigid rules regarding expectations on everything from showing up on time to abiding by evening curfews. There is typically little flexibility with these rules and it is key that all players adhere to the organizational norms. Punishments (such as running) are doled out to those who do not adhere to the rules, while rewards are used as motivators. Although coaches may be strict, effective coaches can motivate their team members to play and win without using fear; they simply rely on the structure and the system.

transactional leadership style

How Does Transactional Leadership Compare?

One of the best ways to truly understand the transactional leadership style and to determine how it will work in a certain environment is to compare it to other popular types of leadership to see how this approach stacks up.

Transactional leadership vs. charismatic leadership

Charismatic leadership is all about using personality to influence a group or an organization. The goal is often on improving not only the organization but the world. Transactional leadership, on the other hand, emphasizes individual performance, instead of group performance and looks at how well that person does in a structured environment.

Transactional leadership vs. authoritative leadership

Transactional leadership is sometimes confused with authoritative or autocratic leadership styles. While they do have some similarities, these two approaches to leadership are not the same. Autocratic leadership is even more rigid and does not rely on self-motivating productivity from employees or on rewards as a motivator.

Transactional leadership vs. transformational leadership

Transactional leadership is perhaps most similar to transformational leadership, and the two managerial styles are often compared. Still, what is the difference between transactional and transformational leadership? Where transactional leadership focuses on more structured environments and the self-motivation of others, transformational leadership places more emphasis on motivating and inspiring team members to do their job.

Simply put, transformational leaders focus on influencing others, while transactional leaders focus on directing others.

Applying Transactional Leadership in the Workplace

When looking at leadership styles, most experts will rank theories on a spectrum of leadership vs. management. Leadership is more about inspiring individuals and management is more about maintaining order. Transactional leadership falls closer to the management style of leadership. While certain approaches, such as transformational leadership, have more of a “selling” style used to motivate, transactional leadership is all about “selling.”

What’s so interesting about transactional leadership is that this type of leadership typically only works in environments where a certain hierarchy is already set up. In short, most people are not inherently transactional leaders, they form to this leadership style after an organization has set up the original structure.

Transactional leadership can be a slippery slope, and if not handled carefully, it can quickly border autocratic leadership styles or seem too authoritarian. The key is maintaining the system of rewards and punishments to help create a balance. There should be a focus on the flow of operations and on the hierarchical chain in the office, not necessarily on the thoughts or ideas of one individual.

Staying focused, following the rules and regulations put forth, using small goals and performance reviews, and sticking to the format set out before you is a great way to take this leadership style and apply it to your work environment.

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Written by

Matt Coates

Matt is a copywriter for Mindvalley. As a professional word putterer, he can be found constantly squeezing his creative juices to concoct personal growth narratives to transport people to a place where great potential knows no bounds. He is also on a quest to be seriously funny.
Picture of Matt Coates

Matt Coates

Matt is a copywriter for Mindvalley. As a professional word putterer, he can be found constantly squeezing his creative juices to concoct personal growth narratives to transport people to a place where great potential knows no bounds. He is also on a quest to be seriously funny.

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