“Discover the pivotal differences between transactional and transformational leaders. Transactional leaders focus on maintaining stability and efficiency, using rewards and penalties. In contrast, transformational leaders thrive in chaotic environments, inspiring innovation and embracing major changes. Learn which leadership style suits your business needs and current situation.”
We all know how crucial the role of a leader is in nurturing an organization. The way leaders lead and the skills they hold can change an organization from the inside out. Different people tend to follow different styles of leadership. But there are two most prominent approaches to leadership: one is transactional and the other is transformational.
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Transactional leaders
Transactional leaders are those who basically focus on designing and controlling an organization’s activities and are concerned with improving its existing situation. They accept & try to enhance the present culture and practices prevalent in a business. But they don’t try to change the existing practices.
Further, with their authority to give rewards such as a pay raise or promotion, transactional leaders prefer to adopt a formalized approach to motivate their followers when their performance exceeds the targets set to achieve. They prefer to give attention to the followers’ work so that deviations from expected targets can be found out in their performance. Such leaders believe in rewarding employees for their good work. Similarly, people with this style of leadership can also punish for negative outcomes.
Leaders having a transactional style are concerned with processes rather than forward-thinking ideas. In fact, such leaders adopt a management-by-exception approach. This means that they accept the status-quo, intervene only when employees fail to meet acceptable performance levels, and take corrective steps to improve performance.
Let us have a look at the traits of transactional leaders.
Traits of transactional leaders
Transactional leadership style is characterized by these traits:
- Transactional leaders tend to be action-oriented and directive.
- They adopt a contingent reward and punishment system whereby the rewards (or otherwise) given to followers are contingent upon their performance levels.
- They accept the current structure and culture of the organization.
- They believe in management-by-exception.
When is transactional leadership most appropriate?
It is most appropriate to use a transactional leadership style in stable and secure environments. The style is better suited to businesses that are in their growth or maturity stages and that are performing quite well. By having a transactional leader, such types of businesses can work efficiently and run their operations smoothly. Therefore, if your business is running well and you want to focus on maintaining your standards of performance, then a leader with transactional skills of leadership may be good for you. He/she will ensure that your business meets its targets efficiently.
Did you know?
Transactional Leadership is also known as managerial leadership.
Transformational leaders
As compared to transactional leaders who are more concerned with working on current systems to improve them, a transformational leader does not hesitate in changing existing systems to try new ones.
A transformational leader is one who uses his charisma and enthusiasm for inspiring people for the sake of the betterment of an organization. He/she pays attention to the developmental needs of an individual.
Moreover, transformational leaders give a sense of excitement, vision, personal satisfaction, and intellectual insight to their followers. They try to give respect to each and every follower while allowing them to undertake greater ownership of their work. This way they motivate followers by encouraging them to put group/organizational interests first.
Such leaders inspire people to have a clear mission, thereby bringing out more dramatic changes in their individual performance as well as organizational performance. If you have a transformational leader in your organization, he/she can not only promote innovation throughout the business but can also motivate people to perform beyond their usual capabilities by increasing their self-confidence. Therefore, the next time you hire somebody for a leadership position, do keep this in mind.
Did you know?
The concept of transformational leadership was introduced by James Macgregor Burns in 1978.
Traits of transformational leaders
Transformational leadership style is characterized by 4 traits:
- Charisma or idealized influence – A transformational leader behaves in admirable ways and acts as a role model for followers.
- Inspirational motivation – He/she inspires followers to be optimistic about big future goals.
- Intellectual stimulation – Transformational leaders challenge the status quo to encourage creativity in followers. They allow them to connect better with the organization and its goals.
- Personal and individual attention – A transformational leader pays attention to each follower’s needs and appreciates an individual’s sole contribution to the team. This generates a feeling of self-worth and inspires followers.
When is transformational leadership most appropriate?
A transformational leadership style is most appropriate to use in chaotic environments, in businesses that are at the very start or end of their life cycles, and in poorly performing companies. If a business is going through tough times, it is all the more important for leaders to inspire a company (and its employees) to overcome hurdles and embrace major changes.
Example
The difference between transactional and transformational leaders will be clearer with an example. Imagine John is the owner of a successful brand of clothes. George, his son, after completing his studies in business administration, joins hands with his father in running the clothing business.
All these years, John has been using his authority to exert influence on employees and believes in motivating them through rewards or promotions. But when George joined in, he believed that employees need a sense of belonging. He started involving them in company meetings so that they participate in making important business decisions.
In this example, while John has been a follower of the transactional style of leadership, George is showcasing the transformational style. As opposed to his father who kept on building on the existing culture, George took a step further by involving employees and generating enthusiasm in them to deliver their best in the organization. He made sure that employee goals should become commensurate with that of the organization.
Comparison table – Difference between transactional and transformational leaders
The table below highlights the top 8 differences between transactional and transformational leaders:
| Basis of difference | Transactional leaders | Transformational leaders |
| 1. How do they exercise control? | Rely on their authority to give rewards/penalties to employees based on performance | Use charisma and enthusiasm for inspiring people to work better for the good of an organization |
| 2. When are they suitable? | In stable and secure environments | In disturbing environments where there is a need for revival |
| 3. How do they inspire followers? | By adopting a formalized approach to motivate employees with pay raises & promotions | By boosting a sense of vision, clear goal, and increased self-confidence in employees |
| 4. How far do they go in making changes? | Build on the existing culture and enhance current practices | Try to bring in drastic changes in current systems & processes (they promote innovation) |
| 5. Do they connect employees to an organization? | Do not try to bring followers and organization on the same page (focus on individual performance targets only) | Connect the follower’s sense of identity with the collective identity of the organization. (Therefore, followers take greater ownership of their work) |
| 6. What is the nature of leadership? | Responsive | Proactive |
| 7. What are their traits? | Management-by-exception, Contingent reward and punishment system, Acceptance of existing culture | Charisma or idealized influence, Inspirational motivation, Intellectual stimulation, Personal and individual attention |
| 8. Do they give attention to a person’s self-growth? | Do not pay attention to an individual’s developmental needs | Pay attention to the developmental needs of an individual |
Hope these differences will help you draw a clear line of distinction between the characteristics of a transactional leader and a transformational.
Takeaway
To sum up, it can be said that a transformational leader inspires followers to achieve extraordinary outcomes and can transform a business completely by altering its existing systems. On the other hand, transactional leaders maintain a transactional relationship with their followers, i.e., they reward or penalize them depending on their performance.
Which type of leadership style will be suitable for your business – depends on your business’s needs, requirements, and current situation. No single style can be apt for all situations. It may vary from organization to organization.
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