What Is Transactional Leadership? Is It an Effective Style?
Transactional leadership seems so obvious once you break down what it means. You’d be hard-pressed to find anyone who hasn’t experienced this type of leadership style in their work life. So, let’s dive into what exactly transactional leadership is, its age-old origins and whether it’s worth your time.
What is Transactional Leadership?
Transactional leadership theory, AKA transactional management, is a style of leadership where managers rely on rewards and punishments to motivate their workers. In order for this to work, workers must closely adhere to their leader’s instructions, and be closely monitored to ensure they perform optimally. It’s also often compared with transformational leadership. James MacGregor Burns, who gave both concepts their names, had this to say about their differences:
“Transactional leaders are leaders who exchange tangible rewards for the work and loyalty of followers. Transformational leaders are leaders who engage with followers, focus on higher order intrinsic needs, and raise consciousness about the significance of specific outcomes and new ways in which those outcomes might be achieved”
If you’re thinking that transactional leadership all sounds a bit archaic, it won’t surprise you to hear that the concept really started to gain traction during the Industrial Revolution - to give emerging organisations a competitive edge.
Quick History
While the theory may have become more widespread during the industrial revolution, it is widely believed that the idea of paying someone a salary as a reward for their work goes as far back as the Neolithic Revolution (10,000 BCE to 6,000 BCE).
Fast very much forward to 1947 where German sociologist - Max Weber – is the first to actually describe the concept and give it a name (the far-less catchy ‘rational-legal’). He described this new-fangled concept as “the exercise of control on the basis of knowledge.”
James McGregor Burns evolved the theory further in 1978. In his book – aptly named ‘Leadership’ – Burns wrote that transactional leaders needed to use morality, responsibility, and honesty as their guiding principles. He also laid out that the foundation of this model of leadership is simply give-and-take.
Then along came Bernard Bass – a leadership and organisational behaviour scholar. In his 1981 book ‘Bass Handbook of Leadership’, Bass explored the psychological aspects of leader/follower instincts. Combined with Bruce Avolio and Jane Howell’s studies in the ‘90s, the dimensions of transactional leadership were defined:
Contingent Rewards - the process of rewarding those that met or surpass their identified goals with positive reinforcement and extra benefits.
Passive Management by Exception - a slightly more hands-off approach where a manager does not interfere with workflow unless an issue arises.
Active Management by Exception - in which managers actively monitor their followers, anticipate problems, and take immediate corrective action when an issue arises.
A general consensus among current leadership theorists is that both transactional and transformational styles need to be carefully combined to create effective leaders and workflows.
Characteristics of Transactional Leadership
Transactional leadership has long been considered a left-brain management style - guided by form and function. Some of the common characteristics include:
Using Extrinsic Motivation
Focusing on Short-Term Goals
Being Performance-Oriented
Favouring Structured Policies and Procedures
Being a Stickler for the Rules
Emphasis on Efficiency
Rewarding and Reprimanding Subordinates
Difficulty to Adapt/Innovate
Upholding the Status Quo
Being Reactive Rather than Proactive
Favouring Hierarchy
Requiring Micromanagement
Being Very Practical
Lacking Personal Connection
Using Conventional Decision Making
Linear Thinking
Individual Effort
Examples of Transactional Leadership
The first actual example of transactional leadership is a cuneiform tablet dated to 3,100 BCE. The ancient tablet is inscribed with records that show a daily beer ration for workers in Mesopotamia.
To use a more modern example of a transactional leader, let’s look at Bill Gates. During his time at Microsoft, Gates would frequently check up on business operations to make sure everything was to his liking. He cracked the whip to make sure efficiencies were met and that nothing fell through the cracks.
“I believe that if you show people the problems and you show them the solutions they will be moved to act.”
– Bill Gates
To use a more left-field example, let’s look at French army officer and statesman who led the Free French Forces against Nazi Germany in World War II - Charles de Gaulle. His leadership style has often been described as transactional because he gave direct orders, expected complete obedience, promoted those loyal to his causes, and punished those who weren’t. This approach suited the organisational nightmare that is war, and played a huge part in helping de Gaulle and his troops win their battles.
“The great leaders have always stage-managed their effects.”
– Charles de Gaulle
Pros and Cons of Transactional Leadership
I’ve been fairly critical of transactional leadership theory in this article, but don’t let that fool you. With every disadvantage comes along an equal advantage. Let’s take a look:
Pros
✓ Keeps followers motivated for the short-term
✓ Provides a clear structure for larger organisations
✓ Can help you achieve short-term goals quickly and efficiently
✓ Effective in crisis and emergency situations
✓ Encourages followers motivated by their self-interests to follow instructions
✓ Provides order for projects that need to be carried out in a specific way
✓ Creates a sense of fairness
✓ Identifies problem areas or low-performing employees quickly
Cons
❌ Doesn’t motivate followers in the long-term
❌ Restricts creativity as goals and objectives are already set
❌ Can be a more passive form of leadership
❌ Doesn’t reward personal initiative
❌ Only provides monetary rewards
❌ Lack of focus on building relationships
❌ Difficult to find rewards that motivate all employees
❌ Poor leadership development
Transactional leadership, to me, is like a necessary evil. While ‘evil’ is probably too strong of a word (forgive me for my hyperbole), I believe it can play a large role in driving an organisation forward to achieve specific outcomes.
Of course, it can’t be applied to every industry. While it works for sales and the field of battle, it is completely stifling to creative fields where teams need to be free to innovate, experiment, and explore.
Besides, the world is currently in great upheaval. Environmental, social, political, and economic challenges. People are demanding more of their governments, their communities and of course, their places of work.
This is why leaders in the 21st century need to step up and go beyond the bare minimum. Social movements around gender and racial identity have forever changed the way we interact with each other, while the pandemic has changed everything else.
From remote working to a larger push for racial diversity and LGBTQ+ inclusion in the workplace, leaders have a lot more on their plate than they did 50, or even 20 years ago. Taking all this into consideration makes it painfully clear that transactional leadership - by itself - is just not enough.
While it can create a more stable work environment, great care must be taken to ensure leaders don’t use it exclusively. Without careful oversight, it can create an oppressive atmosphere dominated by position, power, perks, and office politics.
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Written by Michael
Michael Mauro is the founder of a forward-thinking organisation specialising in leadership, HR and employee development. With over a decade of global experience, Michael has become a leading voice on topics such as culture, inclusion, wellbeing, and the future of leadership.
