What Is Transactional Leadership?
What Is Transactional Leadership?

What Is Transactional Leadership?

There are many styles of leadership that can be found within the business environment.

The type of leader that is most beneficial will be determined by the needs of the company and the personality of the person in charge.

For some companies, that will mean installing individuals who have a transactional leadership style.

But what exactly is this, and what could transactional leadership mean for a company?

What Is Transactional Leadership?

A transactional leader is a term used to describe a specific personality type found within some individuals who hold leadership roles.

Generally, these people will value structure and authority and are likely to emphasize the importance of performance and results within their team above anything else.

Transactional leadership works on the understanding that employees are motivated by rewards and incentives.

There is little to no emphasis on growth or change within an organization.

The main goal is to enforce rules and expectations while maximizing output and performance.

Often, they will run their company, team or department using a strict framework of goals designed to reward employees when they are met.

If they are not met, there will be consequences and punishments as a result.

Characteristics of a Transactional Leader

Some people will be naturally inclined towards transactional leadership.

Often, they will have similar characteristics and personality traits that help them to be good at what they do.

Reactive Leadership

An effective transactional leader will be able to react to whatever situations may occur, take responsibility for them and find solutions.

They can think logically and creatively to prevent problems or react to a problem that has occurred unexpectedly.

Tendency to Micromanage

The transactional leader is in overall control of every aspect of the team or project.

This can lead them to be more prone to micromanaging tasks and resist delegation.

Pragmatic

A pragmatic individual is someone who is able to evaluate a situation logically, looking for practical solutions rather than focussing on theoretical options.

This is an important skill for someone who is a transactional leader as it gives them the ability to react quickly in a way that is likely to be effective to the situation.

Hierarchy

Transactional leadership works within a hierarchical structure.

There is one person in charge, and they are responsible for outlining targets and making the final decisions.

They will also be the person who has the authority to reward or punish employees.

No Change to Organisational Structure

Someone who is a transactional leader will have no desire to change the organizational structure within a company.

The system works best when there is one person in overall command, and each staff member understands their role and responsibilities.

Instead of instigating change, a transactional leader will focus on getting the best possible results out of their employees and rewarding those who perform well.

Lack of Personal Growth Opportunities

As previously mentioned, this system of leadership doesn't seek to disturb the status quo.

It instead looks to provide the best possible results using existing staff members and existing skills.

This means that there can be reduced opportunities for progression and growth for team members.

By focussing on the skills that employees already have rather than upskilling or encouraging development, this can lead to employee frustration and high staff turnover where individuals choose to pursue opportunities that offer more personal growth.

What is Transactional Leadership? Definition and Examples
What is Transactional Leadership? Definition and Examples

Examples of Transactional Leadership

There are many roles that use transactional leadership to achieve their goals.

A common example would be within sports: the coach is the leader, in charge of the team.

The team is motivated to win their games on the understanding that they will be rewarded for it.

If they are unsuccessful, then there is the potential for punishment in the form of being dropped from the team, either temporarily or permanently.

Another example would be within education: a teacher has to have a role of authority within the classroom to maintain control and the respect of their students.

This can be described as a transactional leadership model as the leader sets boundaries and requirements for students.

If these aren't met, for example, if assignments aren't completed, then there will be consequences, such as detentions or failing grades.

Industries Which Often Have Transactional Leaders

Within the business world, transactional leadership styles can be found in many places.

Commonly, this will be in situations that involve repetitive tasks which have easily measurable outcomes.

Examples of this would include:

  • Call Centres
  • Distribution Centres and Warehouses
  • Delivery Companies
  • Retail Staff
  • Military Personnel
  • High-Level Executives and CEOs

Individuals Who Are Transactional Leaders

Companies around the world employ individuals who have a transactional leadership style.

Many of the most famous businesses will also be run by this type of person. Some well-known examples include:

  • Bill Gates – Co-founder of Microsoft
  • Jeff Bezos – CEO of Amazon
  • Elon Musk – Co-founder of Tesla
  • Norman Schwarzkopf – US Army General
  • Lord Sir Alan Sugar – Founder of Amstrad
  • Donald Trump – President of The Trump Organization and former US President
  • Joseph McCarthy – Former Senator

When Does Transactional Leadership Work?

Transactional leadership can be used in a wide variety of cases. Most commonly, it is found in situations where there is a clearly defined problem that needs a solution.

This is why it is often used in crisis situations where a resolution is needed quickly.

Benefits of Transactional Leadership

  • Motivation – Employees who understand the potential rewards or consequences of their work are motivated to perform to the best of their ability

  • Clear goals – Within a transactional leadership model, everyone understands what the goals are and what their role is within a project, task or team

  • Productivity – If employees know that there is the potential for a consequence or a negative outcome which directly affects them, then they are more likely to be productive to ensure a positive outcome

  • Easily understood structure – Because there is usually only one person in charge, it is easy for employees to understand the structure, who they need to report to and any employees they are responsible for

Risks of Transactional Leadership

  • Lack of creativity – Transactional leadership focuses on achieving results. This is usually done as quickly as possible. Because of this, there isn't as much emphasis on creativity or employees who 'think outside the box.'

  • Insensitivity – This form of leadership doesn't focus on the individual circumstances of employees. It is purely focused on problem-solving and finding solutions which produce results. This can mean that individuals come across as being insensitive and uncaring

  • Potential to reduce morale – When there are negative consequences, there is always the potential for morale to be reduced. If employees feel as though their hard work isn't appreciated, then they are less likely to be happy, motivated workers.

  • Delays in feedback – Because all employees report to one leader, it is one person's responsibility to evaluate performance and provide feedback. This means that there can sometimes be a delay in receiving and acting on information

  • Overdependence on the leader – Because of a transactional leader's tendency to micromanage tasks and a lack of emphasis on personal growth, staff members can develop an overreliance on their leader. This means that they are less likely to be motivated to problem-solve or find solutions for themselves

Final Thoughts

While other forms of leadership have undoubtedly grown in popularity over recent years, transactional leaders still feature heavily within the workplace.

This is because, despite the negatives associated with it, transactional leadership does provide results.

When employees understand what is expected of them and the consequences of achieving their targets, they can be motivated to work harder and more efficiently.

When using transactional leadership styles, it is important to remember to make sure that the reward and punishments are fair in relation to a task.

Staff retention and employee satisfaction can be negatively impacted if they feel as though they are being punished more than necessary or if their reward is not worth the effort involved in achieving their target.

Admittedly, this style of leadership may not work in every situation or for every employee, and there is enough evidence to show that when implemented properly, it can make a positive impact on the performance of a company.


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