What Is Transactional Leadership and How Does It Work?

Is transactional leadership right for you? Read more find out.

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By Entrepreneur Staff

As you spend time in the workforce, you'll notice there are many different leadership styles. As you hone your own leadership skills, it's crucial to find the one that best fits you and your business. Transactional leadership may be the right style, particularly if you thrive on rules, structure and measured progress toward goals.

Keep reading to learn more about:

  • What transactional leadership is.
  • Characteristics of a transactional leader.
  • Pros and cons of transactional leadership.
  • Real-life examples.
  • How to know if the transactional leadership style is right for you.

What is transactional leadership?

Transactional leadership is a leadership style that runs on structure and goals. It is a results-oriented system that gives perks, praises and incentives for achievements. On the other hand, it also includes some types of consequence or corrective action for failure.

Rather than focusing all their energy on big-picture goals to improve the overall company, transactional leaders focus on precise results from short-term goals. It aims to promote loyalty and conformity throughout the business model.

It is called a transactional leadership model because of the benefits and contingent rewards system. You get rewarded if you hit your goal; if you fail your task, you get penalized.

The idea is: For every action, there is a transaction.

A transactional leadership style tends to be more successful with high-achieving, self-motivatedteam members who thrive within regimented, directed work environments.

Related: 6 Essential Leadership Skills That Drive Success

Where does transactional leadership come from?

Transactional leadership theory was first coined in the 1970s by New York-born political scientist James MacGregor Burns. A German sociologist named Max Weber studied it further into the 20th century.

During a comprehensive study of leadership styles, Weber determined that there are three categories of leadership. He named them:

  • Traditional leadership: Values tradition, beliefs and long-standing practices.
  • Charismatic leadership and rational-legal leadership: Rely on laws, rules and leaders for enforcement.
  • Bureaucratic leadership: Structured management system that relies on hierarchy and defined roles.

The "rational-legal" type of leadership is regarded as transactional leadership because of its emphasis on control, knowledge and results.

Related: 10 Awesome Tips for Being a Better Leader

Characteristics of a transactional leader

If you're wondering if you have what it takes to uphold a transactional leadership system, below are the six characteristics of a transactional leader.

1. They respect the chain of command

When it comes to a transactional style, think corporate and structured. There are clearly defined hierarchical roles. There is a chain of command to follow. No steps get skipped, and no higher-ups are disregarded or bypassed in an escalation.

2. They care about the process

Because this type of management is so structured and rigid, transactional leaders tend to be very involved. Because there is so much emphasis put on success and achievement, these types of leaders tend to be demanding and hands-on to ensure everything is running as it should be.

Related: Is Your Boss Controlling You Subtly Without Your Realizing It?

3. They're surprisingly passive

In this context, "passive" does not have to do with day-to-day interactions. Transactional leaders can be described as passive because they believe in the system and structure they've established.

They are not in the business of disrupting. They follow the rules and chain of command and expect everyone else to do the same. Because a transactional leader is there to get the job done instead of changing the system, they can often be described as having a laissez-faireleadership approach.

4. They're pragmatic

While transactional leaders are not widely known for their pragmatism, they are best at practical, well-informed, data-driven decision-making. They do not deal in "what ifs" — they live in what is. Because of their staunchly realistic assessments, transactional types are very effective leaders for organizing group performance and productivity.

5. They look out for #1

Transactional leaders can sometimes come off as cold, and that's not entirely off-base. They are characterized by a prioritization of their self-interest. Again, this is a results-driven type of leadership style, so teamwork is not usually part of the program. Transactional style is a performance-over-person type of leadership that values climbing the ranks or noticing those that do.

6. They are reactionary

Remember, transactional leaders believe in the system and structure of the business. They expect everyone to stick to the status quo. This means that they assume there are no problems until one arises. They do not love change but will react to it when it happens.

Transactional leadership vs. transformational leadership

Another leadership style often in conversation with transactional leadership is transformational leadership — a term coined by Bernard M. Bass, a distinguished scholar in organizational behavior and leadership studies.

These leadership styles are often compared and contrasted — and for good reason: phonetically, they are rather close; however, they are polar opposites.

Where transactional leadership is goal-oriented, reactive, and motivates improvement with a reward/punishment model, transformational leadership is vision-oriented, proactive, and motivates productivity with charisma and enthusiasm.

Characteristics of transformational leadership

Transformational leadership can be summed up with "The Four I's," which are:

  • Intellect: Mental stimulation as well as free and individual thinking are encouraged.
  • Individuals:Transformational leaders value people over performance, and mentoring is a must.
  • Inspiration: Transformational leaders motivate their employees with encouragement and a greater vision.
  • Influence: Higher-ups serve as models for how employees should behave.

Related: 17 Teamwork Quotes to Inspire Your Employees

The work environment under a transformational leadership style is a bit freer and more nurturing. There is more emphasis put on creativity and personal growth than performance-based results.

There is no right or wrong when it comes to transactional leadership versus transformational leadership. What is best for you and your company should determine the type of leader you are.

Pros of transactional leadership

If you're wondering if transactional leadership is the path for you, look at the advantages of transactional leadership below:

  • High achievement.
  • Employees are driven by extrinsic motivation.
  • Clear structure and expectations.
  • No-nonsense environment.
  • Measurable success through data.

Cons of transactional leadership

Conversely, here are some disadvantages of transactional leadership:

  • Emphasis on short-term goals over long-term goals.
  • Lack of creativity and innovation.
  • Results-based nature can breed fear culture and a lack of community.
  • Results-based nature might foster employee turmoil from competition.
  • Employee burnout.

Influential transactional leaders

If you're looking for examples of transactional leadership, check out the bios below.

Vince Lombardi

Vince Lombardi is known as one of the greatest coaches of all time. While he might not be your traditional corporate leader, being the head coach of an NFL team is still a business. Lombardi's claim to fame is coaching the Green Bay Packers without ever having a losing season. He was known for having militant practices and a clear chain of command in the relationships between players and coaches.

Bill Gates

Bill Gates is the founder of Microsoft. Throughout his career, Gates has drifted into a more transformational leadership style. However, when Microsoft was in its earliest years, he was notorious for his transactional leadership.

Starting the company, Gates instilled a strict, goal-focused business model centered around a precise delegation of tasks and results-based project management. While the company was getting its start, employees had very little freedom; procedures governed ruthlessly, and the result was one of the largest, most successful companies the world has ever seen.

Related: How Bill Gates Became a Leadership Legend

Howard Schultz

Howard Schultz did not found Starbucks, but took it from a small business to an international sensation. He is credited for creating the transactional business model Starbucks still operates with today. His determination and good fortune have helped make him one of the wealthiest people in the United States.

How to know if transactional leadership is right for you

How will you know if transactional leadership works for you if you are still exploring your management style?

Start by asking yourself the questions below and gauge your answers.

  1. Are you in a position of middle or upper management?
  2. Do you work for or run a medium to large-sized company?
  3. Is your company well-established?
  4. Does your company practice a no-nonsense type of work ethic?
  5. Does your company value meeting quotas and goals?
  6. Does your company value quantitative data over qualitative ideas?
  7. Does your company run on structure over flexibility?

If you answered "yes" to most of those questions, then transactional leadership could be the right leadership style to adopt for you and your company.

Related: Finding Your Signature Leadership Style

How can transactional leadership work for you?

Transactional leadership is not for everyone, but, if it's a good fit for you, following this style can help you lead a successful business.

If transactional leadership sounds right for you, remember its fundamental pillars:

  • Chain of command.
  • Organization.
  • System of rewards.
  • Results-based.
  • Corrective action.
  • Consistency and practicality.

If transactional leadership seems a bit autocratic, transformational leadership could be another option.

You are your person, so you can adopt either method or find a balance between the two. No matter which leadership style you adopt, remember that effective leadership comes from someone who believes wholly in what they are doing.

Looking for more info to help you fine-tune how you run your business and serve as a leader? Explore more of Entrepreneur's resources here.

Entrepreneur Staff

Entrepreneur Staff


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