A Closer Look: Transactional vs Transformational Leadership

While navigating complex waves of change in the business world, leaders often struggle to balance big dreams and reliable expectations. While one manager might excel at communicating responsibilities with clear consequences and rewards, another might shine as a mentor who motivates their team with a deep sense of purpose.

There is no right or wrong between these leadership styles. However, understanding the differences in these approaches can help leaders see their own strengths and weaknesses more clearly. In this article, we will explore the difference between transactional and transformational leadership, acknowledging the key differences between the two. We will also take a look at how transactional leadership and transformational leadership might impact long-term business outcomes—and, ultimately, how a leader can select the best approach in 2024 and beyond.

Defining Transactional and Transformational Leadership Styles

What is Transactional Leadership?

Transactional leadership is centered around tasks. Based on a system of reward and punishment, this approach involves a leader setting a list of expectations that are straight to the point with no fluff about them. Employees are then required to meet these expectations; depending on how well they do, they will either be rewarded or disciplined for their efforts. 

This approach to leading is common because it generates results: employees are clear on what their job is and how they should carry out each task. Transactional leadership greatly benefits fast food restaurants, where the focus is on efficiency, and in education, where performance is graded.

Characteristics of Transactional Leaders

Transactional leaders are very goal-driven and set clear expectations for their teams. This type of leadership style has also been described as a responsive type of leadership approach where a boss or manager expects their employees to follow the rules and deliver the desired outcomes in the most productive way possible. If employees do not do X, Y, or Z, they will suffer the consequences. If employees do complete their tasks as expected, however, they will reap the benefits. Bill Gates, the co-founder of Microsoft, is a great example of a transactional leader who prioritized producing results and implemented hierarchies to establish roles and requirements in a workforce.

What Is Transformational Leadership?

On the other hand, transformational leadership is focused on meeting the needs of team members or employees. The premise of this style is that if leaders invest in their employees, treat them with respect, use inspirational motivation and allow them to use their initiative to carry out tasks, they will go above and beyond for their leaders and business as a whole. When employees are acknowledged as being instrumental to the success of the business, they work harder because they want to—not because more effort is demanded of them. 

Characteristics of Transformational Leaders

A transformational leader is someone who is on a mission to win over employees by showing each individual that they are needed and their ideas matter. Steve Jobs, the late co-founder and CEO of Apple, was commonly referred to as a transformational leader due to adaptability around change—especially concerning the rapidly changing pace of technology. 

This proactive leadership style relies on nurturing a healthy, positive workplace culture, fostering creativity among employees, open communication, and making decisions based on what is best for the whole company, rather than what benefits the leaders themselves. As a result, employees feel empowered to do right by the company and go the extra mile to achieve positive change and long-term goals. 

Some of the potential downsides of this leadership style can include lack of focus, details getting lost and burnout from over-communication. 

Key Differences Between the Two Styles 

An easy way to distinguish transactional and transformational leadership styles is that the former is a “push” style, while the latter is a “pull’’.

A transactional leadership style is based on the person in charge being task-oriented and setting specific goals, with the expectation that employees will do what is asked of them without straying from the guidelines. This entails only two outcomes: employees are applauded for their work or reprimanded for not fulfilling their duties.

Transformational leadership is about bringing employees along for the journey, valuing their input, offering intellectual stimulation, mentoring, and giving them a say in how they take on tasks. Employing this kind of approach as a leader means taking a step back from full decision-making and micromanagement, trusting in employees to deliver the best results possible, challenging the status quo and not being afraid to embrace organizational change. 

How These Styles of Leadership Can Impact Long-Term Business Outcomes

The approach leaders choose to take inevitably determines the manner their businesses—and all the people within them—will take to succeed. Both transactional and transformational leadership styles can create positive, sustainable business outcomes for leaders and their teams. However, every business is unique, so the most beneficial leadership style depends on the strengths and challenges of each organization.

When faced with a natural disaster, like structural damage or a global pandemic, transactional leadership can be incredibly effective in times of crisis or emergency. Having too many people making decisions may not just overcomplicate things, but create a real safety risk. For such situations to be managed safely, rules need to be put in place and followed to a tee—hence why transactional leadership can, at times, be the appropriate route to take as a leader.

The concept that happy employees are more productive is explored in depth by many business heads and industry commentators, including former Forbes council coach and AIM Leadership CEO Camille Preston. Preston argues that when people feel as though they are a part of something bigger than the task at hand—like a compelling vision—they are much more inclined to put in the extra work and strive to adapt to reach organizational goals.

Transformational leadership works best in situations where staff members lack motivation or feel overwhelmed by stressful changes within a business. By encouraging a better work-life balance, creating an interactive workspace and hosting fun team-building events, staff are more likely to feel encouraged and cared for, which leads to a stronger sense of enjoyment, connection and freedom. 

Using intrinsic motivation, leading by example, considering individuals, and providing incentives gives team members a sense of purpose and a willingness to engage in professional development. Those who inspire their employees to become as invested in the business as upper management really show what transformational leadership is all about.

Which Style Is Recommended for Effective Leadership in 2024?

Every style of leadership has a purpose—which one you choose to use should be based on the business outcomes you need to achieve. When comparing transformational with transactional leadership, both have their place in terms of effectiveness. With the task-driven transactional leadership on one hand and the proactive, considerate transformational leadership on the other, the two styles appear quite distinct—but this does not mean you should be forced to adopt one or the other all the time.

Instead, learning about each approach through this article—combined with adaptive leadership principles—can help you determine which leadership style to adopt based on present goals and circumstances. While strong, decisive leadership is often appropriate, there are also times when bolstering your employees, embracing the diversity they bring and allowing them to express their creative freedom is more advantageous. Both have the power to turn a stale workplace environment (sometimes with a high turnover) into a thriving win-win business hub.

Now armed with the knowledge you need to understand the complexities of both leadership styles, experiment to see how they can be best utilized for the overall success of your organization. Just as each leadership style is unique, so is every workplace. What matters is how you incorporate these techniques to suit the needs of your business—and all of your people. 

Source(s):

Forbes, Promoting Employee Happiness Benefits Everyone.