Transactional Leadership

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This article explains Transactional Leadership in a practical way. After reading you will understand the basics of this powerful leadership tool.

Introduction

Companies benefit from teaching leaders to use the right leadership style as this is a relatively cheap procedure of making a company profitable or successful. Good leadership can bring about higher productivity. When the work in an organization mainly involves routine work with observable and measurable end results, Transactional Leadership provides clear added value.

What is Transactional Leadership?

The concept of Transactional Leadership is akin to the views of scientific management (early twentieth century), which assumes that employees can only be motivated by rewards and punishment. The leader’s own interests and those of the organization are put ahead of everything else. Transactional Leadership uses the exchange principle. In exchange for good and satisfactory work within the agreed time, the manager gives the employee a reward for their performance. This reward can be translated into extra pay, bonuses or working overtime.

Clear task

Transactional Leadership is a style of leadership where leaders stimulate their employees to get the best out of themselves. Transactional Leadership, by contrast, is a leadership style where leaders are focused on the task that has to be completed.Not only do leaders set the criteria for their employees of how they should execute the task, they also indicate what sources and resources can be used. Leaders will always inform their workers beforehand what reward will be given for their performance.

Management By Exception (MBE)

The transactional leader ensures that the conditions are optimal for employees to successfully perform their tasks. The leader also monitors the work closely and takes corrective action when things go wrong. This is why the transactional leader has full control of the entire operation. This leadership style is also referred to as Management By Exception (MBE), in which the leader takes corrective action to prevent mistakes. Management By Exception can be divided into active management or passive management. In active Management By Exception the leader actively monitors the work of the employees and takes immediate corrective actions when something goes wrong in the production process. In passive Management By Exception the leader only intervenes when objectives have not been met or after problems have become serious.

Advantages

Transactional Leadership is specifically suited for routine tasks that are measurable. In situations where this is not the case, it may be more effective to use a transformational leadership style in which the leader offers the employee personal attention, provides coaching and encourages personal development.

When it is about measurable end results, employee performance and employee job satisfaction arise under Transactional Leadership. The reward employees get for their performance provides an extra stimulus.

Rewards and punishment

Transactional Leadership delegates two factors to influence employees positively. The most important factor is the reward factor. Rewards influence employees to perform better and an organization will always benefit from this. Using the reward factor, the leader succeeds in getting the employees to do what he wants them to do. He pre-sets objectives and indicates the reward. The main focus is on work. If the employee is unable to finish the task correctly, the transactional leader has the possibility to impose heavy sanctions. He can also impose sanctions when employees display unwanted or negative behaviour. In such a case, the transactional leader will carry out an interim review.

Clear definition

On the one hand Transactional Leadership stimulates employees to work harder because they get a good reward in exchange. On the other hand, employees may feel that they are treated as just numbers and are not valued as an individual within the organization. The relationship between the transactional leader and the employee is based on: ‘One good turn deserves another’. When the employee performs well and finishes an assignment within the agreed time, they will receive a reward. The relationship between leaders and employees is typically business-like. There is a clear definition between tasks and performance. In addition to clear goals, the leader also monitors progress and takes corrective action if required.

Recognition

When employees meet the leader’s expectations, they do not only receive the bonus they are entitled to. Their leader will also recognize them. If things do not go according to plan, the transactional leader will provide suggestions, advice and feedback that enable employees to change and improve their performance. They feel supported in their activities and this feeling provides a positive stimulus to finalize their work properly.

It’s Your Turn

What do you think? Is Transactional Leadership still applicable in today’s business companies? And if so, how do you use it and what are the general results and learning lessons? Are the basics the same or are there new ones? Share your experience and knowledge in the comments box below.

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More information

  1. Avolio, B. J., & Bass, B. M. (Eds.). (2001). Developing potential across a full range of Leadership: Cases on transactional and transformational leadership. Psychology Press.
  2. Bass, B. M. (1991). From transactional to transformational leadership: Learning to share the vision. Organizational dynamics, 18(3), 19-31.
  3. Bass, B. M., Avolio, B. J., Jung, D. I., & Berson, Y. (2003). Predicting unit performance by assessing transformational and transactional leadership. Journal of applied psychology, 88(2), 207.
  4. Howell, J. M., & Avolio, B. J. (1993). Transformational leadership, transactional leadership, locus of control, and support for innovation: Key predictors of consolidated-business-unit performance. Journal of applied psychology, 78(6), 891.
  5. Lowe, K. B., Kroeck, K. G., & Sivasubramaniam, N. (1996). Effectiveness correlates of transformational and transactional leadership: A meta-analytic review of the MLQ literature. The leadership quarterly, 7(3), 385-425.

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