The Transactional Leadership Style: Is It Right For You?

Did you know there are different styles of leadership?

One core leadership style you should know is transactional leadership.

In this post, we’ll go over what precisely transactional leadership is, its benefits, and where it falls short so you can see how you relate to this leadership model.

What Is Transactional Leadership?

Transactional leadership is a style of leadership rooted in the principle of exchange. If an employee performs well, they receive rewards. And if an employee underperforms, they get either punishment or corrective feedback. Imagine a leader who sets clear expectations, a team that knows exactly what they are to achieve, and rewards or consequences delivered based on the level of performance.

In leadership styles, transactional leaders may differ from the trailblazers with a sweeping vision of the future. They are, however, efficient managers who ensure that day-to-day operations run smoothly and that each team member plays their part well. They focus on short-term objectives, rewarding team members for meeting targets and providing corrective feedback when performance falls short. 

One setting where transactional leadership can work quite well is on a sales team. The leader makes the rules of the game crystal clear. There are specific sales quotas to hit and bonuses if a salesperson goes above and beyond. 

Characteristics of Transactional Leaders

There are many ways to be a good leader, and much of it comes down to finding your style. The following are a few hallmark traits that transactional leaders tend towards. If you are a leader, notice which characteristics you resonate with and which are not your style.

• Focus on task completion. Transactional leaders set clear expectations for their team members. They want the job done and not excuses. This usually means their teams are productive and efficient and achieve tremendous project success^{1https://www.sciencedirect.com/science/article/pii/S1877050916323584}.
• Use of rewards and punishments. Employees who hit a goal may get a bonus, whereas falling short could mean losing a sales client. Transactional leaders wave the carrot and whap they stick.

• Structure overflow. Transactional leaders gravitate toward established rules and procedures. They like well-defined roles, tasks, and hierarchical relationships. No squish.
• Short-term orientation. These leaders usually focus more on immediate tasks rather than long-term strategic objectives. Their focus is to get the job done. The downfall of this approach is, of course, a need for more innovation.
• Limited employee autonomy. Transactional leaders often limit the degree of autonomy granted to employees. Decision-making typically resides with the leader, with team members expected to follow instructions rather than initiate action. Everyone’s got a role, and they should stick to that role.

For better or worse, a transactional leader views their team as a machine. They enter a clear input to get a clear output.

Another critical aspect of leadership is your ability to motivate and influence others. You’ll love this free goodie if you’d like to learn how to upgrade your influence skillset.

Pros and Cons of Transactional Leadership

Like any leadership style, transactional leadership has distinct advantages and limitations. It is better suited for some fields and moments than others. 

Consider whether your industry or team is well-suited to this leadership style if you’re a leader.

Advantages of transactional leadership

Efficiency and productivity: Transactional leaders can get stuff done quickly since it emphasizes clear roles, tasks, and reward systems. 

Clear expectations: Transactional leadership provides clear expectations and a straightforward path to success for team members. This clarity can lead to reduced stress and confusion in the workplace.

Consistency and structure: This style can be particularly beneficial in large organizations where procedures and hierarchy are important.

Easy to implement: Since it operates on well-established principles of reward and punishment, it’s generally easier to implement compared to more complex, nuanced leadership styles.

Contexts where transactional leadership is most useful

Transactional leadership works best when tasks are routine, goals are clearly defined, and there’s little need for innovation. 

Some common examples where transactional leadership works well might include manufacturing, sales-oriented businesses, or military organizations. 

It’s also useful during crises or when strict compliance with rules and procedures is necessary.

Disadvantages of transactional leadership

Lack of innovation: Transactional leadership can stifle creativity and inhibit innovative workflow Because it focuses on maintaining the status quo and achieving specific tasks.

Short-term focus: Transactional leaders’ focus on short-term goals can overlook the importance of long-term goals and zoomed-out strategic planning. It may lead to a need for more vision for the future.

Dependence on the leader: The success of this style is heavily dependent on the leader. If the leader fails to define tasks and rewards clearly, the whole process will go down the sewer. This meta-study^{2https://journals.sagepub.com/doi/10.1177/0149206320908646} suggests that transactional leadership makes employees less empowered.

Employee dissatisfaction: While clear expectations and rewards can be motivating, the lack of autonomy and the heavy emphasis on punishment for mistakes can lead to employee dissatisfaction and high turnover rates.

Contexts where transactional leadership is less useful

Transactional leadership may need to work better in creative industries, start-ups, or any environment that values innovation and long-term strategic planning. 

It’s also less effective when team members are expected to take the initiative or make independent decisions. 

It may also not be ideal when fostering a positive, collaborative team culture is critical to success or in an industry where employees expect a premium on a fun, balanced work culture.

How Transactional Leadership Differs From Other Leadership Styles

To understand what transactional leadership is and isn’t, let’s compare it to a few other notable leadership styles.

Transactional leadership vs. transformational leadership

Transformational leadership is a style of leadership where the leader’s greatest tool is the ability to inspire. They connect their team members to a greater purpose and draw forth their creativity.

They foster a supportive environment, encourage innovation, and promote personal development. Some consider transformational and transactional leadership at different ends of the spectrum. 

Think Satya Nadella, the CEO of Microsoft. He revitalized the company’s culture and shifted its focus towards cloud computing and collaboration tools, inspiring employees to embrace a “growth mindset.” 

Research indicates^{3https://www.diva-portal.org/smash/get/diva2:230525/fulltext01.pdf} that different cultures are more prone to favor one style over another.

Transactional leadership vs. autocratic leadership

Autocratic leadership is a style where leaders make decisions unilaterally, without much input from their team members. There is a clear chain of command. I say you do.

For example, think of Anna Wintour, the long-time editor-in-chief of Vogue. She makes decisive editorial and managerial choices without seeking broad consensus, setting the tone and direction of the magazine with a strong, singular vision.

Autocratic leaders focus on control and authority, whereas transactional leaders focus on reward and punishment.

These two styles are, however, not at odds. A leader could be transactional and autocratic Or one but not the other.

Transactional leadership vs. democratic leadership

Democratic leadership is the opposite of autocratic. It’s where leaders actively involve their team members in the decision-making process. This creates a culture of collaboration, shared responsibility, and collective ownership of outcomes.

Transactional leadership is less about shared decisions and more about clear directives and feedback. 

For example, think of Howard Schultz, the former CEO of Starbucks. He frequently involved employees in decision-making processes, like benefits packages and social responsibility initiatives.

A leader could be both transactional and democratic or one but not the other.

Leadership quadrants

To better understand the types of leadership above, we could imagine each of the four leadership styles on an axis.

A leader could find themself in any one of these quadrants. Let’s look at a few examples.

Transactional & Autocratic: Martha Stewart leads from the top left quadrant. She often demonstrates a clear vision and firm control over decision-making. Her emphasis on precision and high standards reflects the transactional aspect.

Transactional & Democratic: On the top right, we might find Herb Kelleher, co-founder of Southwest Airlines, who was known for his participative management style while also emphasizing an efficient operation.

Transformational & Autocratic: In the bottom left could be Steve Jobs; while known for his autocratic decision-making, he was also able to inspire and drive innovation within Apple.

Transformational & Democratic: On the bottom right might be Richard Branson, founder of the Virgin Group, who is known for his democratic leadership style and his ability to inspire and bring out the best in his employees.

Transactional leadership vs. servant leadership

Servant leadership is focused on empowering and serving the team, prioritizing their long-term growth and well-being. The idea is that the leader ultimately serves the team and the team members.

Mother Theresa would be an archetype for servant leadership. She was a deeply respected figure who ultimately dedicated her life to serving the poor and sick, prioritizing their well-being over organizational or personal gain.

In contrast, transactional leadership is less about empowering team members and more about zeroing in on clear objectives and rewards, thriving in structured, goal-oriented settings. 

While servant leaders gain satisfaction from helping team members flourish, transactional leaders operate on a quid pro quo basis, making it clear what team members must do to earn rewards. 

History of Transactional Leadership

Transactional leadership originated in the early 20th century, during the rise of classical management theory^{4https://www.villanovau.com/resources/leadership/classical-management-theory/#:~:text=The%20classical%20management%20theory%20involves,specialize%20in%20a%20single%20area.}. This style of leadership had three defining characteristics:

• Distinct hierarchical layers, where there are three levels of responsibility, from leaders to subordinates
• Contingent reward, which is the belief that employees are most motivated by incentives and that people work almost like machines whose output is dictated by incentives
• Viewing the workplace like an assembly line where “large tasks are broken down into smaller ones that are easy to accomplish. Workers understand their roles and typically specialize in a single area. This helps increase productivity and efficiency while eliminating the need for employees to multi-task,” says educators at Villanova University^{4https://www.villanovau.com/resources/leadership/classical-management-theory/#:~:text=The%20classical%20management%20theory%20involves,specialize%20in%20a%20single%20area.}.

This leadership thinking came out of the industrial age, so it makes sense that employees are viewed like cogs in an assembly-lined machine.

Max Weber and Frederick Taylor^{5https://harappa.education/harappa-diaries/max-weber-theory-of-bureaucracy-2/} were the big players who contributed to transactional leadership theory. Sociologist Max Weber had a theory of bureaucracy where he went deep into the importance of clear structures and rules. In contrast, Taylor’s scientific management theory focused on task optimization and appropriate rewards. 

Frequently Asked Questions About Transactional Leadership

Takeaways on Transactional Leadership

Transformational leadership is one style of many leadership approaches. Leaders who use this style tend to value:

• Productivity
• Structure
• Efficiency
• Clear expectations.

As a result, transactional leadership can work quite well for industries like high-performance sales or the military or if your team is in a tight pinch with a need for short-term focus.

However, transactional leadership tends to fall short around:

• Not fostering innovation
• Deterring focus from long-term vision
• Overreliance on the leader
• Dissatisfied employees.

If you want to build a company focusing more on inspiration, innovation, and self-motivated employees, consider a different leadership style.

Best of luck on your leadership journey, whatever approach you decide on. 

If you want to learn more about a different angle on leadership called strengths-based leadership and how to build a strengths-based team, this article is right up your alley.