Transactional Leadership. Where ‘not’ to find?

Have you ever come across leaders who have risen from the ranks over time in the same organisations and they know a bit too much about their specific functions but still love to be doing what they have been doing decades ago? All they don’t mind getting paid more. We call them Transactional Leaders.  Micro-Managers may fall in yet another category. Some of our readers may find these management jargons fancy or weird. But we would still like to define each of these terms separately first:

Transaction: 

In business terms, transaction is an agreement between a buyer and a seller to exchange goods, services or financial instruments. 

Leadership: 

Leadership is the art of motivating a group of people to act towards achieving a common goal. He or she is the person in the group that possesses the combination of skills that makes others want to follow his or her direction.

Transactional leadership:

Transactional leadership focuses on results, conforms to the existing structure of an organization and measures success according to that organization’s system of rewards and penalties. Transactional leaders have formal authority and positions of responsibility in an organization. This type of leader is responsible for maintaining routine by managing individual performance and facilitating group performance. This type of leader sets the criteria for their workers according to previously defined requirements. Performance reviews are the most common way to judge employee performance. Transactional, or managerial, leaders work best with employees who know their jobs and are motivated by the reward-penalty system. The status quo of an organization is maintained through transactional leadership.

Differences between transactional leadership and other leadership styles:

Transactional leaders differ from charismatic and transformational leaders in both structure and method. Charismatic leadership emphasizes influencing a group or organization to make the world a better place. In transactional leadership, the emphasis is on managing the performance of the individual and determining how well he or she performs in a structured environment.

The difference between transactional leadership and transformational leadership is also quite large. Simply put, transactional is a “telling” leadership style, and transformational is a “selling” style. While the transactional approach features positive and negative reinforcement, transformational leadership emphasizes motivation and inspiration. Transactional leaders are reactive; transformational leaders are proactive. Transactional leadership appeals to the self-interest of individuals, while the transformational style prioritizes group progress.

History of the transactional leadership theory:

Max Weber, a 20th-century German sociologist, made an extensive study of leadership styles and divided them into three categories: traditional, charismatic and rational-legal, or bureaucratic. In 1947, Weber was the first to describe rational-legal leadership — the style that would come to be known as transactional leadership — as “the exercise of control on the basis of knowledge.”

Transactional leadership theory is based on the idea that managers give employees something they want in exchange for getting something they want. It posits that workers are not self-motivated and require structure, instruction and monitoring in order to complete tasks correctly and on time.

The transactional leadership style was widely used after World War II in the United States. This was a time when the government concentrated on rebuilding and required a high level of structure to maintain national stability.

Political scientist James McGregor Burns was one of the most prominent authors to advance Weber’s theories. In his 1978 book “Leadership,” Burns argued that both transactional and transformational leaders must be moral and have a higher purpose. In Burnes’s model, transactional leaders espouse honesty, fairness, responsibility, and honoring commitments.

In the 1980s and 1990s, researchers including Bernard M. Bass, Jane Howell and Bruce Avolio defined the dimensions of transactional leadership:

• Contingent reward, the process of setting expectations and rewarding workers for meeting them
• Passive management by exception, where a manager does not interfere with workflow unless an issue arises
• Active management by exception, in which managers anticipate problems, monitor progress and issue corrective measures

Many current leadership theorists agree that principals of transactional and transformational leadership can be combined for ideal outcomes for both management and the workforce.

Transactional leadership style:

• Focused on short-term goals
• Favor structured policies and procedures
• Thrive on following rules and doing things correctly
• Revel in efficiency
• Very left-brained
• Tend to be inflexible
• Opposed to change

Advantages and disadvantages of transactional leadership:

Transactional leadership works well in organizations where structure is important. Transactional leadership is not the right fit for organizations where initiative is encouraged:

Transactional leadership pros:

• Rewards those who are motivated by self-interest to follow instructions
• Provides an unambiguous structure for large organizations, systems requiring repetitive tasks and infinitely reproducible environments
• Achieves short-term goals quickly
• Rewards and penalties are clearly defined for workers

Transactional leadership cons:

• Rewards the worker on a practical level only, such as money or perks
• Creativity is limited since the goals and objectives are already set
• Does not reward personal initiative

Benefits of transactional leadership:

There is definitely a place for transactional leadership in the world today. One of its best uses is in multinational corporations where not all of the workers speak the same language. Once the structure and the requirements are learned, it is easy for workers to complete tasks successfully. This works because transactional leadership is simple to learn and does not require extensive training. The transactional approach is easy to understand and apply across much of an organization.

The military, policing organizations, and first responders use this style of leadership so that all areas of the organization are consistent. It is also easier to apply in a crisis situation, where everyone must know exactly what is required of them and how a task is to be done under pressure.

To many people, money and perks are a powerful motivator. Many people need a job to pay the bills. They have other obligations and distractions and would just as soon know exactly how to do their job in order to keep it and reap the rewards.

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