Why Transactional Leadership Fails and What to Do Instead

Dear friends,

Some say that life is a game of give and take. This is certainly true for business, where the value exchange is the foundation of profitability and sustainable growth. Staying with the cliches for the moment, in business, you win some and lose some, but those who win consistently in the long run create a competitive advantage by managing things extremely well. The problem for even the most successful business tends to be the people you rely on to manage those things.

I met with a client this morning. More than half of the leadership team was raised and educated in Japan, where strong command-and-control leadership is a part of not just business culture but culture in general, certainly compared to Western cultures. This company's ability to manage things extraordinarily well through its systems, automation, and quality standards is remarkable, yet the performance of its people stymies the overall performance. They can and must be better, but command-and-control. which is reactive leadership, fails to achieve this in a VUCA world. Reactive leadership tends to be transactional, while creative or resourceful leadership is transformational.

This week's essay discusses why leaders need to understand that they must think transactionally to manage their business - and must stop thinking transactionally when it comes to leading people.

Have a great week!

Phil

Why Transactional Leadership Fails and What to Do Instead

Good leadership is fundamental to the effectiveness of any coordinated effort involving more than one person. Certain traits are common to all competent leaders. Military, political, and religious leaders must influence and inspire others through behavior, communication, and thinking. However, both broad aspects and some nuances differentiate business leaders from all others in how we tend to think and behave more transactionally.?

Leadership is situational. Your effectiveness depends on who you lead and under what circumstances. Capably leading one group of people doesn’t necessarily work with another. And leading in “good times” doesn’t mean that you can lead through bad.?

Military leaders generally control their troops with the power to punish those who disobey their commands. Religious leaders wield power over their followers by employing forces understood to be mightier than those mortals possess.?

Elected politicians are constrained by constitutionally or judicially defined limitations. To retain their power, they must prove their value to their constituents every election cycle. While effective politicians tend to be popular, plenty of popular politicians are chronically ineffective. The very few we consider significant are those whose contributions have changed the course of history.

Working with CEOs, entrepreneurs, and business owners, I recognize that their challenges are often unique to business leadership. In some ways, CEOs are like all other leaders in that they must influence the thinking and behavior of others. The crucial difference is that business leaders have relatively limited power over their people's performance compared to most other leaders.?

All businesses are fragile, and most are more perishable than most believe. Most companies fail to become viable before they become sustainable.?

Poor service, broken systems, and defective products all indicate a failure of leadership. Businesses require competent people to avert these issues and obviate them when they arise. Because consumers are willing to tolerate mediocrity, there is no shortage of companies that deliver it. Dysfunction becomes the status quo, and leadership doesn’t matter much.

Part of the problem is that business is naturally transactional, and leadership is not. Transactions of goods and services (things) make a company profitable when it is perceived that the exchange of value is fair.

Dealing with people in purely transactional ways tends to be selfish and often manipulative —leading to a breakdown in relationships when one party feels taken advantage of. Enduring transactional relationships amounts to a power dynamic, where one side’s control can be enforced - or there are no other options.

Leadership is an act of service requiring selflessness. The organization’s success measures a leader’s value. Transactional leaders may be able to buy loyalty and favor. However, the respect necessary to be an effective leader cannot be purchased; it must be earned.?

All leaders must earn the respect of their followers. Business leaders face the challenge of gaining the experience and wisdom to discern when to be transactional and when not. A simple thing to make you more effective is remembering that managing things is transactional, and leading people never is.

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You can access over 150 other pieces on business leadership and related topics at the ALPS BLOG atALPSLeadership.com.

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