Discussions of leadership often center around one style being better than another.
While it’s tempting to label leadership styles as bad or good, it’s not that helpful as an exercise. These types of debates ignore the importance of context. And context is critical in effective leadership. Examining a leadership theory for its effectiveness requires thinking critically about when and where the theory is being applied.
The practice of the transactional leadership style is no different. Rather than making snap judgments about transactional leadership’s usefulness overall, it’s important to consider its nature, its pros and cons. You also need to consider when and where to apply this style of leadership.
Make sure to include these factors before you attempt to make an informed decision about the appropriateness of transactional leadership in specific environments.
What is transactional leadership?
For a small picture of transactional leadership theory, consider this example.
When Margo became the manager of a novice sales team, she made two lists. The first list included the goals she and her team needed to achieve, and the second list identified the tasks needed to achieve the goals on the first list. She developed job aids that allowed her team to execute routine tasks and to make smart decisions when completing more unfamiliar tasks.
Margo was clear that she expected every member of the team to meet the sales goals she set. She also created an attractive and clear rewards system tied to performance. When one team member, Scott, failed to meet his sales goals three quarters in a row, he was placed on a performance improvement plan and assigned a mentor.
Margo, Scott and the rest of the team review goals, achievements and next steps twice per month.
Does this sound familiar? Margo is acting as a transactional leader. The transactional leadership style is more common than you might think.
Key characteristics of transactional leadership
Transactional leadership focuses on goals and tasks rather than creativity or abstract outcomes—and this is really the main circumstance you should use it for.
A common characteristic of transactional leadership is the carrots and sticks approach, which means there are clear rewards (carrots) for complying with the expectations of the transactional leader and as well as clear consequences (or sticks) for not meeting expectations.
Clear rules are a must for transactional leaders, as transactional leadership doesn’t allow for much creativity or spur-of-the-moment decision making. The carrots and sticks become arbitrary or even unfair if not partnered with clear rules.
Managers practicing transactional leadership tend to be focused on the short-term success of their teams, which makes sense when sales are recorded and measured weekly or monthly. The need for ongoing and consistent sales means that performance management must also be ongoing rather than once or twice a year. Transactional leaders tend to monitor performance often and react to performance or productivity issues immediately.
In the case of Margo’s team, regular sales goals are key to their success as individual contributors and as a team. In this instance, the carrots would be commission and bonuses, while the sticks would be low or no commission, being on a PIP and requiring a mentor. Margo's team exhibits many of the key characteristics of transactional leadership.
Some benefits of using transactional leadership
When used in the right environment, transactional leadership can bring a variety of benefits and performance flourishes to a team. Additionally, transactional leaders can leverage each of the benefits that stem from transactional leadership to capitalize on improvement.
1. Clarity
Transactional leadership requires team leaders to provide clarity around how their team is expected to perform, the rewards for doing so and the consequences of failing to meet expectations.
Employees of a transactional leader typically appreciate having clear expectations and accountability, as this clarity prevents confusion while working or surprises during performance reviews.
2. Efficiency
When implemented when there is a focus on short-term goals and routine tasks, transactional leadership organically leads to higher efficiency.
Transactional leaders focus on incentives for their teams to meet deadlines, work within their budget and support organizational goals. Incentives are a powerful way of encouraging employees to be consistently efficient in their roles.
3. Progress without much pushback
By leveraging their team’s efficiency, transactional leaders are able to raise the bar for the team’s outcomes gradually, and by leveraging the clarity gained from transactional leadership, this increase in expectations doesn’t take their employees by surprise.
This natural progress, along with managerial leadership continuing to provide consistent monitoring and clear expectations, allows transactional leaders to promote continuous improvement.
The risks of using transactional leadership
Margo’s team is able to reap the benefits of transactional leadership due to the specific context and circumstances of their goals and identity. However, if Margo’s team were pursuing different outcomes or made up of different people, they may experience certain consequences that come with using an ill-fitting style of leadership.
1. Doesn’t support creativity
If Margo’s goals required her employees to practice creativity or innovation, she would have to apply different leadership strategies, as the focus on rules and structure is at the heart of transactional leadership. This style doesn’t support the flexibility, and even rule breaking, required to be creative or innovative.
This is one of the primary differences between transactional leadership and transformational leadership, since transformational leaders create more space (and even expectation) for truly disrupting the status quo.
2. Stifles independence
Margo’s team comprises novices, so her hands-on transactional style is appropriate. As an active, involved manager, she can support her employees where they are. If she were to fall into a more passive management approach, this could be very damaging since transactional leadership requires leaders to remain very proactive.
As employees gain experience, they begin to need greater challenges which often come in the form of independence. If Margo’s team were more experienced, she would need to explore new ways of leading so that she doesn’t squash their desire for independence or make them too dependent on her or the routine of transactional leadership.
3. Does not foster connection
If Margo’s team were to experience high turnover, it may be due to transactional leadership not promoting connection between leadership and direct reports.
Without a strong connection, employees are more likely to leave the team or organization. A more personal or emotional link between the leader and each team member translates to loyalty and a desire to stay in the role, on the team or even just with the specific leader. Transactional leadership doesn’t allow a leader to establish this loyalty, it creates a clear boundary without much room for flexibility or depth in relationships.
Where would you implement transactional leadership?
If you are considering transactional and transformational leadership styles, or any other kind of leadership style, you need to begin with context. When applied to the right context, each leadership style can be very effective.
When I teach in Rasmussen’s Human Resources and Organizational Management programs, I help students understand how dynamically context changes any "best practices" of the business world. Our Leadership Development (MAN 4143) offers hands-on learning experiences to help students learn different styles of leadership, including transactional leadership, and when to use them.
The transactional leadership style is the right choice in work environments where clear goals, routine tasks, active management and consistent performance are the keys to individual, team and organizational success, as transactional leadership provides structure, accountability and efficiency.
Can you think of a setting where this would be the right choice?
Over time, as organizations change, leaders might consider adjusting their style to better fit current needs. For example, maybe Margo's team will eventually need a more transformational leadership style to support innovations that can take their team to the next level--beyond meeting sales targets.
Interested in learning more about styles of management beyond transformational and transactional leadership? Check out The Pros and Cons of 7 Different Management Styles.
