Transactional Leadership: Structured but Stale

When you look for a new job, what is it that you look for the most? An attractive remuneration? A manager that can give you a clear definition of your role and responsibilities? Or do you look for more in an employer? Find out why transactional leadership, with its clear structures and processes, remains relevant as a leadership style, even if its image is rather outdated nowadays.

What is Transactional Leadership?

As the name suggests, this leadership style is based on the idea of a transaction between a company and its employees. Think of it like this, an employee wants to enter a into a business relationship with a company and offers them an exchange: his or her skills and time for a certain amount of their money. Nothing more, nothing less. A transactional leader typically rewards high performance with a salary increase or a job promotion, whereas underperformance is sanctioned using the same incentive mechanisms. Kurt Lewin, who we mentioned a few times during our second article on laissez-faire leadership would speak of an “authoritative leadership” in this case.

How Does Transactional Leadership Work?

In contrast to tranformational leadership, transactional leadership has very clear characteristics. Tasks are clearly defined and assigned, working hours are fixed and company goals are transparent throughout the company.

Advantages and Disadvantages of Transactional Leadership

Clear rules and defined goals lead to confidence and provides employees with a sense of security and stability, since they always have a clear picture of what awaits them at work. Some companies, due to their area of activity, offer few opportunities for managers to intrinsically motivate employees for the vision and mission of those companies. In a case like this, it is therefore all the more appropriate for managers to apply transactional leadership and to win the appreciation of employees with attractive remuneration and a clear structure with regard to work processes. This straightforward and honest approach by management will lead to an efficient and task-oriented way of working.

The main disadvantage here is that employees run the risk of losing their desire to work. That is because transactional leaders have two possibilities to respond to employee efforts: efficient employees are paid accordingly, inefficient employees are sanctioned. Because of this restricted interaction, employees quickly become emotionally unattached to their workplace, causing them to lose motivation and also perform less.

Last week we wrote about transformational leadership and found out that the big disadvantage of this leadership style is that it overemphasizes “heroic” aspects such as charisma and empathy and does not address other concepts that are more directly related to the business. Concepts such as structure and clarity. So what would happen if we combine the soft skills of transformational leadership with the transparency and structure of transactional leadership?

It’s All in the Mix

A combination of the two leadership styles is more likely to lead to maximum productivity and employee engagement. Let’s face it, managers cannot compensate an unfair salary with charisma and intellectual stimulation alone. On the other hand, a good salary and clear guidelines are not worth much if the employees are constantly bored at work and the manager is incapable of offering further incentives that go beyond the monthly paycheck. The perfect mix therefore consists of charismatic and inspiring managers, who can win their employees over by personality and, in addition, provide the necessary clarity and structure that the job requires.

Of course, this is not a recipe for success. For each organization, a different combination of leadership styles may work best. A creative work environment demands a different approach from leadership than e.g. a manufacturing-based organization.

The following is an example of a company that uses a mixture of both leadership styles:

Software Developer Honest Lee arrives at the office. She always comes in at 08:00 a.m., but always has the option to start her day between 08:00 a.m. and 09:30 a.m. Some days end earlier, some later, depending on how much work is due. She has certain routine tasks that she has to complete every week, but is also often confronted with plan changes or unpredictable tasks that are solved spontaneously. Her boss does not lead the team with financial incentives, but rather influences her employees through vision and maintaining a healthy corporate culture that is constantly formed by the employees. Quarterly, an entire day is reserved throughout the company to clearly define the quarterly goals and develop their implementation strategy within the team.

What to Take Away From Our Leadership Series

Transactional leadership wraps up our leadership series that we started a few weeks ago. What we can take with us is that the perfect leadership style simply does not exist. Similar to a living organism, a workplace changes continuously; be it due to a shift in generations, an expansion of the field of activity or general internal restructuring – change is inevitable. This is precisely why management must remain flexible and not just accept change, but constantly be the one to initiate it. Where transactional leadership was sufficient in the past, today more communication or intrinsic motivation may be required. Conversely, there may also be an increased demand for transactional leadership in a company that is on the verge of bankruptcy due to its laissez-faire leadership and lack of structure.

Our editorial team hopes that this leadership series has created an added value for you, even if it was only a fun read. We are also highly interested in the stories and experiences you made with leadership. What leadership style is used at your company, what makes it so effective? We welcome any comments or emails addressed to editor@honestly.com.