Whether someone is leading a group of volunteers, overseeing a large project with many people involved, or running a Fortune 500 organization, they will have their own leadership style, and that style may be transactional leadership.
But what is transactional leadership? Are there advantages and disadvantages of this style? Are there scenarios where this type of leadership is detrimental? We will explore the following and more, but the first to start to build an understanding of this leadership style is with a definition of transactional leadership.
Table of Contents
- What is transactional leadership?
- Characteristics of transactional leaders
- Transactional leadership advantages: the good
- Transactional leadership disadvantages: the bad
- When transactional leadership gone wrong: the ugly
- Transactional leadership examples
What is Transactional Leadership?
Transactional leadership is a style of leadership that centers around exchange. These leaders believe their direct reports need more than self-motivation to help them achieve their goals. Therefore, if an employee meets the performance standard, they will be rewarded with incentives or perks; conversely, if they fall short, they will be penalized.
Another hallmark of this style is they like to create a structured environment where nothing is left up to chance. Transactional leaders believe that standardized processes, clear directions, and defined procedures are how their goals will be achieved.
Characteristics of Transactional Leaders
- Uses incentives, rewards, and praise to motivate their team
- Focused on short-term goal achievement
- Provide timely feedback and correction
- Communicate instructions clearly
- Weary of change or deviation from processes
- Monitor employee productivity and performance
If these characteristics sound like you, there is a good chance that you may naturally gravitate toward using a transactional leadership style.
Transaction Leadership Advantages: The Good
With every style of leadership, there will be advantages. Employees and organizations can benefit from the transactional leadership style in the right setting.
Clarity of Expectations
Employees whose leader uses the transactional leadership style have no ambiguity about what is expected of them, which is something employees crave. However, Gallup uncovered that only six out of 10 employees know what is expected of them at work, thus making a leader who can set clear expectations a valuable asset to any organization.
Transactional leaders focus on creating defined processes that are replicable and provide employees with a framework in which they can be successful. These step-by-step guides built on best practices and experience help reduce risk and error and improve efficiency, productivity and performance.
Employees want to know where they stand with their leader, and a transactional leader excels at this. These leaders do not shy away from providing timely and corrective feedback, which is excellent as PwC found that 99% of millennials surveyed agreed feedback at work was important to them.
Focused on Performance and Goal Achievement
Transactional leaders do not let competing priorities, internal politics, and other distractions get in the way of their team’s performance and achieving their goals. Instead, they’re laser-focused on what needs to be done and how to get there.
Pillar of Stability During a Crisis
Thanks to their process-driven style, transactional leaders naturally take the lead during a crisis. These leaders understand the importance of aligning actions at a tactical level and can quickly mobilize their people with defined steps that mitigate any additional risk. In addition, with their natural reward and punishment structure, they can communicate the potential impacts the crisis will have on the company so that everyone understands and does not lose sight of what is on the line.
Transactional Leadership Disadvantages: The Bad
There are many advantages to using the transactional leadership style. However, this style has just as many disadvantages to employees and the organization.
Stuck in Their Ways
If there is one type of leader that is fearful of change, it’s a transactional leader. They’ve built their team around structure and processes that they believe will achieve their objective and are not open to alterations that may deviate from that.
Stifles Creativity and Innovation
Reporting to a leader who is adamant about maintaining the status quo will only stifle employee creativity and innovation. As they believe they have created the optimal way of completing a task, they’re not open to suggestions, alterations, or new ways of working. Employees will become fed up after a few tries only to keep their ideas to themselves going forward.
Too Focused On the Short-Run
While focusing on achieving their short-term goals is important, this myopic view of the company can have devastating consequences. Envibitably their short-sightedness creates internal silos where departments become unaligned, organization-wide processes break down, and corporate goals fall short. Moreover, they cannot see the world around them changing, and they get left behind over time.
Soft Skills Are Lacking
Employees want a leader who will listen to their perspectives and show vulnerability and humility. Unfortunately, these soft skills are often lacking with a transactional approach to leadership, as their primary driver is business results and not their people. To overcome this, organizations must develop the leadership competencies employees expect today from their leader or risk significant turnover.
When Transactional Leadership Goes Wrong: The Ugly
While the transactional leadership style is necessary for specific high-risk industries such as healthcare or the military, today’s workers may not respond to this type of leadership which feels dated. When used in sectors with minimal safety risk to employees or those they serve, this leadership style may witness negative consequences such as increased employee turnover due to a lack of autonomy, collaboration, and development.
Transactional Leadership Examples
While transactional leadership is a leadership style anyone can deploy, there are some roles where it is more commonly used. Here are some examples of places where leaders may more often use a transactional style.
- Leader in the military
- Management position in first responder organizations such as policing, fire, or medical
- Coach of a sports team
Becoming the best leader begins with self-awareness of your approach to leadership. To do so, take the leadership styles quiz. From there, attending a leadership development program like Leadership Fundamentals will deepen your understanding as you work alongside your peers and facilitator to build your self-awareness of your leadership style and the pitfalls you need to overcome.