Transactional Leadership: Does It Work?
There are several leadership styles out there, and some are more effective than others. Certain organizations put a lot of trust and faith in a manager’s judgment, allowing them to manage their team as they consider appropriate with minimal supervision. Other companies demand a clear hierarchical structure based on reward and punishment to maintain the status quo effectively. This style of leadership is known as transactional leadership.
Transactional leadership is a managerial approach that rewards competitiveness, individual achievement, and self-starters while disciplining and weeding out underperforming employees. It is a traditional leadership style that is still used across many industries. However, just because it’s commonly used doesn’t mean it’s the best way to manage an organization or team.
In this article, we will discuss transactional leadership and its effectiveness. Here’s everything you need to know.
The Premise: What Is Transactional Leadership?
Also called managerial leadership, transactional leadership focuses on the role of supervision, group performance, and organization. Leaders who implement this style focus on particular tasks and use a system of punishments and rewards to motivate and encourage team members.
The renowned sociologist Max Weber first described this leadership theory, and Bernard M. Bass further researched it in the 1980s. It is based on the following assumptions:
● Individuals perform optimally when the chain of command is clear and definite.
● Punishments and rewards motivate employees to perform better.
● Following the commands and instructions of the manager is the primary objective of the team member.
● Team members need to be closely supervised to make sure that they fulfill expectations and meet goals.
In transactional leadership, rewards and punishments depend on the performance of team members. The leader looks at the relationship between leaders and team members as an exchange.
Thus, when team members perform well, they get an award. Similarly, when they don’t perform to the required standards, they get punished in some way. Standards, rules, and procedures are essential in this leadership style.
Transactional leaders are good at setting standards and expectations that maximize the productivity and efficiency of an organization. They provide constructive feedback regarding team members’ performance that enables them to improve their output to attain better feedback and reinforcement.
Characteristics of Transactional Leaders
There are various ways to implement transactional leadership, including contingent rewards, active management by exception, passive management by exception, and laissez-faire. All of these ways have different supervisory styles, characteristics, and ways of operating.
Contingent Rewards
Transactional leaders link the objectives to rewards, set clear expectations, offer the necessary resources, and provide different types of rewards for successful performance.
Active Management Through Expectation
Transactional leaders actively supervise the performance of their team members, check for deviations from specified rules, and take corrective action.
Passive Management Through Exception
Transactional leaders intervene only in situations where standards aren’t met or when the performance of the team is not up to expectations. They might even use punishment as a response to poor performance.
Laissez-Faire
These leaders create an environment where the team members get several opportunities to make decisions. The leader themselves gives up responsibility and avoids making decisions, and thus the team might lack direction.
Transactional Leadership Examples
Transactional leadership is very common in the sales department of organizations. If a team member works on commissions and makes a large number of sales, they will be given a bonus as a reward.
However, if they continuously fail to reach their sales targets, they will be fired or punished.
A transactional leader working in the sales department is primarily concerned with the bottom line. Thus, their thought process is quite simple and straightforward – did the team member meet their sales targets or not?
Does Transactional Leadership Work?
The effectiveness and success of transactional leadership depend on the industry. Even though it can work for sales, it does not work very well in creative fields where employees need to be able to ideate, innovate, explore, and experiment. Moreover, research published in the Journal of Applied Sociology mentioned that transactional leadership best works in situations where problems are simple and well-defined.
In the following sections, we will look at situations where transactional leadership can work and where it might not be a suitable leadership style.
When Is Transactional Leadership Effective?
Transactional leadership can work well for companies that require repetitive results to attain success. It can also work in crisis situations where the emphasis needs to be on achieving specific goals. By allocating clearly defined roles to specific individuals, leaders can make sure that those tasks get done.
Here is a detailed analysis of situations where transactional leadership can work.
1. Work Environments that Require Repetitive Outcomes
Regardless of the size of your company, transactional leadership is an excellent way to run companies that rely on repetitive outcomes to fulfill production demands.
For instance, think of a chain restaurant. The quality of the items on the menu needs to be maintained at all times. This means recipes have to be followed to a T. If two individuals order the same burger, both burgers should appear and taste exactly the same. Maintaining the quality is imperative, indicating it is necessary for leaders to carefully supervise their team and take corrective action if there is a decline in quality.
In simple words, if things are automated and streamlined, transactional leadership can prove to be an effective leadership style.
2. Times of Crisis
When you are firmly grounded in company rules, it can be quite easy to address problems that compromise the business or hamper production. The structure and rigidity of transactional leadership can lend themselves to quick resolutions.
3. Employees Need to Be Motivated
Since transactional leadership eliminates personal feelings from rewards, punishments, and assessments, it can create a level working environment for all team members. This makes it easier for individuals to stay motivated to give their best as they know producing good work is the best way to excel in their careers.
4. Status Quo Has to Be Maintained
There is nothing wrong with stability, particularly in high-pressure work environments. Transactional leaders can uphold organization rules and regulations. Nevertheless, they do have the power to amend them when there is a problem.
5. Goals Are Clear and Achievable
Setting easily identifiable and fair goals can be an effective way to help your team perform optimally. Using a transactional approach, you define your expectations for team members directly in specific terms. This way, each team member knows what you expect from them and gives them an achievable target to aspire to.
Moreover, if work speed is imperative to your production timelines, transactional leadership is a great way to get things moving – and ensure they keep moving – to attain daily, weekly, and monthly targets.
When Is Transactional Leadership Ineffective?
Transactional leadership does work in situations where employees need to be creative or come up with new solutions to problems. Moreover, this leadership style is ineffective when employees don’t feel motivated by rewards.
Let’s look at a few more situations where transactional leadership might not work.
1. Businesses That Thrive on Creativity
If a business requires creativity to be successful, then leaders and employees need to be able to make mistakes and fail without stressing over the consequences. Transactional leaders penalize their employees for not meeting their goals and don’t leave any room for creativity or failure.
In such environments, employees don’t feel motivated or encouraged to come up with innovative ideas. Rather, leaders insist they follow a rigid and strict system and pursue the targets they’ve been given at the cost of any other ideas.
For instance, Google encourages its employees to spend 20 percent of their time on what they think will most benefit the company. This approach has been shown to encourage innovation and boost creativity. Nevertheless, companies that use transactional leadership do not allow such behaviors.
2. Goals Are Long-Term
Since transactional leadership focuses on upholding rules and regulations, it does not leave sufficient room for future planning and the ability to adapt to a dynamic and evolving marketplace.
3. Personal Initiatives Must Be Taken
Even when a team member identifies a better way to attain company objectives, transactional leadership does not allow itself to embrace employee input – particularly if it modifies the rules or deviates from a specified plan. Both these problems can negatively impact employee morale and company growth.
How to Prevent the Limitations of Transactional Leadership
There are a couple of steps you can take to prevent the limitations of transactional leadership. For instance, you can encourage employees to participate in the goal-setting process and personalize employee rewards.
In this section, we will explore ways through which you can prevent the limitations of transactional leadership.
Encourage Team Members to Take Part in Setting Goals
A major drawback of transactional leadership is that leaders are set and expect team members to follow them without raising any questions. While teams need to be in line with company goals, members struggle to keep their motivation levels high when they do not feel connected to their goals.
A simple way to overcome this problem is to invite team members to take part in goal setting. Research published by The British Accounting Review reveals that goal commitment improves when leaders ask for employee input.
Before setting new performance targets, it is crucial that you meet with your team members where you talk about what you want them to attain, and allow them to share their ideas. While you will not be changing the final results you expect from your team; you will be taking into consideration their opinions regarding the milestones and methods it will take to get there. By having such discussions with your team members, you can set targets that everyone on your team is on board with.
Make Goals Meaningful
After you have set goals for your team, the next step is to provide orders. Generally, transactional leaders inform their subordinates what goals to achieve and, if needed, provide them with a process document. While this list of tasks gives team members a clear idea of your expectations, they can feel impersonal and seldom inspire enthusiasm.
To overcome this, talk to your team members about why the assigned goals matter. According to Adam Grant, a professor at the Wharton School of the University of Pennsylvania, reminding employees of their work’s bigger purpose is imperative to keeping them engaged.
Personalize the Rewards
Transactional leaders motivate their team by promising rewards upon task completion. Generally, they offer promotions, bonuses, and other kinds of conventional incentives that might or might not be meaningful to the individual.
Leaders need to acknowledge that there’s no one-size-fits-all approach to incentivizing work performance. In fact, research published by the National Business Research Institute indicates that financial rewards are less motivating to employees who earn decent wages. Moreover, certain employees do not want promotions as they want to be doers instead of leaders, and some employees are so intrinsically motivated that traditional rewards do not interest them.
Thus the way forward in such situations is to offer multiple options to employees to pick from or ask them to share their desired list of rewards and see if it is possible for you to accommodate them.
Here is a list of alternative rewards to provide employees:
● Paid time off to volunteer
● A physical token of appreciation
● Educational and professional development programs
● Charity donation matching
● Off-site team interaction activities
Consult with your team members to curate a personalized program of rewards.
Last Few Words
Transactional leaders focus on maintaining the structure of the group. They tell team members exactly what’s expected of them, articulate the rewards of successful task completion, explain the consequences of failure, and provide feedback designed to keep employees on task.
Even though transactional leadership can work in certain situations, it is considered inadequate in several cases. Thus, it might prevent both managers and team members from reaching their maximum potential.