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Transactional leadership style: Pros, cons, examples and how to know if it’s for you

You’ve just gotten promoted and are now leading a team. You're intent on being the best leader you can be and you’re trying to discover what that means for you.

transactional leadership

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The different styles of leadership

What is transactional leadership?

The future of transactional leadership

How to know if transactional leadership is for you?

Final thoughts

The truth is that there isn’t a “one-size-fits-all” leadership style. 

You’re going to have to determine what your natural abilities are, what your organization requires of you, and what you want the people you lead to believe about you as a leader. 

It’s as much about asking questions as finding answers. It’s a trek — your journey toward leadership excellence.

This article will discuss the concept of transactional leadership, including what it is, who it works best for, and how it can be applied to your leadership style.

The different styles of leadership

Harvard Business Review contributor Jon Maner writes that there are two basic directions that leaders chose when navigating in the organizational landscape: selling or telling. 

Each direction contains its own set of trails — leadership styles. Each of these styles has its advantages and disadvantages. 

Leadership experts contend that the best leaders are “ambidextrous” in their ability to use elements of both.

Selling Styles

First, there are the “selling” styles: coaching, democratic, servant and coach, and transformational. 

Many leaders with these styles, (transformational, in particular) often have compelling visions, foster collaboration and innovation, and create learning organizations. 

They value developing people over upholding fixed rules and regulations. They lead by influence rather than command.

Transformational leaders may, however, fail to pay enough attention to short-term objectives, along with policies and procedures necessary to the efficiency and effectiveness of the organization. 

They may be reticent to take control in a crisis. If that is the case, they would benefit by adopting behaviors consistent with telling styles (which we’ll cover next).

Today, most leadership development experts advocate the selling styles over telling styles, putting a premium on transformational leadership. After all, where would we be without the Elon Musk’s or the Jeff Bezos’ of the world? They’ve radically transformed the way we live.

Let’s be clear, though: transformational leadership is a style. And it’s not the only option out there. There are plenty of telling style leaders who have radically transformed businesses, organizations, and yes, even the world.

Telling Styles

“Telling” leaders also offer great value. For many organizations, there will be some times when circumstances and context call for leaders with this style who are able to offer grounded stability when the organization needs it most.

Leaders with these styles embrace a fixed hierarchical structure, giving mandates from the top of the organization and handing out firm directives to subordinates. 

Rules trump innovation. 

There is a clear chain of command.

These styles, with various ranges of effectiveness, include the following:  

Pacesetter:

These are charismatic leaders who rely on personal appeal to motivate followers. Visionary “selling leaders” influence people to join in. Pacesetters inspire people to walk behind.

Autocratic:

An autocratic leader relies on his or her own decisions and expects their people to follow through. Followers execute. Their mindset is fixed on their own goals for the company.

Bureaucratic:

Bureaucratic leaders believe that organizations operate within formal highly developed structures, policies, and procedures.

Transactional:

Managers with this style motivate employees through an offer. If you give me what I want, I’ll give you what you want.  

These transactions lead to the running of a tight smooth-sailing ship where everyone is crystal clear on the goals and objectives of leadership and their own responsibilities to achieve those goals and objectives.

This is the style we’ll focus on for the rest of this article. 

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What is transactional leadership?

Let’s take a deeper dive into this leadership style and how it came about. 

Transactional Leadership Origins

The transactional leadership framework was developed by Max Weber, an eminent 20th century sociologist studying the way in which people lead. 

In his seminal book Economy and Society, he posited that there are three distinct leadership categories: charismatic authority based on personal appeal of the leader, traditional authority, and legal-rational, which is what would come to be known as the transactional leadership style. 

His premise was: “the exercise of control on the basis of knowledge."

Transactional leadership gained prominence in the 1950’s following World War II, when political and social stability was of utmost importance. 

Its darker side emerged with the rise of anti-communist Sen. Joe McCarthy. 

Its brighter manifestation was personified in General and President Dwight Eisenhower, who led the country into peace and prosperity.

Political scientist and historian James McGregor Burns promoted Weber’s theory in his 1978 book, Leadership. He asserted that great transactional leaders exhibit high moral principles. They are honest and fair. 

Responsibility and honoring their commitments are paramount.

Transactional Leadership at Work

Transactional leadership style is seen most often in mid-to-large-size organizations, and is most often seen in manufacturing or in other highly regulated industries. 

In global organizations, where leaders must manage people from different cultures with different languages, transactional leadership can keep everyone operating with fixed ways of working dominated by policies and procedures.

The sales industry also has its share of transactional leaders in organizations where employees are required to meet aggressive quotas. You meet your quota; you get a bonus or raise.  If you don’t, no bonus and, in many cases, no job.  

Sounds harsh, but to a transactional leader, results come first.

A transactional perspective assumes that all employees value extrinsic rewards such as compensation. It assumes that people are not self-motivated. 

Many emerging leaders, especially younger generations who are less likely to be loyal to a company and less likely to stay, are motivated by intrinsic rewards. 

They want their higher-level needs addressed, such as belonging, esteem, and self-actualization. Rewards come in the form of opportunities for growth, meaningful work, and increased opportunity.

Transactional Leadership Characteristics

Transactional leaders have the ability to act with urgency. At their best, they are effective executors. They take charge. They turn ships around. 

They are especially skilled in times of crisis, bringing their authority to bear in order to take decisive steps, even in ambiguity. 

They have a high degree of clarity. Employees know exactly what their leader expects from them and feel productive in reaching clearly defined goals and objectives.

Vince Lombardi, former coach of the Green Bay Packers, is hailed as one of the best football coaches of all time. He was a master at training his teams through rigorous practice. As such, his team was virtually unstoppable.

Good transactional leaders have a direct and transparent communication style. People follow them because they know they can be trusted. The leader knows that loyalty follows trust.

Who is a Transactional Leader? 

A great example of this kind of leader is Gen. Norman H. Schwarzkopf, former commander of U.S. Central Command. A master organizer of human resources, he was responsible for tens of thousands of U.S. troops in Operation Desert Storm back in 1990.  

Schwarzkopf led the NATO coalition to a decisive victory over Iraq and Kuwait. Under his leadership, thousands of lives were saved. 

At their best, transactional leaders are effective executors. They establish processes, rules, and protocols and expect that people will adhere to them. 

Many transactional leaders can be “hands-off” in the way that they manage. As long as things are running smoothly, managers don’t interfere. Instead, they closely monitor work to identify problems as they emerge.

Bill Gates is a good example of this style. Gates frequently makes the rounds to check in on operations and ensure that things are going as planned. He wants to see that efficiencies are met and nothing is falling through the cracks. Under his leadership, Microsoft has literally changed the world.

"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” — Bill Gates

However, there are danger zones, for a transactional leader. 

Valuing stability over innovation may result in a reactive, rather than proactive, mindset. 

Divergent thinking and behaving are not valued by many transactional leaders. They are less likely to solicit ideas from their people. Innovative ideas at lower levels go up a strict chain of command which may, or may not, reach the top.

Conformity and status quo are organizing principles for transactional leaders. 

They can put professional and personal development of the individual on the back burner. When leaders are focused only on short-term goals, they jeopardize the sustainability of the organization.

Left unchecked, their dominant style could show up as inflexibility and bullying. That is tragic!          

However, great transactional leaders, or for that matter all great leaders, are empathetic. 

Though their style may seem impersonal, people know their leader cares about them — even when he or she has to make hard decisions that may negatively impact them.

Let’s take Jacinda Ardern, New Zealand’s prime minister. 

She took swift and courageous action to lock down the country in the first months of the pandemic. Still, she communicated transparency and empathy, fostering trust through frequent Facebook Live chats — in her sweats!

That brings us to the current leadership disruption. This has the potential of transforming the way we look at leadership styles and how a leader can blend them using their own natural style while adapting to changing times and circumstances.

The future of transactional leadership

According to a recent Deloitte study, there are three stages of leadership emerging from the COVID-19 crisis. All stages reflect elements of transactional leadership blending with emerging transformational leadership.

Respond: 

This is the initial crisis-management stage and requires a leader who can stabilize things quickly, leading through unprecedented times with no apparent answers. They express confidence, transparent communication, and empathy. This leader is pragmatic and lead-taking.

Demonstrating the characteristics of a transactional leader, GE Chairman and CEO Mary Barra, during the initial stage of the pandemic, found an opportunity. 

She co-authored a playbook on health and safety protocols for reopening GM’s factories and sent back to work packages describing ways in which people could safely return. 

She acknowledged their fear and was empathetic in her execution. Still, Barra is well known for her transformational leadership style.

Recover: 

In the next stage, as things stabilize, a leader is needed who is careful and risk-reducing. 

Can you imagine how tough it must be for a transactional leader to have their people work remotely? Dropping by to see how things are going is challenging if not impossible in such a scenario.

Still, their blended style gives people a vision for the future. This leader moves the organization toward innovation and more long-term strategies.

Thrive: 

This style calls for moderate flexibility, a long-term strategy, and deliberativeness, while attending to development in emerging leaders.

This is the area where transformational leaders shine.

How to know if transactional leadership is for you?

So, you ask: 

“What’s my fit?” 

You’ll begin to discover that as you begin to build your emotional intelligence. Though it involves asking some critical questions.

What are my strengths? What do I value?  

The VIA Institute on Character is a great resource that offers a free survey which determines your character strengths.

How would others describe my leadership?

It takes a degree of vulnerability to ask them, but ask specific questions that you may be curious about. Then, listen and say thank you.

What does my organization require of me?

As we’ve all seen through these extraordinary times, different circumstances, times, and events may require a blended style.

How willing am I to grow? 

It’s not so much about the destination. It’s about the journey.

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Final thoughts

If you are going to be an effective leader, you have to be willing to acknowledge that as the world shifts, so does the landscape. 

Great leaders navigating dynamic organizational environments are on a trek to self-awareness, keeping questions like these as trail markers along the way.

are you a transactional leader?