Leadership is the foundation of a company’s success, offering guidance, inspiring, and driving performance in line with the corporate vision.
Here, we explore two of the more prolific leadership styles, transactional leadership and transformational leadership. Although they both boast effectiveness in productivity, the way they reach those results is quite different.
Transactional leadership operates on clear ‘transactions’, or exchanges, between management and team members, emphasizing rewards and punishments, depending on performance against predetermined short-term objectives or results. Transformational leadership is less pragmatic and focuses on inspiration and innovation, motivating team members through vision and a focus on individual team members.
Upon reading about these contrasting styles, you will learn more about the fine distinctions between each approach. Through clear definitions, examples, and practical explanations of how Thomas can help your organization we will help you ascertain which leadership style best suits your industry, personality, team dynamics, and organizational goals.
Whether you favor a transactional approach for its structure and pragmatism or are leaning towards a transformational approach to nurture innovation, understanding these two leadership styles is crucial.
Defining transactional leadership
Transactional leadership functions on the premise of maintaining productivity through a relationship and system of pre-established rewards dependent on performance outcomes.
A model built on transparency, with clear expectations, established roles and responsibilities, and leaders in place to guide only when deviations happen. It’s important to implement structured performance appraisals, where employees are rewarded in line with the predefined outcomes. It should be quite clear, not only to the individual team member but the entire team, which metric exactly relates to which reward, in turn boosting team morale. Incentives and rewards can include:
- Financial bonuses.
- Progression/promotions.
- Industry and company awards.
- Additional time off.
- Team building days, and activities.
The advantages of transactional leadership are numerous and include:
- Absolute clarity and a predictable model where metrics are married to rewards.
- Given that roles, responsibilities, tasks, and timescales are clearly defined, a culture of accountability is fostered, which increases productivity and limits the chance of conflict.
That’s not to say that transactional leadership isn’t without its pitfalls. Its rigidity doesn’t lend itself well to more creative or innovative industries or projects. It is a very procedural model that doesn’t encourage radical thinking or visionaries. Discoveries through experimentation, or trial and error are unlikely to be found. In addition, although transactional leadership proposes to increase morale through reward, it can sometimes overlook the developmental needs of employees, as it places immediate attention on the task at hand.
Understanding transformational leadership
Transformational leadership focuses on matching individual achievement with the company’s vision and principles, rather than metrics with rewards. It aims to stimulate team members by aligning their endeavors with the company’s values and long-term goals.
This leadership style allows team members to achieve their maximum potential and nurtures a feeling of team spirit in working towards a common goal.
In applying transformational leadership, a leader should:
- Welcome cross-discipline collaboration to inspire innovation and new ideas/concepts.
- Nurture a strong team identity and cohesion.
- Encourage a culture of autonomy and ownership, whilst supporting growth and advancement.
- Welcome out-of-the-box thinking and limit judgment.
As with transactional leadership, transformational leadership displays a myriad of benefits and disadvantages that must be examined before opting for one style or another.
A multitude of industrial accounts have reported transformational leadership improving employee engagement, creativity, innovation, market competitiveness, and overall organizational productivity.
Nonetheless, transformational leadership also presents challenges. Perhaps the biggest criticism is that the model requires a constant source of energy from a leader to keep team members motivated. Despite this, transformative leadership remains a valid approach, impacting organizational culture, fostering commitment, and driving toward long-term goals.
Transactional vs transformational leadership: A comparative analysis
Now that we understand the fundamentals of transactional and transformational leadership, let’s lay them side by side to compare.
Transactional and transformational leadership differ dramatically in their principles, methodology, focus, and outcomes. Transactional leadership functions by rewarding task outcomes. However, transformational leadership aims to stimulate and motivate team members to exceed expectations by aligning their efforts and skill set with the company's vision, values, and goals, Transformational leadership ultimately fosters innovation and creativity.
The validity of one leadership style or another is dependent on
- The organizational culture
- External factors, such as the competitiveness of the industry.
- Team composition and dynamics.
- The team/organization’s objectives and goals.
- The personality type of management and team members.
Fast-paced dynamic industries that require rapid adaptation to change may be better suited to transformational leadership styles, whereas transactional leadership may be better suited to structured organizations with a task-orientated environment working towards short-term goals.
It’s not to say that you have to pick one style and stick to it definitively. Leaders can select the finer points of the two approaches, to form a blend that suits their own personality type, preferences, team, and organization.
Perhaps a leader could integrate the transparency and performance-based rewards of the transactional leadership model along with the inspirational and autonomous elements of transformational leadership to promote continuous improvement and productivity toward short-term tasks, without losing sight of the overall direction and vision of the organization.
Applying leadership styles with Thomas
Thomas can help you to source, select, and train your leaders for your company through psychometric assessments. Psychometric assessments can help an organization select an appropriate leadership style for people, in assessing personality type, leadership preferences, and skills.
Furthermore, the Thomas talent assessment platform provides employee development solutions designed to help identify high-potential staff, including leaders, building a talent pool for future success and growth. Attention can be placed on leaders who display a tendency towards a leadership style that would apply to your business operations.
Workplace personality assessments help identify leadership qualities and potential according to the six traits, detailed below:
- Get insight into strengths & weaknesses
- Improve interactions between individuals
- Understand your people’s resilience
- Increase manager & leader effectiveness
- Better support wellbeing
- Build more cohesive teams
Such assessments provide an insight into how suited an individual is for leadership, and which leadership style might be better suited to them.
We at Thomas pride ourselves on tailored solutions for every leader, committing to providing bespoke solutions that help leaders at all levels unlock their full potential and drive their teams to success. Speak to one of our team to find out how you can embed our solutions into your leadership programs.
Embrace your leadership journey with Thomas
Understanding the fundamental differences between transactional and transformational leadership is important when deciding upon the most effective leadership style for your organization. Both have a massive inference on efficiency, team performance, and employee satisfaction. Transactional leadership offers rewards for goals achieved, while transformational leadership takes a more inspirational approach, suited for innovation and creativity.
Refer to our other blogs for more insights into nurturing the leaders in your organizations, or get in contact with one of our experts to discuss anything that might not have been covered here.
