Transactional Leadership - Meaning, Importance & Example

Published in Human Resources Terms by MBA Skool Team

What is Transactional Leadership?

Transactional Leadership is a leadership style where a leader manages the subordinates based by either rewarding their good work or by penalizing their bad work to achieve expected performance. Transactional leadership is a short-term focused leadership style where immediate performance results are used for employee evaluation. Transactional leadership is built for leaders who strongly believe in organizational structure and authority. This style has been described well in history by Max Weber in 1947 and then by Bass in the 1980s.  

Importance of Transactional Leadership

Transactional leadership is a leadership style where in an employee’s performances are evaluated and based on the results delivered, they are either given a reward or a punishment. It is a result-based leadership method of either appreciating or criticizing someone’s work to drive their motivation to contribute.

Transactional leadership is a good method in a critical situation where results are of utmost immediate importance. This method focuses on improving employee performance and results in a structured environment.

While transformational leadership focuses on transforming an employee over a long period, transactional leadership is for driving results over a short period.

Transactional Leadership Characteristics

Transactional Leadership

Some of the most important traits and characteristics of transactional leaders are as discussed below:

1. Short-Term

Transactional leadership focuses on achieving short term and immediate result goals which are in sync with the self goals and interests of the leaders. They may or may not align with the aspirations of the subordinates.

2. Practical

It propagates high levels of accuracy and is result oriented. The results can be easily monitored and evaluated to see the effectiveness of the leader.

3. Corporate Structure

Transactional leaders believe in maintaining structure, authority and rules at all costs. Hierarchy and structure is very important for transactional leaders.

4. Less Flexible

Transactional leadership is slightly rigid with less scope of change. They have self interest and target in mind which is then delegated to the subordinates to complete. 

There is little scope of discussion or change.

5. External Motivation

This method promotes motivating employees through external factors like recognition, promotions etc. This motivates the employees directly to boost the productivity. 

6. Reward Performance

Transactional leadership focuses on rewarding employees who have done well and penalize under performers. This can be seen as a shortcoming but in transactional leadership, this approach is quite beneficial to get the work done.

Transactional Leadership Theory

There are several ways in which employees can be motivated to work towards organization goals. One of the ways is by giving a reward to an employee for a good performance and giving a punishment for some wrong work. Transactional leadership is based on a concept that to get some contribution from employees, they must get something in return. Hence, to motivate employees to contribute, there needs to be a proper structure, clear responsibilities and constant evaluation. Different types of leadership styles like traditional leadership, charismatic leadership and transactional leadership were given by German sociologist Max Weber.

Advantages of Transactional Leadership

There are several benefits of having a transactional leadership style by managers. Some of them are:

1.Motivation of employees is high if they perform well as they are rewarded.

2.Helps deliver short term goals quickly.

3.increases efficiency and accuracy of work done by employees.

4.Works well in linear structures.

5.Employees have clears instructions and deliverables and hence less confusion in what needs to be done.

6.Transactional leadership ensures employees know their tasks thoroughly and there would be minimal errors.

Disadvantages of Transactional Leadership

Despite several benefits, there are certain disadvantages of transactional leadership. Some of the drawbacks of such a style are:

1.Can be demotivating for employees who put in the hard work but do not deliver as per the requirement.

2.Reduces employee creativity as final deliverable is clearly defined.

3.Transactional leadership only focuses on short term results and does not consider long term employee motivation.

Difference between Transactional and Transformational Leadership

When transactional leadership is defined, it is mostly done in context of transformational leadership which is more or less opposite. Transactional leadership is short term and focused mainly on the leader (or manager) and immediate outcomes. The transformational leadership on the other hand is based more on inspiration and leading by example philosphy.

The results are important in both. Transactional is focuses on just the activities and outcomes in short term, transformational focuses on overall improving the company through constant mentoring and inspiration leading to improvement in performance and sense of belonging.  

Example of Transactional Leadership

Transactional leadership is importantly used in areas and fields where certain specific instructions have to be carried out in a given time period. The best example of transactional leadership style is in the armed forces. Subordinates have to carry out certain specific instructions immediately without any deviation from the said instructions. Those who do it correctly are appreciated and those who fail to deliver are given a punishment. Transactional leadership can be effectively used during a critical time period for a company where specific instructions need to be carried out. Companies which need high levels of accuracy from employees for performing repetitive tasks over a short span on time can use transactional leadership.

Hence, this concludes the definition of Transactional Leadership along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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