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What is transactional leadership?

In this article, we’ll continue our exploration of various leadership styles and focus on transactional leadership. This leadership style is frequently compared to transformational leadership but, as you’ll see throughout the post, there are key differences between the two.

Understanding these distinctions among leadership styles will allow you to identify which is the most appropriate one to implement for your current role. It also gives you the freedom to combine the most applicable aspects of each leadership style to suit your needs. Let’s take a deeper dive into the world of transactional leadership. 

What is Transactional Leadership?

The Definition

Transactional leadership is defined by control, organization, and short-term planning. Leaders who adopt this style rely on a system of rewards and punishment to motivate their followers.

There are also a few key assumptions associated with transactional leadership: 

  • Rewards and punishments are motivating for followers
  • Adhering to the instructions of the leader is the primary goal of followers
  • Followers have to be monitored to ensure that performance standards are met

The Origin Story

A 20th century sociologist named Max Weber was the first person to describe the idea of transactional leadership, which was originally referred to as rational-legal leadership. This leadership style was widely used after World War II in the United States, when the government was focused on rebuilding and required a high level of structure to maintain national stability.

In the 1990s, researchers like James McGregor Burns, Bernard M. Bass, Jane Howell, and Bruce Avolio went on to advance Weber’s theory on Transactional Leadership and defined three major dimensions of this style:

  • Contingent Rewards: Transactional leaders like to link goals to rewards.  
  • Active Management By Exception: Transactional leaders actively monitor their teams, anticipate problems, and issue corrective measures.
  • Passive Management By Exception: Transactional leaders tend to stay out of the team’s way and only intervene when standards aren’t met or when the performance doesn’t meet expectations.

What Type of Person is a Transactional Leader?

Transactional leadership can be appropriate in several contexts. Let’s go through a business example to better understand what this leadership style looks like in action:

The company you work for has been struggling for many years, dealing with everything from public relations debacles to plummeting sales. Thankfully, things have stabilized recently and the organization is trying to rebuild itself. To help, Jamie was brought in as the new CEO and has been tasked with maintaining stability.

Jamie has over two decades of experience running large, multi-million dollar corporations, so she brings expertise in terms of creating structure, processes, and order. Over the next few months, she focuses on making the short-term goals of the company clear to all employees so everyone understands their roles and what’s expected of them in terms of performance.

While Jamie doesn’t get involved in the day-to-day, she actively monitors progress and intervenes as soon as she notices a problem. Jamie is also quick to praise and reward high-performing employees, while issuing performance improvement plans to team members who aren’t meeting expectations. 

In the course of a year, Jamie has brought the company back to a stable place – all thanks to her high level of organization and her teams staying focused on the goals that were set for them.

How to Become a Transactional Leader

While the steps to becoming a transactional leader will vary depending on your exact situation and personality, here are a few general guidelines you can follow to help you move in the right direction: 

Create structure

Establishing structure is one of the key roles of a transactional leader. This is done by creating processes, systems, and policies to ensure all work can be done effectively by both individuals and groups. Without this level of structure, things can easily fall through the cracks or there can be room for miscommunication. 

Make expectations clear

Transactional leadership is all about generating results. That’s why, as a leader who practices this style, it’s critical to make your expectations clear to the rest of your team. Get specific about what you’re trying to achieve, what your expectations around performance are, and what the rewards and consequences will be if they’re not met.

This way, there’s no confusion about what defines success at your organization. In order to ensure the expectations are being understood, transactional leaders tend to lean on tools like performance reviews and one-on-one meetings to measure progress. 

Recognize top-performing employees

A transactional leader should be quick to reward high-quality performance. Linking performance to recognition will make it clear to employees and followers the type of outcome that’s expected of them and will motivate them to continue producing impactful results. 

On the flip side, a transactional leader also has to be able to do the harder job of managing poor performance. Similar to rewarding positive performance, there has to be clear consequences associated with unmet expectations – this can come in the form of not being considered for promotions, being put on performance improvement plans, or – in the worst-case scenario – can be grounds for termination. 

Real-World Examples of Transactional Leadership

Where does it make sense to apply transactional leadership? In general, we believe this type of leadership is effective in crisis and emergency situations, as well as for complex projects that need to be carried out in a very specific way. Here’s what those situations could look like in real life.  

  • Your team was recently given instructions for a complex product launch that need to be followed precisely to ensure a good outcome. Applying the transactional leadership style can be helpful in this situation since it’ll require control, organization, and short-term planning to complete the project in an effective way. 
  • Your company is dealing with a cybersecurity crisis that jeopardizes the privacy of your customers. Thankfully, the team has an emergency plan ready to go for situations like this. But implementing it will require a leader who can provide stability, carefully monitor the situation, and quickly intervene if things don’t go as planned. This is exactly the type of situation where a transactional leadership style could be immensely useful.

There are also real-life examples of successful transactional leaders. Here are a few to draw inspiration from:  

Transactional leadership can be incredibly effective when applied to the appropriate circumstances. Understanding this approach – and being able to compare it to the other leadership styles we explore in our series – will help you become a more well-rounded and adaptable leader. 

Whether you decide to implement transactional leadership or a different style of leadership, there are many resources available to help you fine-tune your approach. Everything from coaching to 360-degree assessments are great tools that can better your understanding and application of leadership. 

Understanding the strengths and weaknesses of your own leadership style can help you better identify which approach is best for your current role. Check out our ebook, 10 Leadership Styles You Should Know, to learn more about different approaches to leadership and when and how to apply them.