Transactional Leadership Definition, Pros, Cons, and Tips

Whether you’re a high-flying executive or an entry-level worker, leadership styles matter. You’ll meet plenty of leaders as you work your way up the career ladder, all of whom will have a different leadership style and all of whom will influence how you lead people yourself. You’ll remember how they made you feel, how they got results, and whether they were respected.

Whatever stage of the career ladder you’re on at the moment, it can help to understand different leadership styles so you can better understand your role and the expectations of the business. In this article, we’re focusing on transactional leadership. You’ll find out what it is, learn about the pros and cons of this particular leadership style, and look at some examples of transactional leadership in action. We’ll also have a quick look at an alternative leadership style and examine the differences. Without further ado, let’s dive in!

What is transactional leadership?

Put simply, transactional leadership is based on rewards and punishment. When all is going well, staff are rewarded – for example, with praise, a bonus payment, or even a promotion. When things start to slide, however, a punishment is given – like a reprimand, loss of privileges, or termination. Transactional leadership requires that strict processes and procedures are in place and that staff know that they are expected to follow them.

History of transactional leadership theory

Now that we have a transactional leadership definition, let’s take a look at its origins and evolution. Originally outlined by German sociologist Max Weber in 1947, transactional leadership theory was later developed by James McGregor Burns, a political scientist and historian, in his 1978 book Leadership, where he contrasted it with the transformational leadership style. Later still, in the 1980s, Bernard M. Bass added to the existing works by specifying how leadership styles can impact motivation and performance. Unlike Burns, Bass thought that transactional and transformational leadership were not mutually exclusive. But let’s move on from theory to take a look at transactional leadership in action.

The best situations for transactional leadership

Leadership cannot be a one-size-fits-all approach. Some situations and environments are better suited to transactional leadership than others. In an emergency, for example, there is little room for innovation or long-term planning – someone needs to take charge, give directions, and achieve the goal immediately. The rewards and punishments will follow – maybe an award for saving a life or a verbal warning for not acting quickly enough. When something absolutely needs to be done, no questions asked, and no feelings spared, transactional leadership steps up to the plate.

The pros and cons of transactional leadership

As you’d expect, there are both advantages and disadvantages to this particular leadership style.

Pros

Clarity. In transactional leadership, everyone understands their roles and responsibilities. Goals are understood and achievable.
Faster identification and resolution of problems. When an employee is not performing at the expected standard, it is quickly identified and mitigating actions can be implemented before the problem escalates.
Fairness. The whole team is treated in the same way and is subject to the same reward and penalty system.
Productivity. Employees are motivated to achieve the rewards and avoid the punishments, making for a more productive workforce.
Structure. Everyone knows their place in the organizational hierarchy, and team structures are strictly implemented and maintained.
Simplicity. Transactional leadership doesn’t require extensive training, relationship building, or a particular personality type. It just needs someone who can determine whether goals have been met and dish out the appropriate benefits or sanctions.

Cons

Lack of creativity. The transactional leadership style does not encourage creativity, innovation, or independent thinking. It works best when there is a strict process in place that needs to be followed no matter what.
Lack of progression. As this leadership style doesn’t encourage independent thinking, it creates followers rather than leaders. This means that employees can find it difficult to progress within the organization and that businesses can struggle to promote from within if a leader leaves.
Impersonality. Workers are not treated as individuals and the system is known for a lack of empathy. Profitability is valued above employee welfare.
Lack of teamwork. The reward-punishment system can lead to an “everyone for themselves” mentality and prioritizes individual interests rather than building a supportive, collaborative, and cohesive team.
Increased conflict. In a similar vein, if a reward or punishment is at stake, employees can be in direct competition with each other, leading to conflict and resentment.
Focus on the short term. When employees are stuck in the hamster wheel of short-term reward and punishment, that can lead to long-term improvement being sidelined.

Skills and key characteristics of transactional leadership

So, what makes a good leader? Can anyone be one? Let’s look at some skills and characteristics that good transactional leaders have in common.

Short-term focus. The transactional leader is always looking at achieving short-term goals. Long-term change and objectives aren’t on their radar as they’re in it for the quick wins.
Loves rules, structure, and processes. Transactional leaders thrive on routine. The same things, done the same way, time after time, because they know that’s what works.
Resistant to change. Relatedly, their reliance on structure and processes means that any suggestion of change is met with a cold reception. A transactional leader likes to use tried and tested methods to achieve their goals.
Discourage autonomy and independence of thought. Because the transactional leader likes to follow a procedure and have things done in a set way, they don’t value input or suggestions from their team.
Performance-oriented. This type of leader focuses on business results and performance above the welfare of their team.
Authoritative. Due to the transactional nature of their leadership style, this type of boss expects to be obeyed rather than challenged.

Examples of transactional leadership

The success (or otherwise) of transactional leadership depends on the situation. In some workplaces, it can be used to excellent effect, whereas in others, it can be detrimental. Let’s take a look at some examples to better understand this.

The military

In military environments, there is a well-defined chain of command and a clearly articulated mission. The success of the mission depends on soldiers following instructions to carry out the specific requirements of their role. There is no need for creativity or innovation once the mission is underway. Any soldier stepping out of line could compromise the mission – and even lives. The reward for a positive outcome could be praise, a medal, or additional leave. The punishment for jeopardizing the mission is likely to be disciplinary action or dismissal.

A tech start-up

Start-ups thrive on innovation, diverse inputs, and a fair amount of trial and error. Change happens quickly and everyone’s contribution is considered. In this situation, a transactional leadership style is likely to hinder the company’s mission of teamwork, collaboration, and the confidence to share ideas are vital to the company’s growth.

Examples of transactional leaders

Which famous leaders can we look to for a good example of transactional leadership?

Bill Gates

In the earliest days of Microsoft, Bill Gates’ business model focused on delegation of tasks and getting results. Initially, employees were governed by processes and had very little say in the future of the business.

Donald Trump

Donald Trump’s transactional leadership style is most apparent on his reality show, The Apprentice. The contestants that perform well progress to the next stage; those that don’t are fired. While the contestants are often set to work in teams, the competitive nature of the show means that individuals often focus on themselves rather than the greater good.

Steve Jobs

Steve Jobs focused on the task at hand more than the feelings and opinions of his team. He was known for his high standards and his blunt criticism and didn’t fear being disliked. His single-minded focus on the end result turned Apple into one of the world's most successful companies.

Tips for implementing transactional leadership

Do you think transactional leadership might be the way forward for your team? Check out our top tips to ensure that it runs smoothly.

Evaluate. Make sure that you’re truly choosing the right leadership style for your team, not just for yourself. Do the pros outweigh the cons for the business?
Set up. You’ll need to make sure that you have a solid structure in place in terms of hierarchy and procedures, as well as clearly defined roles and objectives.
Incentivize. Clarify the system of reward and punishment for the team so that they know the consequences of excelling or falling behind.
Monitor. Check in regularly to see where performance is lacking and where it is meeting expectations.
Act. Deliver the promised rewards or penalties.
Evaluate. As with any new way of working, you’ll want to step back when the new system has been in place for a while to make sure that it’s achieving what you hoped. If not, a different leadership style may be required.

Transparency is key here. Your workforce needs to understand what is required and what will happen if the goal is hit or missed.

What is the alternative to transactional leadership?

If all of this makes you realize that transactional leadership isn’t the way forward for your business or your personal leadership style, what other leadership styles could you consider? Step forward, transformational leadership.

Transactional vs transformative leadership

Almost the polar opposite of transactional leadership is transformational leadership. Where transactional leadership focuses on encouraging workers to blindly follow a predetermined path to a set goal, transformational leadership is focused on empowering individuals to effect positive change. This leadership style inspires and motivates employees to look toward the future and to work as a team to achieve the desired outcomes. Unlike transactional leadership, which creates followers, transformational leadership creates more leaders. Transformational leaders are known for listening to individual staff members, motivating employees to achieve and excel, modeling ethical behavior to earn respect, and challenging assumptions.

It can be said that the best leaders display both transactional and transformational leadership styles. That means they are willing to listen, adapt, and lead by example whilst still being able to motivate a team to deliver when it comes to the crunch, by using a carrot-and-stick approach.

Other leadership approaches

Transactional and transformational aren’t the only two leadership styles by any means, but they form a helpful contrast to help you identify what will work best for your team and your organization. If neither of them quite hit the mark, you could investigate autocratic leadership, situational leadership, democratic leadership, or laissez-faire leadership styles.

Leverage your leadership style to enhance your career

Your leadership style can make or break your career – and will also impact those around you and the organization you work for. Learning about different leadership styles and using the right one in each situation will support your career growth and enhance your professional reputation.

Whatever leadership style you choose to adopt, make sure that your resume is conveying your leadership skills and your ability to deliver the results the business needs. If you’re not landing the interviews you should be, make your next step a free resume review from ZipJob. Within 48 hours, you’ll have a customized review from our expert resume writers – the perfect stepping stone to a resume that wows recruiters.