Over the last three decades, organizational scientists have evaluated and identified several forms of leadership to help organizations be successful in a changing economy. One of the most researched is transformational leadership whereby leaders are successful through being visionary, excellent role models, charismatic in their language and empowering others (Bass, 1990). To demonstrate the effectiveness of transformational leadership, many researchers have compared this style to transactional leadership with multiple studies showing that transactional leadership is the inferior of the two (Bass, 1990). Nonetheless, there have been recent attempts to resurrect transactional leadership and to show that it is an effective form of leadership (Judge & Piccolo, 2004). This CQ Dossier defines and addresses the roots of transactional leadership; provides examples of transactional leadership interventions; describes the advantages and disadvantages of transactional leadership, and finally, discusses the relationship between transactional leadership and organizational outcomes.
Before the advent of transformational leadership, most scholars and practitioners viewed transactional leadership as being an effective style to influence others in the workplace (Bass, Avolio, Jung & Berson, 2003).
Transactional leadership means leadership based on exchange between leader and follower
Whereas transformational leaders empower their followers to go beyond expectations, transactional leaders focused on an exchange of resources whereby transactional leaders provided their followers with something that they wanted, in exchange for something required by the leader (Judge & Piccolo, 2004).
Transactional contingent reward leadership focuses on expectations and recognition
When followers carried out their work duties, they were provided with rewards and recognition (Bass et al., 2003). So, transactional leaders clarify to their followers what is expected and provide recognition when followers achieve the goals. This type of leadership is called transactional contingent reward and results in expected levels of performance (Bass et al., 2003).
Active management by exception sets standards and punishes inability to reach goals
The other form of transactional leadership is less effective and is titled active management by exception whereby the leader sets the standards and punishes followers if the goals are not met. This type of transactional leadership focuses on closely monitoring followers to ensure that they aren’t making mistakes. The passive form of management by exception is where the leader does not set standards but waits for problem to arise before taking action and is titled passive avoidant (Judge & Piccolo, 2004).
What are the advantages and disadvantages of transactional leadership?
There are several advantages to transactional leadership.
Transactional leadership is positively related to several key organizational outcomes
In a meta-analytic review of transformational and transactional leadership, Judge and Piccolo (2004) found that Transactional contingent reward leadership was related to several criteria with a validity coefficient of .39. In fact, the analysis showed that although transformational leadership had the highest validity coefficient (.44) it was closely followed by transactional contingent reward. Transactional leadership also had a higher validity than transformational leadership for two criteria – follower job satisfaction (.64 vs. 58) and leader job performance (.45 vs. 27).
Transactional leadership helps increase work outcomes
Transformational leadership showed the higher validity coefficient for follower satisfaction with leader (.71 vs. .55) and leader effectiveness (.64 vs. 55). The results from this meta-analysis show that although transformational leadership is the superior form of leadership in most instances, transactional leadership is also important in increasing effective work outcomes.
Transactional leadership is practical and it is easy to measure success
Because of its emphasis on setting goals in exchange for rewards, transactional leadership is a very practical form of influencing subordinates. It is also easy to measure success because the model is directive and straightforward. Because transactional leadership fulfills subordinates’ basic needs it can be effective in reaching work goals such as improved quality and customer service (Sadeghi & Pihie, 2012)
Self-serving interests are a danger of transactional leadership approaches
However, despite the simplicity of the model, transactional leadership can be shallow in its effectiveness with a focus on serving the self-interests of both the manager and the subordinate (Bass et al., 2003). This focus on reward and punishment can also lead to conflict within a team if subordinates feel a lack of distributive justice. Moreover, several researchers feel that transactional leadership ignores situational factors such as dealing with a crisis or responding to societal changes that are organizational challenges (e.g., Yukl & Mahsud, 2010).
Transactional leadership interventions
The best way to increase transactional leadership in the workplace is through providing managers with training courses that provide the knowledge and skills of transactional leadership. In fact, many of these courses exist because of the existence of transformational leadership training courses, that typically include a discussion of transactional leadership skills (Bass, 1990).
Trainings that build skills and knowledge are best to improve transactional leadership
One program that focused on helping mental health leaders who worked with teams provided the leaders with both transformational and transactional leadership skills. The goal of the transactional leadership training was to help leaders ask the question “What must I do to help this program run smoothly today?” (Corrigan & Garman, 1999). In their leadership training class, leaders received instruction on goal setting, performance feedback, and contingent reinforcement (Corrigan & Garman, 1999).
It is key to clarify expectations to everyone understands their responsibilities and can improve
The transactional leadership skills focused on clarifying expectations to enable team member to understand their responsibilities, motivating improvement through challenging team members to improve their performance, and recognizing achievements through creating opportunities for team members to be rewarded (Corrigan & Garman, 1999).
Transactional leadership and organizational outcomes
As previously discussed, a meta-analytic review showed that transactional leadership is a positive predictor of several individual outcomes including job satisfaction and leader job performance (Judge & Piccolo, 2004).
Transactional leadership improves creativity and innovation
Research on the linkage between transactional leadership and organizational outcomes has focused on the role of transactional leadership in improving creativity and organizational innovation (Deichmann & Stam, 2015). When employees are creative performers, this can boost organizational growth (Deichmann & Stam, 2015). In this study, the researchers focused on ideation programs such as online ideas boxes whereby employees provide ideas on product process improvements and practices within the firm (Deichmann & Stam, 2015).
Deichmann & Stam (2015) proposed that both transformational and transactional leadership influence idea generation at the organizational level because this leadership increases commitment to ideation programs. Ideation programs are a strategic human resource management practice because they can increase organizational commitment and improve performance at the organizational level (Deichmann & Stam, 2015).
Conducting their study in a large multinational firm, the researchers found support for transactional leadership as a predictor of organizational outcomes. Specifically, there was a significant indirect effect of transactional leadership on the generation of organizational ideas via employee commitment to the ideation program. So transactional leadership was related to organizational creativity through the mediator of employee commitment to the ideation program (Deichmann & Stam, 2015).
In conclusion, transactional leadership that focuses on contingent rewards is an effective form of leadership style for managers to use in harnessing employees’ capabilities. It is necessary in ensuring that daily operations are carried out and also can be effective at the organizational level in increasing creativity and innovation.
Critical appraisal of transactional leadership: Solidity rating 4
Based on the empirical evidence for the evidence of transactional leadership as an effective style for organizations, this dossier is assigned a Level 4 rating (based on a 1- 5 measurement scale). A level 4 is the second highest rating score for a dossier based on the evidence demonstrating that transactional leadership is effective for organizations. Although transactional leadership can be effective, most research shows that transformational leadership is best for long-term organizational growth and that transactional leadership is best when managers utilize contingent reward in their relationships with subordinates. Moreover, transactional leadership can be shallow in focusing on superficial relationships between managers and their subordinates.
Transactional leaders focused on an exchange of resources
Transactional contingent reward leadership is related to individual outcomes
Transactional contingent reward is related to organizational creativity
Transactional leadership provides a simple model for daily operations
Transactional leadership can be shallow in its effectiveness with a focus on self- interests
Transactional leadership training can focus on goal setting, performance feedback and reinforcement
References and further reading
Bass, B.M. (1990). From transactional to transformational leadership: Learning to share the vision. Organizational Dynamics, 18, 19–31.
Bass, B. M., Avolio, B. J., Jung, D. I., & Berson, Y. (2003). Predicting unit performance by assessing transformational and transactional leadership. Journal of Applied Psychology, 88(2), 207–218.
Corrigan, P.W., & Garman, A.N. (1999) Transformational and Transactional Leadership Skills for Mental Health Teams. Community Mental Health J 35, 301–312
Deichmann, D. and Stam, D. (2015) Leveraging Transformational and Transactional Leadership to Cultivate the Generation of Organization-Focused Ideas. The Leadership Quarterly, 26, 204-219.
Judge, T.A. & Piccolo, R. (2004) Transformational and Transactional Leadership: A Meta-analytic Test of Their Relative Validity. Journal of Applied Psychology. 89.5: 755-68
Sadeghi, A., & Pihie, Z. A. L. (2012). Transformational leadership and its predictive effects on leadership effectiveness. International Journal of Business and Social Science, 3(7), 186- 197.
Yukl, G., & Mahsud, R. (2010). Why flexible and adaptive leadership is essential. Consulting Psychology Journal: Practice and Research, 62(2), 81–93.
About the Author
Annette was born in England and now lives in the United States. She has a PhD in Industrial and Organizational Psychology and has taught at several institutions. Annette has published in several journals, including Journal of Applied Psychology, Personnel Psychology, Human Resource Development Quarterly, and Organizational Research Methods. She worked in the public and private sector for many years, primarily as a management trainer.