Posted: February 17th, 2022

What Is Transactional Leadership?


What Is Transactional Leadership?

Leadership is a fundamental concept within an organizational and social setting. It refers to the process of guiding or influencing others to maximize effort and achieve a specific goal. Leaders are expected to make decisions that articulate and establish a clear vision, set goals and provide the resources necessary to achieve these goals. They play an essential role in society, including politics, business, and social institutions. 

According to leadership theories, different leadership styles depend on situations and followers. Typical leadership approaches include;

  • Authoritative leadership
  • Democratic leadership
  • Bureaucratic leadership
  • Transactional leadership
  • Situational leadership

What is transactional leadership? Leaders who employ this style motivate their followers by primarily appealing to their self-interest. This transactional leadership definition alludes to the responsibility and formal authority of the leader within the organization. In this context, the main objective of the followers is to obey and implement the leader’s instructions. 

Transactional leaders believe in motivation through a reward and punishment system. Their approach to leadership works on the system of ‘action and reaction,’ i.e., subordinates are either rewarded or punished based on their actions. This kind of leadership believes that employees are motivated by extrinsic rewards. Specifically, if a subordinate achieve what is desired, a reward follows. Alternatively, if the employee fails, punishment is vented. 

The concept of extrinsic rewards is important within transactional leadership. These extrinsic rewards are the tangible or financial incentives offered to subordinates. Examples include benefits, bonuses, or pay rises. The term “extrinsic” means that the rewards are external to completing the project and are influenced by individuals other than the employee. 


History of Transactional Leadership

The history of transactional leadership can be traced to 1947 when it was first developed by Max Weber. According to Weber, transactional leadership refers to “control based on knowledge.” The concept was subsequently reintroduced in 1981 by Bernard Bass.

After its introduction and subsequent reintroduction, transactional leadership was widely adopted after World War II, especially in the United States. The reason for this extensive adoption in post-war America was the need to maintain national stability and build high-level management and leadership structures. The history of transactional leadership in the 1980s and 1990s is marked by additional research by Bruce Avolio, Jane Howell, and Bernard M. Bass. These authors defined its foundational dimensions as;

  • A contingent reward system that provides incentives to employees who meet expectations.
  • Management by Exception, where the leader anticipates problems, implements mitigation strategies and monitors progress. 

James McGregor Burns, a prominent political scientist, is credited with advancing the transactional leadership theory. In his book “Leadership” (1978), Burns argues that transactional leaders must demonstrate morality and a higher purpose. In Burn’s model, the attributes of transactional leaders include accountability, honesty, honoring obligations, and impartiality. 


Transactional Leadership Characteristics

An excellent example of a successful transactional leader is Bill Gates. What transactional leadership behaviors did the Microsoft founder and CEO depict that made him a successful transactional leader? According to reliable sources, Gates was known for his hands-on approach to management in the early days of his company. He paced around the facility to ascertain that operations were on track, took a keen interest in efficiency, allowed limited freedom to his employees, and adhered to a strict chain of command. Gates also had a strong vision and understood the resources, skills, time, and budget needed to realize his aggressive targets. 

Based on the transactional leadership behaviors portrayed by Bill Gates, the following are the transactional leadership characteristics that define a transactional leader;

  • Extrinsic motivation

Transactional leaders motivate their subordinates through praise, recognition, and incentives. They rely on external methods of motivation.

  • Practicality

Practicality is the distinctive transactional leadership characteristic that alludes to pragmatic and realistic approaches.

  • Opposition to change

Transactional leaders rely on order. As such, they are resistant to change, strive to maintain the status quo, and exhibit laser-focus in pursuit of organizational objectives.

  • Conventional decision-making

Transactional leadership discourages autonomous action from mitigating risks. Employees are required only to do what is expected.

  • Performance-oriented

Leaders who employ transactional leadership are performance-oriented. They measure employee performance based on organizational goals and quickly reward employees who achieve their targets. 

  • Linear thinking

Linear thinking allows leaders to handle routine affairs but limits them to existing constraints and systems. In this case, transactional leaders may struggle to integrate flexible solutions.

  • Just-in-time management

Transactional leaders are not proactive. Instead, they prefer to address emerging issues. Transactional leaders focus more on details than the bigger picture regarding risk mitigation, identifying new opportunities, or solving problems.

  • Directive

Authoritative decision-making is a fundamental transactional leadership characteristic. Such leaders expect employees to follow instructions and directives to the letter.

  • Structured

Structure is of the essence in the context of transactional leadership. Rules and organizational hierarchies determine the approach, accountabilities, and responsibilities of each role.

  • Individual effort

The rigid organizational structure of transactional leadership limits collaboration but appeals to individual performers. 

Chain of Command

Transactional leaders derive authority from their position as managers. They exercise this authority via a strict chain of command. As such, they expect their subordinates to adhere to commands and instructions. Those who conform successfully are rewarded, while those who fail are punished. Transactional leaders are given authority as per the chain of command, allowing them to set the standards. This chain of command defines clear roles and responsibilities for leaders and subordinates.


Healthy Motivation

Since there is a reward system, employees are motivated to fulfill their roles and responsibilities. Primarily, the leader appeals to the employees’ self-interest. They believe this is the best system to motivate and direct followers. 


Management by Exception

Management by Exception seeks to promote optimum working conditions. Transactional leaders use Management by Exception to provide the right conditions for employees to succeed. The approach assumes two forms; active and passive Management by Exception. Leaders who embrace active Management by Exception actively monitor employee performance, allowing them to implement immediate corrective actions in case of errors or mistakes. In contrast, passive Management by Exception entails a hands-off approach since the leader intervenes only when problems become severe or objectives are not met.


Transactional Leadership Examples

Transactional leadership examples include;

  • Athletic team coaches who issue instructions and motivate their players by promoting rewards after winning a game.
  • Business leaders of large corporations who demand compliance to existing systems.

Famous transactional leaders include Joseph McCarthy, a former US senator renowned for his ruthless promotion of results in crisis situations. Another example in politics is Charles de Gaulle. In business, famous transactional leaders include Howard Schultz and Bill Gates. Steve Jobs is another transactional leader reputed for his heavy involvement in corporate efforts, marketing, and product development. He was particularly keen on communicating his authoritarian expectations. Transactional leadership is popularly used in policing agencies and first responder organizations.


Lesson Summary

Leadership seeks to maximize effort, guide and influence employees to pursue specific goals. Transactional leadership is the leadership style that motivates employees by alluding to their self-interest. In this case, transactional leaders believe that employees are motivated by extrinsic rewards such as benefits, bonuses, or pay rises. The history of transactional leadership is traced to 1947 and attributed to Max Weber and Bernard Bass. The leadership approach gained popularity in post-World-War-Two America as the country sought national stability. Transactional leadership characteristics and behaviors include extrinsic motivation through incentives, practicality, pragmatism, opposition to change due to reliance on order, and conventional decision-making that discourages autonomous action. Other transactional leadership characteristics are; linear thinking that limits leaders to existing constraints and systems, performance-oriented employee appraisal, and just-in-time management since transactional leaders are not proactive and authoritative in decision-making. Transactional leadership is also structured based on rules and organizational hierarchies. Furthermore, this approach limits collaboration in favor of individual effort. 

A key concept in transactional leadership is the chain of command. Leaders expect their employees to adhere to commands and instructions fully. The reward system promotes healthy motivation among the employees, while the idea behind Management by Exception emphasizes optimum working conditions to ensure employee success. Transaction leadership examples include athletic team coaches, ruthless politicians such as Charles de Gaulle and Joseph McCarthy, and hands-on business leaders like Bill Gates, Howard Schultz, and Steve Jobs. 


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