1.

1 Transactional Leadership

Now let us understand what is Transactional Leadership. Transactional leadership is the

exact opposite of transformational leadership — it relies on motivating employees through
rewards and punishments. It requires supervision, oversight, organization and performance-
monitoring. This leadership model doesn’t try to innovate. Instead, it’s rooted in keeping
things consistent and predictable over time. Errors and faults are closely investigated, and
the overall goal is to create efficient, routine procedures.

This style is best suited to departments or organizations that require routine and structure
— areas where businesses want to reduce chaos or inefficiency. But it doesn’t allow for
innovation or future planning the same way transformational leadership will.

A transactional leader is someone who values order and structure. So They are likely to
command military operations, manage large corporations, or lead international projects that
require rules and regulations to complete objectives on time or move people and supplies in
an organized way. They are not a good fit for places where creativity and innovative ideas
are valued.

Transactional leadership is most often compared to transformational leadership.

Transactional leadership depends on self-motivated people who work well in a structured,
directed environment. By contrast, transformational leadership seeks to motivate and
inspire workers, They choose to influence rather than direct others. Transformational
leadership supports agile environments, especially where failure carries less risk.

So Transactional leadership takes care of creating a consistent development process, while

transformational leadership leaves people free to come up with new ideas and look at the
future of products, services and ideas.

To sum it up, Transactional leadership focuses on results, it conforms to the existing

structure of an organization and measures success according to that organization's system
of rewards and penalties. And they have formal authority and positions of responsibility in
an organization. This type of leader is responsible for maintaining routine by managing
individual performance and facilitating group performance.

This type of leader sets the criteria for their workers according to previously defined
requirements. Performance reviews are the most common way to judge employee
performance. Transactional, or managerial, leaders work best with employees who know
their jobs and are motivated by the reward-penalty system. The status quo of an
organization is maintained through transactional leadership.
Let us understand how the concept was formed. So Max Weber made an extensive study of
leadership styles and divided them into three categories: which was traditional, charismatic
and rational-legal, or bureaucratic. In 1947, Weber was the first to describe rational-legal
leadership — the style that would come to be known as transactional leadership — as "the
exercise of control on the basis of knowledge."

Transactional leadership theory is based on the idea that managers give employees
something they want in exchange for getting something they want. It posits that workers are
not very self-motivated and they require structure, instruction and monitoring in order to
complete tasks correctly and on time.

The transactional leadership style was widely used after World War II in the United States.
This was a time when the government concentrated on rebuilding and required a high level
of structure to maintain national stability.

Now there was a Political scientist James McGregor Burns, who was one of the most
prominent authors to advance Weber's theories. In his book "Leadership," Burns argued
that both transactional and transformational leaders must be moral and have a higher
purpose. So In Burns's model, transactional leaders espouse honesty, fairness,
responsibility, and honoring commitments.

Then In the 1980s and 90s, researchers including Bernard M. Bass, Jane Howell and Bruce
Avolio defined the three dimensions of transactional leadership:

First, is the Contingent reward, it is the process of setting expectations and rewarding
workers for meeting them
Second, Passive management by exception, where a manager does not interfere with
workflow unless an issue arises
And the Third is, Active management by exception, in which managers anticipate the
problems, monitor progress and issue corrective measures

The transactional leaders overemphasize detailed and short-term goals, and standard rules
and procedures. They do not make an effort to enhance followers’ creativity and generation
of new ideas. This kind of a leadership style may work well where the organizational
problems are simple and clearly defined. Such leaders tend to not reward or ignore ideas
that do not fit with existing plans and goals.

The transactional leaders are found to be quite effective in guiding efficiency decisions
which are aimed at cutting costs and improving productivity. The transactional leaders tend
to be highly directive and action oriented and their relationship with the followers tends to
be transitory and not based on emotional bonds.
 The theory assumes that subordinates can be motivated by simple rewards. The only
‘transaction’ between the leader and the followers is the money which the followers receive
for their compliance and effort.

Many current leadership theorists agree that principals of transactional and

transformational leadership can be combined for ideal outcomes for both management and
the workforce.

1.2 Who uses Transactional Leadership?

Transactional leadership is typically used by middle and upper management in a medium- or

large-sized company. In most instances, the company is well-established and not searching
for change within the organization. The organization also has fixed methods and operations
that require little leeway or creativity to get the job done.

It is used in companies in sales departments. Sales usually share a single cohesive goal that’s
met when people perform at their highest levels. And they are given recognition for
performance when they meet the quotas. So a company with a large sales team might use
commissions as a type of transactional leadership method.

In contrast to that, in creative fields such as advertising or marketing, transactional

leadership doesn’t always work. Creative professionals need the flexibility to come up with
ideas, slogans or pitches for their products. Transactional leadership follows a strict rubric,
so it’s often at odds with creatives and may reduce morale rather than motivate individuals.

1.3 Examples of Transactional Leadership

The transactional model is likely to succeed in a crisis or in projects that require linear and
specific processes. This model is also useful for big corporations for example Hewlett-
Packard. It is a company known for its extensive use of management by exception.

Many high-level members of the military, CEOs of large international companies, and NFL
coaches are known to be transactional leaders. Transactional leadership also works well in
policing agencies and first responder organizations. Now let us look at the examples of
Transactional leaders.

Norman Schwarzkopf
Gen. Norman Schwarzkopf. He was born in 1934 and he went to Vietnam as an advisor to
the South Vietnamese army. During that war, he was wounded twice and awarded three
Silver Star medals. In 1978, he became a brigadier general; he attained a four-star ranking in
1988. General Schwarzkopf was commander-in-chief of the U.S. forces in Operation Desert
Storm, responsible for tens of thousands of troops in Iraq and Kuwait. He used the rules and
regulations of the military to coordinate operations on several continents.

Vince Lombardi
He was Born in 1913, He is best known as the coach for the Green Bay Packers. He signed a
five-year contract with Green Bay in 1959. Under his leadership, the team never had a losing
session. The Super Bowl trophy is named after him. He used to run the Packers through the
same plays in practice over and over again. The team's opponents knew the plays Lombardi
would run, but the team was so well trained that many teams had trouble defending against
them.

Another example is Bill Gates

Bill Gates was born in Seattle in 1955. In his early teens, he met Paul Allen at the Lakeside
School, where they both developed computer programs as a hobby. When Gates went to
Harvard, Allen went to work as a programmer for Honeywell in Boston. And In 1975, they
started Microsoft, and by 1978, the company had grossed 2.5 million dollars, when Gates
was just 23. In 1985, Microsoft launched Windows. Bill Gates is now one of the richest
people in the world. As a transactional leader, he used to visit new product teams and ask
difficult questions until he was satisfied that the teams were on track and understood the
goal.

Howard Schultz
Howard Schultz was born in 1953 and grew up in the Brooklyn housing projects. He escaped
the projects with a football scholarship from Northern Michigan University. After college, he
started selling coffee makers to companies that included the Starbucks Coffee Tea and Spice
Company, which originally sold coffee beans rather than made-to-order drinks. He was then
hired by the company in 1982. In 1984, he opened the first Starbucks coffeehouse based on
the concept of an Italian espresso bar.

He wanted to grow Starbucks, but the owners wanted to stay small. So, he left and opened
his own company in 1985. With the help of investors in 1987, he bought Starbucks and
merged the two companies. And By 2006, Schultz was ranked 394 on Forbes magazine's list
of the 400 richest people in America. So As a transactional leader, he was responsible for
the vision and implementation of the Starbucks model.

From the examples that we discussed, we can see that A transactional leader is someone
who values order and structure. They are likely to command military operations, manage
large corporations, or lead international projects that require rules and regulations to
complete objectives on time or move people and supplies in an organized way.
Transactional leaders are not a good fit for places where creativity and innovative ideas are
valued.
1.4 Characteristics of a Transactional Leader

From all the examples we discussed, we can see that the transactional leaders are:
Focused on short-term goals
They Favor structured policies and procedures
They Thrive on following rules and doing things correctly
They Revel in efficiency
They are Very left-brained
They Tend to be quite inflexible and
They are Opposed to change

Let us look at some of the characteristics of a Transactional Leader.

So, first, they are Hierarchical
Corporate structure and culture are high on the list of importance in transactional
leadership. Everything goes through a proper channel and process. For example, if you have
an idea to boost sales, you may be required to tell your manager who then reports it to
upper management. Bypassing this process is often seen as insubordination.

Nex, they believe in Micromanaging

In transactional leadership, the day-to-day operations of the business are rigid. All decisions
are final from the transactional manager, but the responsibility of goal achievement also lies
squarely on their shoulders. As a result, transactional leaders tend to micromanage
employees to make sure everything runs like clockwork.

Next, they are Passive

Transactional leadership doesn’t aim to change any of the processes of the company. They
want everything to stay exactly as it is within the business, which may seem passive or
laissez-faire.

Next, they are Practical

Practicality and pragmatism are two of the staples of transactional leadership. They’ll make
level-headed decisions based on constraints and available information. This rarely leads to
thinking outside the box.

Next, They believe in Motivation by self-interest

Both the employee and the transactional leader have something to gain by hitting their
quotas or achieving personal goals. Therefore, teamwork is often underappreciated or
nonexistent. Instead, transactional leadership aims to find the best employees to hit their
goals and rise into upper management.

Next, they are Reactionary

 Due to the importance of the status quo within the business, transactional leaders are rarely
proactive. Instead, they are reactionaries, only making changes within the department or
organization when their hand is forced.

1.5 Advantages

Now let us look at some of the advantages. So as discussed earlier, Transactional leadership
works well in organizations where structure is important. Transactional leadership is not the
right fit for organizations where initiative is encouraged.

So the advantages of Transactional leadership is that it:

Rewards those who are motivated by self-interest to follow instructions
Provides an unambiguous structure for large organizations, systems requiring repetitive
tasks and infinitely reproducible environments
Achieves short-term goals quickly
Rewards and penalties are clearly defined for workers

If you implement transactional leadership in the right way, your business will experience
many benefits. Let us understand it in detail.

So first, it Creates a sense of fairness

In any group setting, there are often accusations of favoritism. Certain employees feel like
they are being treated unfairly, or their coworkers are being rewarded just because the
manager likes them better.

With transactional leadership, feedback is fair and based on metrics, rather than a
manager’s opinions or feelings. Under this approach, all employees are measured and
rewarded in the same way. Managers can use this data to decide who to promote and who
to give projects to. By the way, You can use HR software to automate the process and make
it easier to manage.

Next, it is an Easy-to-understand system

A rewards-and-punishment system is easy to understand and isn’t open for interpretation.
Employees know what they have to achieve and by when if they want to receive a reward,
and they know what the consequences are if they don’t achieve these goals.

This system of strict structure and order suits some employees, as they don’t have to worry
about any other projects and can focus on the tasks they have to achieve to receive
rewards.

Next, Employees can see their impact on the business

 If employees are working toward certain goals that are tied to business growth, then they
can easily understand the impact they are having on the business. They know that if they
meet or exceed their goal, it will help their company run more efficient operations, create a
new product line, or boost revenue.

Next, It’s a responsive way of effectively maintaining the status quo:

There’s nothing wrong with stability, especially in high-pressure environments.
Transactional leadership can help uphold company rules and regulations, but also amend
them as needed if problems arise.

Next, It supports work environments that thrive on repetition:

Whether your company is large or small, transactional leadership is a great way to support
businesses that rely on repetitive output to meet production demands. The more things are
streamlined and automated, the better production runs.

Next, It’s a solid approach to crisis management and troubleshooting: When you’re firmly
entrenched in company mandate, it can be easier to address issues that impede production
or compromise the company. The rigidity and structure of transactional leadership can lend
itself to quick solves.

Next, It rewards self-motivation: Employees who can follow instructions and meet their
targets are celebrated accordingly, which can improve output and morale. Similarly, those
who fall behind or don’t follow rules can be reprimanded. This black-and-white approach
can make it easier for employees to carve out their roles and work more effectively.

Next, It can be more cost effective: When a company or business employs a top-down
approach that’s guided by strict rules and regulations, it’s less likely that more middlemen
will be needed to help guide employees and manage company output.

Lastly, It’s a great way to achieve short-term goals: If speed is key to your production
timelines, transactional leadership is an excellent way to get things moving—and keep them
going—to meet daily and weekly goals.

1.6 Disadvantages of a Transactional Leader

Like every other leadership style, Transactional leadership has many cons like it:
Rewards the worker on a practical level only, such as money or perks
Creativity is limited since the goals and objectives are already set
It Does not reward personal initiative
Rewards don’t work for everyone, and this kind of system can stifle creativity. Let us
understand in more detail why transactional leadership might not be right for your
company.

So, first, there is a Lack of focus on building relationships

Transactional managers focus on using rewards to motivate employees and boost
satisfaction. They don’t focus on working conditions, such as an employee’s relationship
with their manager, which can be critical drivers of engagement and satisfaction.

The manager-employee relationship is crucial to staff retention; it's been reported that 57%
of employees have left a job because of their manager. So, If your leaders are only focused
on making sure employees meet their goals and don’t take into account creating a
satisfactory work environment, then you may lose good employees to other companies.

Next, it is Difficult to find rewards that motivate all employees

We’re not all motivated by the same factors. Some of us see more money as a reward,
others appreciate time off, and others want perks such as premium health insurance or a
flexible working structure.

Some people are not motivated by rewards; they are motivated by doing a good job, helping
their customers, or making a difference in the world. As a result, a reward system may not
work as an incentive for these employees.

Additionally, our motivations aren’t fixed. For example, if you develop a health issue, your
motivation might switch from more money to better health insurance or more vacation
days. Companies can’t always find a reward that will suit everyone for the entire time they
work at your company.

Next, it Discourages creativity

If a business is to innovate and thrive, then employees and leaders need to be able to make
mistakes and fail without worrying about the consequences. Transactional leaders punish
their staff for not meeting their goals and do not leave any room for failure or creativity.

In this environment, employees are not encouraged to come up with new ideas. Instead,
leaders insist they stick to the strict system and pursue the goals they have been tasked with
at the cost of any other ideas.

For example, Google allows its employees to spend 20% of their time working on side
projects. This approach has been shown to boost creativity and encourage innovation, but
this kind of approach is not permitted when a company employs a transactional leadership
approach.
Next, they do Not have a long-term vision
Transactional leadership focuses on short-term goals and planning and fails to look at the
big picture or plan for the future. While constantly achieving goals can be beneficial in the
short term, with quick wins and immediate outcomes comes a failure to recognize that
businesses need five-year plans.
Any business needs to know where it is going and take steps to get there. While these steps
won’t necessarily lead to immediate results, they will provide the foundation for future
growth.

Next, there is Poor leadership development

If you want to implement business succession planning, then you need to develop both
employees and managers so they can step up to the plate when a position becomes vacant.
If a manager’s sole focus is monitoring staff performance, while employees are only tasked
with meeting specific goals, then you will not have provided sufficient learning and
development opportunities for either one.

Next, It’s not necessarily the best approach to achieve long-term goals:
Because transactional leadership is so focused on maintaining rules and regulations, it
doesn’t leave much room for future plans and the ability to adapt to an evolving
marketplace.

Next, It doesn’t allow for innovations: One of the main tenets of transactional leadership is
to never change. Adhering to such a strict approach can hold a company back from
exploring a different approach that could lead to greater success.

Next, Leaders can be put under a lot of pressure to succeed: A top-down leadership
approach that doesn’t encourage employee collaboration can mean that transactional
leaders can bear a big burden of responsibility on every level.

Next, Employee motivational rewards can be lacking: Often, productive employees will get
rewards such as free lunch, a day off, or other assorted perks and monetary gains. Such
rewards can be seen as middling and don’t necessarily encourage employees to go above
and beyond the call of duty.

Next, Personal initiative isn’t encouraged: Even if an employee finds a better way to achieve
company goals, transactional leadership doesn’t lend itself to embracing employee input—
especially if it changes the rules or deviates from a mandated plan. Both of these issues can
negatively affect company growth and employee morale.

Next, Mistakes can prove to be costly: A number-crunching, cookie-cutter approach to

managing production can lead to instances where problems aren’t caught until it’s too late.
1.7 Is Transactional Style still relevant?
Now that we understood what transactional leadership is and what are its disadvantages,
the question arises: Is transactional style still relevant?
We know that to prosper in modern times, creativity and collaboration are vital to
businesses. Whereas, Transactional Leaders are rigid and inflexible. So can this leadership
style still be relevant in 2021?

Let’s answer this question with an example. Imagine you are a leader, and there is a fire at
your establishment. Would you want to act immediately? Or would you follow guidelines
and wait for new ways to solve the problem?

Transactional leaders play an essential role in such situations. This type of leader is ideal for
making quick decisions and actions due to their goal of following rules. These kinds of
leaders help organizations to handle risk and panic among employees.

There are many such examples where this type of leader is best suited. For instance, During
the initial days of the Covid-19 pandemic, businesses couldn’t run efficiently.

Productivity and efficiency of businesses declined around the globe. Companies started
adopting digitalization at an accelerated rate which made employees confused. They
became unaware of what the organization was expecting from them. During this time, this
style of leadership boomed.

Adoption of this style gave employees a defined way to succeed and meet business goals.
Although this leadership style is traditional, it is very effective in such situations.

Next, Companies with routine and repetitive jobs use this leadership style E.g.
Manufacturing units and factories.

Most Global organizations install diversity and inclusion programs. These programs help to
maintain diversity in the organization.

Diversity refers to the traits and characteristics that people are unique. Inclusion, on the
other hand, refers to organizational behaviors and social norms. These can be maintained
through fixed operating ways. These working ways are supported through Transactional
leaders.

So it is still relevant in the 21st century.

1.8 Are you a transactional Leader?

So let’s see if You are a transactional leader or not. If you say yes to most of these
statements, then you are. So,

You are comfortable telling others what to do.

You’re capable of towing the company line.
You know how to execute decisions based on a strict adherence to company mandate.
You don’t feel the need to confer with anyone else on your decisions.
You instruct employees to check with you before they make decisions that could affect the
company.
You strictly monitor employee output while setting short-term goals.
You consider company procedure to be the guiding law, but amend it when improvement is
needed.

If you said no to most of those statements but you still want to incorporate the
Transactional style into your leadership approach, then there are certain things that you
should keep in mind:

First,
This leadership style can be a little slippery if not handled with care. It can quickly give an
impression of an Authoritative leader. Hence, it is necessary to maintain this balance of not
being too direct. Maintaining balance requires the use of motivational tools such as rewards
and required corrections.

Second,
Smooth flow of operation is of utmost importance for such leaders. Hence, Prioritizing on
the hierarchy of the organization helps achieve that. This flow helps organizations achieve
the desired productivity and demand.

Third,
A good Transactional leader focuses on the rules and regulations of the organization. Rules
and regulations lower the chances of risk and deviations. This trait increases the productivity
of the organization.

Fourth,
The organizational format is the structure of the organization. It defines the direction of
activities in the organization. Directed activities like task allocation, coordination, and
supervision help achieve goals and objectives. An effective leader understands the
importance of this structure.

Fifth,
 Transactional leaders only intervene when someone does not meet the organizational
standards. When someone under delivers, they get penalized in exchange for the
unacceptable performance.

Sixth,
An effective Transactional leader understands the need for urgency. They are hence best
during crisis situations to meet organizational goals and objectives.

Seventh,
Transactional leaders review and check the performance of each member of the team.
According to this evaluation, transactional leaders reward and punish employees.

Eighth,
Transactional leaders believe in the fundamental aspects of a situation. They do not believe
in theories or ideas. These leaders are generally practical and realistic.

So we can see that the Transactional Leadership approach is an excellent style for you to
implement.

It will help you achieve daily targets, short-term goals, routine jobs, and handle crises
through contingent rewards. Transactional leaders follow a simple model which is easy to
understand and use.

Most great leaders use a mix of the various types of leadership styles. Mixing leadership
styles leads to better output.

If you want to be an effective leader, you need to acknowledge that the world keeps
evolving, and so does the working landscape. You should be able to ensure that the
company’s demands and the basic needs of the employees are fulfilled.

1.9 Conclusion:

To sum up what we have learnt till now:

Transactional leadership or transactional management is the part of one style of leadership
that focuses on supervision, organization, and performance. Transactional leader is
someone who values order and structure. There is definitely a place for transactional
leadership in the world today. For certain businesses, transactional leadership can be an
important part of the company structure, and a guidepost for success. One of its best uses is
in multinational corporations where not all of the workers speak the same language. Once
the structure and the requirements are learned, it is easy for workers to complete tasks
successfully. This works because transactional leadership is simple to learn and does not
 require extensive training. The transactional approach is easy to understand and apply
across much of an organization.

The military, policing organizations, and first responders use this style of leadership so that
all areas of the organization are consistent. It is also easier to apply in a crisis situation,
where everyone must know exactly what is required of them and how a task is to be done
under pressure.

Additionally, transactional leadership is helpful in arenas such as sales and manufacturing,

especially in situations where production lines are part of a company’s manufacturing
schedule. So, for the right business, company, and management team, transactional
leadership skills can be used to motivate your employees to become their most productive
selves. It’s been said that leaders such as Microsoft founder Bill Gates, Starbucks founder
Howard Schultz, and football coach Vince Lombardi relied on transactional leadership to
guide their professional endeavors.

1.10 Conclusion:

So, we can see that There are marked differences between transactional leadership and
transformational leadership.

Transactional leaders differ from charismatic and transformational leaders in both structure
and method. Charismatic leadership emphasizes influencing a group or organization to make
the world a better place. In transactional leadership, the emphasis is on managing the
performance of the individual and determining how well he or she performs in a structured
environment.

Simply put, transactional is a "telling" leadership style, and transformational is a "selling"

style. While the transactional approach features positive and negative reinforcement,
transformational leadership emphasizes motivation and inspiration. Transactional leaders
are reactive; transformational leaders are proactive. Transactional leadership appeals to the
self-interest of individuals, while the transformational style prioritizes group progress.

Transformational leaders specialize in:

Working to change the system
Solving challenges by finding experiences that show that old patterns do not fit or work
Wanting to know what has to change
Maximizing their teams' capability and capacity
Transactional leaders specialize in:
Working within the system
Solving challenges by fitting experiences to a known pattern
Wanting to know the step-by-step approach
Minimizing variation of the organization