Leadership in Simplistic Terms, There

Leadership

In simplistic terms, there are two main styles of leadership -- transactional and transformational. Each of these leadership styles has benefits and drawbacks, meaning that the appropriateness of the style will be dependent on the situation of the company and the objective of the leader. This paper will analyze the two different styles and attempt to determine if either can be considered to be universally superior.

Burns (1979) defined transactional leadership as giving power to perform tasks and either reward or punish the team's performance. The transformational leader motivates the team to be efficient and effective. A transactional leader is details-oriented, while a transformational leader focuses on the big picture and leaves the details to others that surround him or her. To evaluate the effectiveness of these styles, the styles need to be analyzed in the context of key success metrics. While the list of metrics can be near endless some metrics worthy of examination are innovation, diversity, organizational learning, quality improvement and organizational performance (profit or market share objectives).

Innovation is critical to success in most industries because of the rapid pace of change in the social, technological, economic and competitive environments. Firms are subject to constant changes to which they must adapt. Failure to adapt both at the managerial level and at the level of functional employees can be expected to result in declining results. The transformational leader would be expected to succeed in innovation because of the emphasis on long-term vision, which would spur a proactive approach to innovation. A transactional leader, however, could construct the systems within the company that would foster innovation, which may be more useful in a practical sense. Pieterse et al. (2010) has shown that contrary to expectations, transformational leadership is only superior to transactional leadership in driving innovation under specific circumstances. The main circumstance is when psychological empowerment of the employees occurs. Under other conditions, the two leadership styles are equally effective.

Workforces today are becoming increasingly diverse, a result of demographic shift and globalization. Managing effectively in such an environment means that the leader needs to be effective at managing diversity. Kezar and Eckel (2008) showed that both leadership styles can benefit in managing diversity. They determine that most leaders will use a combination of the two styles in their management and that both styles are necessary depending on the given circumstances. This evidence supports the contention that neither style is inherently better than the other.

One of the main drivers of sustainable competitive advantage comes in soft assets -- brands, experience and organizational learning. Learning allows the organization to adapt from past mistakes and it allows the organization to grow its knowledge base beyond that of competition where there is less learning. The emphasis that transformational leadership places on softer skills would lead to the prediction that the transformational style would be superior in developing organizational learning. Zagorsek et al. (2009) show that the transformational leadership style is superior to transactional leadership with respect to fostering organizational learning. Specifically, the authors identify information acquisition and behavioral and cognitive changes as the key areas where transformational leadership excels over transactional.

Most businesses place emphasis on quality improvement, whether they are adopting a low cost or differentiated strategy. Quality improvement results in reduced costs, fewer defects and increased customer satisfaction. Because quality is typically a transactional function, transactional leadership can be expected to be the most effective. Transformational leaders, with their emphasis on the big picture, often struggle with the details orientation required to improve quality. However, Laohavichien et al. (2009) find that the antecedents for quality improvement are present to a greater degree in firms with transformational leadership. The authors also find that the firms where these antecedents are most present are those in which either leadership style is highly evident. Firms that lack either leadership style are the lowest performing with respect to quality management.

The ultimate objective of any leader is to improve the company's performance. The most basic measures of performance are profit, revenue, market share and other financial statement measures. Even if the leader excels at other elements, if they do not translate to the bottom line, then the leader is not meeting the needs of the shareholders. Whittington et al. (2009) have found that organizational performance is most positively affected by transactional leadership, whereas transformational leadership as found to have no impact. By contrast, Spinelli (2006) found the opposite -- that transformational leadership was more effective at delivering performance outcomes. This again hints that the best leadership style is dependent on the situation.

Part of the reason for the divergence in effectiveness stems from the differences in the way the two leadership styles impact the organization. The transactional style results in an organization that cultivates strong trust in the leader, greater affective commitment and strong organizational citizenship (Whittington et al., 2009). By contrast, transformational leaders have a higher degree of emotional intelligence, which allows the transformational leader to be more effective motivators -- they do not command tasks but they can empower their employees to take greater command over tasks (Harms & Crede, 2010). This supports Pieterse's contention that transformational leadership requires empowerment. Without psychological empowerment, transformational leadership is not effective. The equivalent in transactional leadership would be a leader who does not understand the industry or the firm's value chain.

The evidence suggests that transformational leadership has more benefits to the company than does transactional leadership. Even on metrics where the latter would be predicted to outperform, it does not. A simple explanation could be that transactional leadership always exists to some degree in an organization, but it does not require transformational leadership in order to succeed. Transactional leaders therefore do not surround themselves with transformational leaders. A transformational leader, however, must surround his or herself with transactional leaders. By virtue of having a big picture perspective, the transformational leader understands his or her weaknesses and takes steps to address those weaknesses. This results in the firm having a more complete set of leadership skills than firms with transactional leaders only. This implies that transformational leadership is not inherently superior, but that it is more often combined with transactional leadership. Transactional leadership, by contrast, is not often combined with transformational leadership, which explains the reduced performance of firms with transactional leaders.