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...

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.
Works Cited:

Burns, J. (1979) Leadership. Harper Books.

Pieterse, a., van Knippenberg, D., Schippers, M. & Stam, D. (2010). Transformational and transactional leadership and innovative behavior: The moderating role of psychological empowerment. Journal of Organizational Behavior. Vol. 31 (4) 609-623.

Kezar, a. & Eckel, P. (2008). Advancing diversity agendas on campus: Examining transactional and transformational presidential leadership styles. International Journal of Leadership in Education. Vol. 11 (4) 379-405.

Zagorsek, H., Dimovski, V. & Skerlavaj, M. (2009). Transactional and transformational leadership impacts on organizational learning. Journal of East European Management Studies. Vol. 14 (2) 144-165.

Laohavichien, T., Fredendall, L. & Cantrell, R. (2009). The effects of transformational and transactional leadership on quality improvement. Quality Management Journal. Vol. 16 (2) 7-24.

Whittington, J., Coker, R., Goodwin, V., Ickes, W. & Murray, B., (2009). Transactional leadership revisited: Self-other agreement and its consequences. Journal of Applied Social Psychology. Vol. 39 (8) 1860-1886.

Spinelli, R. (2006) the applicability of Bass' model of transformational, transaction and laissez-faire leadership in the hospital administrative environment. Hospital Topics. Vol. 84 (2) 11-18.

Harms, P. & Crede, M. (2010). Emotional intelligence and transformational and…