Transformational vs. Transactional Leadership: A Comparative Analysis

Introduction: Leadership in a Competitive Global Environment

The global marketplace that is today's business environment is highly competitive, and organizational survival is increasingly perceived as being dependent upon the efficiency and effectiveness of its leadership. Changes such as the growth of online markets and a distributed workforce, shifting ethical and legal issues, demographic and social trends (including the global aging of the population), technological advances, and increased globalization mean that business leaders must re-evaluate and adapt their styles as necessary to bring about and maintain success. Competitive advantage is the predominant goal of most business strategies — how to achieve it in the first place, and how to sustain it once achieved. Understanding the effects of leadership, its role in an organization, and how leadership style impacts organizational outcomes is therefore fundamentally important. As stated by Ekuma (2014), the manner in which a company is directed affects its internal and external ethics as well as the morale, level of employee engagement, and overall employee performance.

While effective management is comprised of a variety of factors, perhaps the most important is leadership. As discussed by Odumeru and Ifeanyi (2013), the general well-being of nations and organizations is dependent upon, or at least highly influenced by, leadership. Aspects of an organization such as its communications, climate, and culture are all influenced — directly and indirectly — by leadership at each of its different levels. Indeed, a significant factor in an organization's communication comes down to the style of leadership employed and the overall tone it sets for the organization as a whole and for employees at every level.

Leadership Styles and Theory

From the perspective of leadership theory, there are a variety of different leadership styles. This paper begins by reviewing four of these: (a) Situational Leadership, (b) Transactional Leadership, (c) Transformational Leadership, and (d) Multifactor Leadership. From this analysis, the paper then focuses on identifying the single most effective leadership style.

Situational Leadership

As discussed by McClesky (2014), situational leadership theory (SLT) is based upon specific situations and situational responses as needed and as appropriate, rather than being a style that depends on a leader's personal charisma. The evolution of SLT is derived from a focus on task completion rather than an employee- or people-orientation. Some have viewed this as a continuum with tasks at one end and employees or followers at the other, with the role of the leader being to move along that continuum as necessary for the good of the organization. McClesky (2014) points out that Hershey and Blanchard originally described SLT with an emphasis on employee maturity as a factor in appropriate leadership style. Other authors consider SLT to be a contingency and/or behavioral theory, with the net focus of the leader being either "task" or "people," depending upon the type of followers or employees involved in a given situation. Psychological and job maturity are considered determining factors for the appropriate style of leadership, based upon employees' training and educational level. As McClesky (2014) notes, SLT is not without its criticisms.

Transformational Leadership

Charismatic and transformational leadership have been popular since approximately the 1980s. This approach has been viewed as highly effective and has been studied extensively. Transformational leadership is based upon the creation of a bond between followers and the leader, and is said to engender "empathy, compassion, sensitivity, relationship building, and innovation" (Rita-Men, 2014). Essentially, transformational leadership works to convert employees into followers and then appeals to what are called "higher-order needs" of those followers. Specifically, this involves inducing employee-followers to place organizational and group needs above their own personal needs. In general, transformational leaders encourage individual development and confidence, engender trust, and demonstrate genuine interest in their employees' well-being. This is likely to include fostering closer interpersonal relationships with employee-followers, resulting in better handling of both task and personal needs. Followers are generally empowered to make decisions by a transformational leader, who delegates significant authority and seeks to decrease dependence while increasing independent action — including power sharing. The communication style of the transformational leader is empowering, passionate, caring, visionary, and interactive (Rita-Men, 2014). To date, transformational leadership is the concept that has been most fully studied, and it demonstrates a straightforward and logical path to successful achievement of outcomes for both the organization and employees as teams and individuals.

Braun and colleagues (2013) conducted a study on leadership styles, focusing on team performance, job satisfaction, team and supervisor trust, and the correlation of these factors with transformational leadership. This multilevel analysis compared team and individual perceptions of leaders and outcomes, with the operational hypothesis that transformational leadership would affect not only individuals but also teams. Results indicated that team performance, team satisfaction, and individual satisfaction were all positively related to transformational leadership, with trust in the team and trust in the supervisor mediating the individual's perceptions. There was not a direct correlation to trust in the team alone, however. The study showed that the role of the transformational leader was important for both team performance and job satisfaction at team and individual levels. One actionable conclusion was that training in transformational leadership would be valuable at a variety of organizational levels, both for teams and individuals, to enhance the skills of team supervisors (Braun, Peus, Weisweiler, & Frey, 2013).

Transactional Leadership

In contrast to transformational leadership, transactional leadership does not rely on the personal charisma of the leader but rather focuses on the task. This can be considered to sit at the "task end" of the continuum described in situational leadership. A transactional leader functions by providing rewards and recognition for performance, specifying task expectations, negotiating contracts, and clarifying responsibilities. As discussed by Liu and colleagues (2011), transactional leaders provide rewards when followers successfully carry out assigned tasks; followers and employees must comply with the leader's expectations and are not only provided with rewards but are also aware of the potential for negative consequences such as discipline if they fail to achieve assigned goals. Thus, in contrast to the transformational leader, a transactional leader is more likely to operate according to the status quo and less likely to institute or originate change. The transactional leader is far less likely to exhibit a laissez-faire attitude and is instead closely attentive to any deviations in performance.

The interaction process between the transactional leader and the follower or employee therefore resembles an exchange or transaction: positive job performance receives a reward, while negative job performance receives some form of discipline. There is less encouragement to surpass expectations and no real motivation to innovate or explore positive organizational options. Given the increasingly critical role of innovation for business success — particularly innovation as part of teamwork — transactional leadership is less likely to help an organization move forward. In the work of Liu and colleagues (2011), team innovation in the context of transactional leadership was explored: when "emotional labor" is high, transactional leadership suppressed team innovation; conversely, when emotional labor was low, this leadership style had a positive effect. The term "emotional labor" specifically relates to jobs such as flight attendant, social worker, teacher, call center worker, store clerk, doctor, nurse, and daycare worker — roles where employees must interact with customers and/or clients. Organizations in which emotional labor is an important component therefore perform less well under transactional leadership. Furthermore, with a broad economic shift from manufacturing to service jobs, a shift away from transactional leadership may increasingly benefit organizations. The "carrot and stick" approach of transactional leadership can be effective; however, it proves to be far more situationally dependent than is transformational leadership (Liu, Liu, & Zeng, 2011).

Comparative Evaluation of Transactional and Transformational Leadership

Some theorists consider transactional leadership to be a variant of transformational leadership (Odumeru & Ifeanyi, 2013), while others regard the two as entirely distinct. Recognizing that one is inspirational while the other is practical reveals that each leadership style may be appropriate in different situations and settings, as well as with different groups of employees. Some scholars suggest simply that transformational leadership enhances and augments transactional leadership, leading to higher employee achievement as well as greater job satisfaction. As discussed by Odumeru and Ifeanyi (2013), the transactional leader establishes transactions with employees — a reward for loyalty and performance — whereas transformational leaders inspire employees and often elicit innovation and change, as well as encouraging collaborative or group interactions that benefit the organization without necessarily providing direct personal benefits to the employees.

Transactional leaders are more focused on tasks, performance, and outcomes, whereas transformational leaders are more focused on people, visionary thinking, and innovation. The following table summarizes the key contrasts:

Transactional Leadership: Responsive; works from within the culture of the organization; uses the "carrot and stick" to motivate employees; appeals to employees' self-interests; management style emphasizes the status quo, exception management, and correct performance as the focus.

Transformational Leadership: Proactive; works to transform the culture of the organization; uses ideas and moral inspiration to motivate employees; appeals to employees' sense of group cohesiveness; management style emphasizes innovation and excellence, working with individuals, and creativity as the focus.

Multifactor Leadership Theory

Multifactor Leadership Theory (MLT) approaches leadership from the perspective that both transformational and transactional leadership are required to achieve organizational goals, with transformational leadership seen as enhancing transactional leadership. Returning to the continuum between task and individual described under situational leadership, MLT expects leadership not to act at only one end of the continuum — either purely task-oriented (transactional) or purely individual-oriented (transformational) — but to operate along its entire range as circumstances require. Under MLT, leadership is understood to combine transactional, laissez-faire, and transformational modes of action.

The work of Hargis and colleagues (2011) focused on how leadership affected different types of organizations — including healthcare and military contexts — and different outcomes such as job performance, team cohesion, and team efficacy. Their results demonstrated that transactional leadership was more relevant and useful in terms of effort and task performance (practical expression), while transformational leadership was more relevant and useful in terms of team efficacy and cohesion (interpersonal dynamics).

Transformational Leadership as the Most Appropriate Choice

Although every leadership style has its merits, evidence suggests that transformational leadership is best overall because it exemplifies a leader who is engaged, inspirational, and proactive. The last 30 years have produced a consensus that transformational leadership is the most studied and debated idea within the field of leadership. Transformational leadership encourages performance, morale, and motivation of employees and followers through several different means, among them the manner in which the transformational leader enhances the individual's sense of personal importance to the community and organization while also providing inspiration and a role model. The transformational leader inspires employees and followers to take greater personal responsibility and ownership for their own performance; he or she strengthens the individual, helps them align with organizational goals, and makes them personally more capable (Odumeru & Ifeanyi, 2013).

According to Warrilow (2012, as cited in Odumeru & Ifeanyi, 2013), the transformational style of leadership has four components. First, the attention the leader pays to the follower or employee: this is a mentor-coach relationship that includes respect for and appreciation of the individual and their contributions, providing inspiration and encouragement to grow and achieve. Second, the charisma or personal attributes of the leader: the manner in which the leader is someone to be admired and emulated, holding and displaying convictions that encourage followers to reach for higher ideals themselves, so that the leader becomes a role model. Third, intellectual encouragement of the follower or employee by the leader: this stimulates and challenges the individual to become more innovative and creative, and connects them to a greater organizational vision that they are encouraged to accept and contribute to. Fourth, motivation and inspiration: in this aspect the leader inspires and appeals to the individual's higher sense of purpose, encourages better achievements, and enhances the current meaning of their work.

Impact of Leadership Training on Psychological Reactions

Mason and colleagues (2014) addressed training as a factor in leader behavior, with a focus on the psychological factors involved in improving transformational leadership qualities following dedicated training. Fifty-six respondents enrolled in a transformational leadership training program completed questionnaires that assessed, both before and after the training, each individual's personal perspective, positive affect, and self-efficacy.

Outside assessments of these leaders by peers, team members, and supervisors confirmed that their transformational leadership skills had increased. Leaders whose perspective-taking, self-efficacy, and positive affect improved over the training period also reported improvements in their own transformational leadership behavior. In addition, leaders who exhibited increased positive affect were more likely to receive higher transformational leadership behavior ratings from their supervisors, team members, and peers. The internal and psychological changes experienced by the leaders were thus correlated with their increased behavior as transformational leaders.

Conclusion

Analysis of the literature on leadership indicates that transformational leadership is the most preferred overall method. This leadership style enhances performance at both team and individual levels while also supporting job satisfaction. McClesky (2014) presents arguments to the effect that more transformational approaches will be increasingly required as leaders themselves evolve to become more adaptive, innovative, flexible, and responsive. Regardless, leadership cannot simply be prescribed in a blanket manner, because situations and employees vary. There are clearly cases where situational and/or transactional leadership may be more appropriate. The bottom line for any organization is to have a successful leader — and this ultimately depends on both the ability to employ a variety of leadership styles as the situation warrants and on the leader personally possessing the beneficial and desirable qualities of a productive leader.

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