Transactional Leadership Style: Pros, Cons, and Examples (2023)

You’ve just gotten promoted and are now leading a team. You're intent on being the best leader you can be, and you’re trying to discover what that means for you.

The truth is that there isn’t a “one-size-fits-all” leadership style.

You’re going to have to determine what your natural abilities are.

You'll also need to figure out what your organization requires of you and what you want the people you lead to believe about you as a leader.

It’s as much about asking questions as finding answers. Asking the right questions will empower your journey toward leadership excellence.

Let’s discuss the concept of transactional leadership. You’ll learn its definition, who it works best for, and how you can apply it to your leadership style.

The different styles of leadership

Harvard Business Review contributor Jon Maner writes that there are two basic directions that leaders choose to take. These styles are selling and telling.

Each direction contains its own set of traits or leadership styles. With every leadership style comes different advantages and disadvantages.

Leadership experts agree that the best leaders can use elements of both.

Let’s take a look at these two types of leadership styles:

Selling styles

First, there are the “selling” styles. These include coaching, democratic, servant and coach, and transformational leadership styles.

Many leaders with these styles have compelling visions. They also foster collaboration and innovation and create learning organizations.

This is especially true of transformational leaders.

They value developing people over upholding fixed rules and regulations. These leaders influence people rather than command them.

But, transformational leaders may fail to pay enough attention to short-term objectives. They can also struggle with the policies and procedures necessary to make the organization efficient. And they may hesitate to take control in a crisis.

In this case, they would do best to adopt behaviors consistent with telling styles, which we will cover next.

Today, most leadership development experts advocate selling styles over telling styles. They put a premium on transformational leadership.

After all, where would we be without the Elon Musks or the Jeff Bezos of the world? They’ve radically transformed the way we live.

Let’s be clear, though — transformational leadership is a style.

And it’s not the only option out there. There are plenty of telling-style leaders who have also radically transformed businesses and even the world.

Telling styles

“Telling” leaders also offer great value. For many organizations, times will come when circumstances and context call for leaders with this style.

These leaders will be able to offer grounded stability when the organization needs it most.

Leaders with these styles embrace a fixed hierarchical structure. They give mandates from the top of the organization and hand out firm directives to subordinates.

Rules trump innovation. There is a clear chain of command.

Telling styles of leadership, with various ranges of effectiveness, include the following four styles:

1. Pacesetter

These are charismatic leaders who rely on a personal appeal to motivate followers. Visionary “selling leaders” influence people to join in. Pacesetters inspire people to walk behind.

2. Autocratic

An autocratic leader relies on their own decisions. They expect their people to follow through. Followers execute. Their mindset is fixed on their own goals for the company.

3. Bureaucratic

Bureaucratic leaders believe that organizations operate best within:

• Formal developed structures
• Policies
• Strict procedures

4. Transactional

Managers with this style motivate employees through offers of punishment and reward.

If you give them what they want, they’ll give you what you want.

These transactions lead to the running of a tight smooth-sailing ship. Everyone is crystal clear on the goals and objectives of leadership.

They also understand what responsibilities they have to achieve their goals and objectives.

What is transactional leadership? Definition and history

Let’s take a deeper dive into this leadership style and how it came about.

Transactional leadership origins

Max Weber developed the transactional leadership framework. He was an eminent 20th-century sociologist studying how people lead.

In his seminal book, Economy and Society, he said that there are three distinct leadership categories:

• Charismatic authority, based on the personal appeal of the leader
• Traditional authority
• Legal-rational (now known as transactional leadership)

His premise was, “The exercise of control on the basis of knowledge."

Transactional leadership gained prominence in the 1950s following World War II, a time when political and social stability was of utmost importance.

Its darker side emerged with the rise of anti-communist Senator Joe McCarthy.

But its brighter side came out with General and President Dwight Eisenhower. He was who led the U.S. into peace and prosperity.

Political scientist and historian James McGregor Burns promoted Weber’s theory in his 1978 book, Leadership. He said that great transactional leaders show high moral principles. They're honest and fair.

Responsibility and honoring their commitments are paramount.

Transactional leadership at work

Transactional leadership is often seen in companies that want or need to operate swiftly. To succeed as quickly as possible, their leaders implement standardized regulations and similar, if not identical, protocols at every organizational level.

The transactional leadership style appears most often in mid-to-large-sized organizations. It's often used in manufacturing or in other highly regulated industries.

Transactional leadership can keep everyone operating with fixed ways of working. Policies and procedures dominate these methods. This is most true in global organizations.

That's because leaders must manage people from different cultures with different languages.

The sales industry also has its share of transactional leaders.

This is especially true in organizations where employees need to meet aggressive quotas. If you meet your quota, you get a bonus or raise. If you don't, forget the bonus, and in many cases, your job, too.

Sounds harsh, but to a transactional leader, results come first.

A transactional approach assumes that all employees value external rewards. An example would be monetary compensation. It works on the belief that people are not self-motivated.

Many emerging leaders feel motivated by intrinsic rewards. This is especially true for younger generations, who are less likely to be loyal to a company and thus are less likely to stay.

Here's an example: 65% of millennials want their employer to support their development through training and mentors.

They want their higher-level needs addressed, such as belonging, esteem, and self-actualization. Rewards come in the form of opportunities for growth, meaningful work, and increased opportunity.

The future of transactional leadership

According to a recent Deloitte study, there are three stages of leadership emerging from the COVID-19 crisis. All stages reflect elements of transactional leadership blending with emerging transformational leadership.

Let’s take a look at the three stages:

1. Respond

This is the first crisis-management stage. It requires a leader who can stabilize things quickly and lead through unprecedented times with no clear answers.

They express confidence, transparent communication, and empathy. This leader is pragmatic and lead-taking.

During the first stage of the COVID-19 pandemic, General Motors Chairman and CEO Mary Barra found an opportunity. She demonstrated transactional leader characteristics.

This leader co-authored a playbook on health and safety protocols for reopening GM’s factories. She also sent back-to-work packages describing ways in which people could safely return.

She also acknowledged people’s fear and was empathetic in her execution. Barra is well-known for her transformational leadership style.

2. Recover

As things stabilize in the next stage, people need a leader who is careful and risk-reducing.

Imagine how tough it must be for a transactional leader to have their people work remotely. Dropping by to see how things are going is challenging, if not impossible, in such a scenario.

Still, their blended style gives people a vision for the future. This leader moves the organization toward innovation and more long-term strategies.

3. Thrive

This style calls for:

• Moderate flexibility
• A long-term strategy
• Intentionality
• Attending to development in emerging leaders

This is the area where transformational leaders shine.

5 transactional leadership characteristics:

Here are five traits of transactional leadership:

1. Act with urgency

Transactional leaders can act with urgency. At their best, they are effective executors. They take charge. They turn ships around.

They're especially skilled in times of crisis. That's because they use their authority to take decisive steps, even in ambiguity.

2. Communicate their expectations clearly

Transactional leaders have a high degree of clarity. Employees know exactly what their leader expects from them.

As a result, they feel productive in reaching clearly defined goals and objectives.

This leads to effective leadership where group performance matters.

Vince Lombardi, former coach of the Green Bay Packers, is hailed as one of the best football coaches of all time. He was a master at training his teams through rigorous, methodical practice with step-by-step instructions. As such, his team was virtually unstoppable.

3. Direct communication style

Transactional leaders have a direct and transparent communication style.

People follow them because they know they can trust them. This leader knows that loyalty follows trust.

4. Opposed to change

Transactional leaders have their own approach to how their subordinates must execute a task.

As such, employee performance can suffer if a given task could benefit from a new approach.

5. Focused on short-term goals

A transactional leader will know the goals they're trying to achieve. Usually, these goals are short-term and don't take long-term organizational goals into account.

This means a team working under a transactional leader will excel at short-term goals such as monthly sales volume. On the other hand, they may not be as effective regarding leadership development for various members of a team.

Pros and cons of transactional leadership

A great example of this kind of leader is Gen. Norman H. Schwarzkopf, former commander of U.S. Central Command.

A master organizer of human resources, he handled tens of thousands of U.S. troops in Operation Desert Storm in 1990.

Schwarzkopf led the NATO coalition to a decisive victory over Iraq and Kuwait. With his leadership, he saved thousands of lives.

At their best, transactional leaders are effective executors. They establish processes, rules, and protocols and expect that people will adhere to them.

Many transactional leaders can be “hands-off” in the way that they manage. As long as things are running smoothly, managers don’t interfere. Instead, they closely track work to identify problems as they emerge.

Let’s take a look at Bill Gates, who is a transactional leader. Gates frequently makes the rounds to check in on operations and ensure that things are going as planned.

He wants to see that efficiencies are met and that nothing is falling through the cracks. Under his leadership, Microsoft has literally changed the world.

"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” - Bill Gates

However, there are disadvantages to the transactional leadership style.

Valuing stability over innovation may result in a reactive, rather than proactive, mindset.

Many transactional leaders do not value divergent thinking and behaving. They're less likely to solicit ideas from their people. Innovative ideas at lower levels go up a strict chain of command which may or may not reach the top.

Conformity and status quo are organizing principles for transactional leaders.

They can put the professional and personal development of the individual on the back burner. When leaders focus only on short-term goals, they jeopardize the organization's sustainability.

If left unchecked, their dominant style could show up as inflexibility and bullying.

However, great transactional leaders are empathetic, like any effective leader.

Though their style may seem impersonal, people know their leader cares about them. This is true even when they have to make hard decisions that may negatively impact others.

Let’s consider Jacinda Ardern, New Zealand’s prime minister.

She took swift and courageous action to lock down the country in the first months of the pandemic. Still, she communicated transparency and empathy. She fostered trust through frequent Facebook Live chats — in her sweats!

That brings us to the current leadership disruption — the COVID-19 pandemic.

This has the potential of transforming the way we look at leadership styles. It gives a different view of how a leader can blend styles using their own approach while adapting to changing times and circumstances.

How to know if transactional leadership is for you?

You’ll begin to discover your own leadership style as you build your emotional intelligence. This involves asking some critical questions.

What are my strengths? What do I value?

Not all leader types value the same things. For example, if you value extrinsic motivation, you most likely would thrive as a transactional leader.

The VIA Institute on Character is a great resource that offers a free survey that determines your character strengths.

How would others describe my leadership?

It takes a degree of vulnerability to ask people about your style, but it's an important step.

Ask specific questions that you may be curious about. Then, listen and say thank you.

What does my organization need from me?

Different circumstances, times, and events may require different styles.

Your organization may currently need someone who can improve short-term employee engagement. Perhaps it needs to improve performance for the next few months. If this is the case, transactional leadership may be for you.

How willing am I to grow?

You may not be exactly where you need to be to become the best leader you can be.

But if you have a will to grow and improve yourself, you're one step ahead of those who don't.

Leadership is a journey, not a destination.

Become a noteworthy leader using transactional leadership

If you are going to be an effective leader, you have to be willing to acknowledge that as the world shifts, so does the landscape.

Great leaders navigating dynamic organizational environments are on a trek to self-awareness. They keep questions as trail markers along the way.

You can learn how to become a better leader, whether you use the transactional approach or not, with BetterUp.

Try a demo to see how you can improve your leadership skills today.

Published August 6, 2021