From American Management Association
Being an effective leader requires developing several core qualities and skills—courage, empathy, accountability, integrity, flexibility, active listening, and the ability to communicate across cultures with clarity and respect among them. It also depends on finding your style. Ranging from coaching to autocratic, from servant to visionary, each leadership style has its strengths and weaknesses, and no style is right for everyone or every organization. Of all the various styles, two of the most important are Transactional Leadership and Transformational Leadership—and it’s important for every leader to understand their differences.
Transactional Leadership motivates performance by establishing specific goals, objectives, or targets and providing a reward for achieving them. This style is based on an exchange between the leader and the employees. Transformational Leadership goes beyond a simple transaction to motivate performance by inspiring employee growth, collaboration, and creativity.
In many ways, these two approaches to leadership are direct opposites. However, Transactional vs. Transformational isn’t a matter of right vs. wrong or weak vs. strong. In fact, as a leader, you don’t have to decide to embrace one and reject the other. Both styles of leadership can be highly effective—in the right circumstances.
To get you started, the leadership experts at American Management Association (AMA) break down the differences between Transactional Leadership and Transformational Leadership, with a look at when to apply each, depending on the situation and the organization, for optimal results.
Transactional Leadership is best suited for situations where compliance to standard procedures, processes, and policies is paramount and individual performance can be quantified. Since expectations are clearly established, employees know exactly what they need to get done, upfront. They also know how their work will be evaluated, based on numbers, which tends to make performance appraisals more transparent and fairer. While this style is routinely used in sectors where employees work to meet quotas, such as manufacturing and sales, it also lends itself to leading specialists assigned to a project with strict parameters and time constraints. Transactional Leadership has an unexpected advantage: unlocking individual creativity. When they’re tasked with delivering results within tight boundaries and judged on their own merits, people often find surprising ways to shine.
Transformational Leadership is best suited for situations that call for significant change, whether to seize competitive advantage or resolve internal issues or some combination of factors. When people feel inspired and part of a shared vision, their performance tends to ramp up. This style’s emphasis on teamwork and collaboration also helps to strengthen alignment and focus, improve efficiency, and build trust. As a result, employee morale and dedication often increase. In addition to its many advantages, Transformational Leadership brings an incredible benefit: People working together on something bigger than themselves are much less likely to get tripped up by cultural clashes or ethical land mines.
Each style comes with its own potential disadvantages as well. Under Transactional Leadership, people sometimes feel controlled rather than inspired, which could cause morale to plummet. The emphasis on individual over group performance can fuel excessive competition and foster a lack of trust. And when trust and collaboration take a back seat, alignment around the company’s larger goals and vision is difficult to achieve. What’s more, people tend to become resistant to and suspicious of change—even when change is clearly needed.
Under Transformational Leadership, the urgent need to change can make people feel overwhelmed and anxious rather than inspired. And if the vision is too powerful, people might be reluctant to question it. Along with discouraging constructive dialogue and feedback, this style’s emphasis on teamwork can stifle individual creativity. What’s more, the strong commitment to change might overshadow anything positive about their organization and make employees less likely to want to work to make it better.
Falling in between these two styles is Transitional Leadership. This approach is best suited when the company generally has a positive culture but some change is needed to improve overall effectiveness. It’s less rigid than Transactional Leadership and a less radical, easier-to-handle approach to change than Transformational Leadership. This style places an emphasis on milestones and reinforces linking short-term priorities to long-term goals and vision. On the downside, Transitional Leadership tends to promote a short-term mentality, which is already a problem for most organizations.
Like every leadership style, both Transactional Leadership and Transformational Leadership have positive and negative qualities. As a leader, you need to understand their differences and recognize when the circumstances are right for applying each.
About AMA
American Management Association (AMA) is globally recognized as a leader in professional development. For nearly 100 years, it has helped millions of people bring about positive change in their performance in order to improve results. AMA’s learn-by-doing instructor-led methods, extensive content, and flexible learning formats are proven effective—and constantly evolve to meet the changing needs of individuals and organizations. To learn more, visit www.amanet.org