What is Transactional Leadership? How Can This Leadership Help Organizations and New-Age Managers?

A leader’s responsibility is to inspire, motivate, and encourage their team members. Moreover, leaders must be capable of providing both the resources and structure for their subordinates to succeed and perform well. However, it is also important to know that there is no single right way to lead—and the best leaders use multiple leadership styles. Among the many styles that leaders implement, transactional leadership is one style that, when used intentionally, can help team members excel at specific tasks or situations.
Let’s understand how this leadership style can be beneficial to new-age managers.

What is Transactional Leadership?

In the transactional leadership style, leaders choose rewards and punishments to achieve optimal job performance from their team members. In other words, it works on an exchange and transaction model: the leader rewards workers who reach their goals and penalizes those who do not perform as expected.

How Does Transactional Leadership Differ From Transformational Leadership?

1. The transactional leadership style focuses on achieving the desired goal based on processes, control, and a strict management structure. On the other hand, transformational leaders motivate and transform team members to achieve the desired goal.
2. A transactional leader emphasizes his relationship with the followers. Whereas, in transformational leadership, leaders focus more on the values, ideas, morals, and needs of team members.
3. In transactional leadership, leaders are reactive. This means that they set goals and reward or penalize employees based on performance. Additionally, they rely on established processes and rules to ensure consistency and predictability in the organization. On the other hand, transformational leaders are proactive and focus on driving change and improving the organization.
4. Transactional leaders focus on planning and execution, whereas transformational leaders focus on innovation. Moreover, transactional leaders are best suited for a settled environment that focuses on developing the existing organizational culture. In contrast, transformational leaders generally work in a more turbulent environment and focus on changing the culture.

Also Read: What is Autocratic Leadership? What are its Benefits and Challenges?

What are the Benefits of Implementing Transactional Leadership in the Workplace?

1. Clearly Defined Success

In a transactional leadership style, every employee knows their roles and tasks. All facets of the departments are clearly defined from top to bottom for seamless and systematic performance. Furthermore, it eliminates any unnecessary job roles, overlapping jobs, or duplication of work.

2. Ensures a Sense of Fairness

In organizations with transactional leadership, all employees are treated fairly and there is no favoritism. The system for giving rewards and punishments is clearly defined, and everyone knows what to expect. This creates a sense of fairness and helps to maintain a positive work environment.

3. Motivates Employees to Maximize Productivity

Transactional leadership incentivizes good performance through rewards such as bonuses, promotions, or recognition. This creates a positive work culture that motivates employees to perform at their best and maximize productivity.

4. Immediate Feedback with No Confusion

In this leadership, leaders provide immediate feedback on performance, which helps employees stay on track and identify areas for improvement. Moreover, it eliminates any confusion and employees know what action to take.

5. Improves Productivity and Cost Efficiency

Employees are more satisfied and less likely to leave their jobs when leaders clearly define expectations and there are incentives for good performance. This can lead to a reduction in employee turnover and lower recruitment costs. Moreover, this leadership style is beneficial for making efficient decisions as it allows for quick action and resolution of issues, which saves time and resources.

How Can Transactional Leadership Help a Working Professional?

In transactional leadership, a leader provides clear direction, sets specific goals and objectives, and establishes a system of rewards and punishments for employees.

1. One can benefit from transactional leadership in several ways as a working professional. Firstly, a transactional leader’s clear direction and specific goals can help one focus on tasks and stay on track. This can be especially useful when working on complex projects.
2. Secondly, rewards and punishments can motivate employees to perform harder for results. It is also helpful for professionals working in a highly competitive environment.
3. Thirdly, transactional leaders often provide regular feedback and guidance to their team members. This helps employees identify areas of improvement and work to address them. Employees who receive regular feedback and recognition are more likely to be engaged in work. And as per Gallup study on US data, engaged employees produce better outcomes than those who are not.

While transactional leadership may not be appropriate for all situations, it can be valuable in areas where consistency and efficiency are critical.

Also Read: Mastering Team Leadership: Top 10 Hard Skills and Soft Skills Every Great Leader Needs

What are Some Examples of Successful Transactional Leaders?

Many successful transactional leaders in India have led their organizations to success using this leadership style. Here are two inspiring transactional leaders from India.

Ratan Tata

The former chairman of the Tata Group is often cited as an example of a successful transactional leader. He was known for his disciplined approach to business and for setting clear goals and expectations for his team members. Under his leadership, the Tata Group grew into a global conglomerate with diverse interests in the steel, automobiles, and hospitality industries.

Mukesh Ambani

The Chairman of Reliance Industries is another example of a successful transactional leader in India. He has a hands-on management style with a focus on operational efficiency. Under his leadership, Reliance Industries has become one of the largest conglomerates in India, with interests in industries such as petrochemicals, refining, and telecommunications.

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