Transactional Leadership: Pros & Cons + Examples

Transactional Leadership Pros & Cons + Examples
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There are many styles of leadership and leadership techniques out there. Many individuals start off their careers utilizing the traditional “status quo” leadership methods.

While they may work for some, they are not truly the best according to leadership experts. Effective leaders must learn about other types of leadership, including transactional leadership.

Transactional leaders like structured and orderly environments. They know how to motivate their team to achieve a common goal.

Rules, goals, schedules, meetings, plans, and so on are all objects that transactional leaders enjoy dealing with. This form of leadership can help you develop leadership skills in general, too.

There are many unique aspects that set the transactional leadership style apart. In this article, we will help you understand transactional leadership, both its benefits and drawbacks.

What is Transactional Leadership? Meaning & Definition

Transactional leaders are highly-organized and goal-oriented. They are best at achieving short-term goals, but long-term goals are also on their radar.

Such individuals prefer to make goals more manageable and realistic, instead of reaching for an extremely ambitious goal immediately.

Most transactional leaders also believe in rewarding employees who work within the hierarchical structure set up for them in the workplace. If you succeed, expect a compliment or monetary reward.

However, they also provide consequences for employees who do not succeed. Individuals who are transactional leaders also tend to monitor employees.

They want to make sure they reach their potential and perform tasks well, which develops efficient teams.

Finally, organizational leaders also strive to maintain a high level of organization in the workplace.

Why is Transactional Leadership Important?

Transactional leaders offer many benefits to their team. First, they are very strict about enforcing the rules. When this level of strictness is placed on teams, they are more likely to take their work seriously.

There will be fewer conflicts, as employees are too busy to focus on tasks outside of work. When teams get focused and goal-oriented as a result of having a transactional leader, productivity and efficiency soar.

Plus, many benefits come with the consequence/reward system implemented by transactional leaders. When an employee does the job well, they are rewarded.

This encourages positive behavior, builds employee loyalty, and in the end, will boost employee performance.

When someone does not perform up to par, there are consequences for this act. Individuals will take note of the consequences, and thus, will be less likely to rebel.

Finally, it is important to ensure an organization has both short and long-term goals. These leaders place a high value on the achievement of goals.

They are specifically excellent at ensuring short-term goals are achieved. So, they can make lofty goals seem more achievable by breaking them down.

Key Characteristics of Transactional Leadership

Every experienced leader has their own unique leadership style. It takes time to develop one yourself, so try experimenting with multiple.

Most people change their leadership style from time to time, especially if the exact situation necessitates it.

Below, we have listed the common characteristics that transactional leaders possess.

1. Act with urgency

While there are many approaches to leadership, most recognize that acting with urgency is needed (at least in certain situations).

Those with a transactional style of leadership ensure they do not stall and talk about solutions indefinitely. Instead, they take action.

These individuals are not afraid of commanding or rushing individuals when it is necessary. They trust their own judgment and do not overthink their decisions.

2. Communicate their expectations clearly

If you give unclear advice or directions, your employees will likely be confused. It makes them less productive, too. Thus, it is important to ensure you are direct and honest when communicating.

Such leaders give tasks with succinct and articulate language. They challenge high-performing employees with more tasks.

To ensure individuals remember such tasks, they often email them or have the tasks and expectations listed on boards.

In addition to providing expectations, they also provide incentives to fulfill their expectations and consequences if you do not.

3. Direct communication style

To give clear expectations, you must have a direct communication style. The transactional leadership style is just that: extremely direct in communication. They are honest and specific when communicating.

Plus, they are also transparent and honest. When giving feedback, they want their workers to truly improve. So, they do not sugarcoat their thoughts when giving feedback to employees.

This develops a trusting bond between employees and the leader. The relationship decreases turnover, increased levels of employee engagement, and boosts employee retention.

4. Opposed to change

Change can be a source of innovation. However, it is also dangerous and risky. Transactional leaders understand this and choose to only change when it is absolutely necessary.

Instead, they choose to work with proven techniques. They believe they know what is best for their team, which often results in maintaining the same rules and only slightly changing their work strategies.

However, workplaces could stagnate as a result, and employees may become less passionate under this system.

5. Focused on short-term goals

Both long and short-term goals benefit a business. Instead of trying to overwhelm employees with too many long-term goals, transactional leaders propose many smaller short-term goals.

This ensures that their employees stay motivated and are not overwhelmed. As a result, most businesses with this type of leader see quick increases in sales volume, revenue, profit, and so on.

This quick goal accomplishment gets a positive moment on the team, so they are more likely I stay engaged.

Advantages & Disadvantages Examples of Transactional Leadership

All leadership styles have their pros and cons. That is why it is important for you to decide what is best for you and your team, specifically.

Transactional leaders have a unique set of qualities that set them apart from their peers. As such, the list of benefits and drawbacks is quite different from most leadership styles, too.

A few of the key benefits of this leadership technique are below.

5 Examples of Transactional Advantages

1. Achieving Goals

These leaders know how to push their employees to their limits. They know how to get the best results and thus, their goals are achieved very often. The strategy of focusing on the short term also makes these goals less intimidating to employees, so they do not quit immediately.

2. They Know How to Motivate Employees 

When leaders see someone achieve their primary goal, they reward them. This is done to motivate other employees so they replicate the same behavior. Additionally, they also understand how to passionately speak. This type of language can also boost loyalty and motivation in employees.

3. Clear Roles and Tasks

Communication is a strong suit for the transactional leader. Specifically, they know how to define roles and goals clearly. From the intern to fellow C-Level executives, everyone’s role is well understood. Thus, you will not have confused employees. There is no ambiguity, and you can easily tell when rules are violated.

4. Effective Leadership

Structure, taking action, and direct communication all combine to make this leadership method practical and effective. This makes transactional leaders great for serving in large organizations and small startups, too (although, they do better in the former). They can spot issues many other leaders cannot. They are also not afraid of firing employees if they do not align with the business’s goals.

5. They Know How to Measure and Reach Success

Some leaders do not have clear strategies for achieving success. Some do not even know their company’s definition of success. However, transactional leaders clearly outline what success is to them. They ensure their employees have similar goals and are passionate about their work. Goals are also very clearly outlined. There are consequences to achieving goals, which is very motivating to employees.

5 Examples of Transactional Disadvantages

1. Over-Reliance on Short-Term Goals

To truly have a successful business, you need both short and long-term goals. However, most transactional leaders overlook the importance of long-term thinking and goal planning. Instead, they focus solely on short-term goals. If consumer demand changes or the competition changes, the business could be in serious trouble.

2. Not Enough Creativity or Innovation

Innovation and creativity drive businesses into the future. Without creative thinking, businesses struggle to differentiate themselves from the competition. Unfortunately, transactional leaders often face this problem. They rely on proven but less innovative strategies because they are safe. Plus, it is rare for transaction leaders to ask for feedback from employees. This could mean a business stagnates and loses its competitive edge.

3. Decreased Morale

The transaction leader’s direct and sometimes combative nature is not a great fit for all employees. Instead of truly being passionate, employees may start to perform tasks simply because they are forced to. This results in less growth, more burnout, and higher turnover. If you are looking to fix this issue, consider using a strength-oriented approach to leadership.

4. Massive Mistakes

No businessperson is perfect. So, many leaders ask their employees and colleagues for feedback. However, feedback is rarely asked for by a transactional leader. If the leader does not notice, the employee could be emotionally drained or burnt out during the work day. Proper care and task assignment can fix this problem, but it requires admitting you were wrong. If you do not do this, your organization could lose thousands of dollars.

5. Decreased Motivation

Recognition is a great motivational tactic used by transactional leaders. However, it does not work for all employees. Simple rewards are just not fulfilling to some. They would prefer to work in teams collaboratively instead of competitively. It is more fulfilling to some employees. As such, employees who prefer emotional and social satisfaction over tangible rewards do not typically thrive under transactional leaders.

How To Develop & Become a Good Transactional Leader

Create structure

The number one mission of organizational leaders is to establish structure. There are numerous ways to accomplish this goal. Firstly, ensure that you eliminate distractions whenever possible.

Then, test out different strategies for task assigning. Ensure that when you assign teamwork or projects, individuals work together well.

Constantly reevaluate everyone’s progress. You can eliminate many errors by ensuring the structure is emphasized.

Make expectations clear

Clear, direct, and honest communication is a key trait exhibited by all transactional leaders. If you want your team to achieve your goals, be clear about your expectations.

Provide consequences and rewards for those that follow your rules and those who do not. Be sure to openly say the key goals your team should focus on, and list tasks in order of priority.

If you do this, everyone will be on the same page.

Recognize top-performing employees

If you wish to motivate your employees, try recognizing those who achieve the goals set out for them. This will encourage behaviors you want more of.

Plus, it also makes employees realize you care about their success and do notice their hard work. In return, transactional leaders get high retention rates and lower turnover rates.

Whenever an employee truly perfects a task, take a moment to recognize them. It could be via email or simply coming up to their desk. You could even make an announcement before all other employees.

List of 10 Famous People that Use the Transactional Leadership Style

If you are struggling to understand the transactional leadership style, try looking at business executives and other inspiring leaders.

Many famous executives, army personnel, and even sportsmen can give you insights into what it is like to be a transactional leader. From there, you can apply some of their tactics to your own life.

Such transactional leaders include:

  1. Bill Gates, Microsoft
  2. Enrique Lores, HP
  3. Howard Schultz, Starbucks
  4. Bill Belichick, New England Patriots
  5. Norman Schwarzkopf, United States Army commander
  6. Vince Lombardi, Green Bay Packers
  7. Carl Icahn, Icahn Enterprises
  8. Lei Jun, Xiaomi
  9. Steve Cahillane, Kellog
  10. Charles de Gaulle, former president of France

Frequently Asked Questions About Transactional Leadership

What is the difference between transformational and transactional leadership?

Transactional leaders place a high value on control, strict adherence to rules, and hierarchy. They spend more time focusing on short-term goals when compared to long-term ambitions.

On the other hand, transformational leaders prefer using more collaborative approaches to leadership. They work to inspire employees so they have an emotional attachment to their work.

Where is transactional leadership used?

Transactional leadership can be used in any field. For instance, in sports, transactional leaders recognize their players for hard work. The same is true in education, healthcare, and other industries.

Even government officials, such as former president Charles de Gaulle and US Army commander Norman Schwarzkopf, employ this technique.

What are the strengths of a transactional leader?

They create clear rules and standards and communicate effectively. Also, such leaders also understand how to motivate their employees. They are skilled at setting short-term goals.

Transactional leaders can make difficult-to-achieve and lofty long-term goals seem more manageable by breaking them down into smaller short-term goals.

They are efficient, too, as they do not tolerate any breaking of rules or distractions.

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It is an annual global award that honors managers who help their employees, teams and organizations thrive.