Transactional vs. Transformational Leadership: Which Is Best?

Transactional vs. transformational leadership – is one style better than the other?

Transactional and transformational leadership styles are two very different approaches to leadership, each with its own set of strengths and weaknesses.

In this post, we’ll compare both styles, look at the benefits and drawbacks of each, and learn their use cases.

Transactional vs. Transformational Leadership:  Which Is Best?

Here is a useful and simple way to understand the difference between these two leadership styles:

• Transactional leadership is based on the idea that you should do what is best for the business and your employees today
• Transformational leadership is based on the idea that you should do what is best for the business and your employees tomorrow

While easily grasped, this explanation also oversimplifies the difference between these two styles.

Let’s break these two definitions down a bit further.

Transformational leadership:

• Is a long-term approach to leadership built around innovation, progress, and change
• Aims to have a positive impact on both the organization and its people
• Identifies needed changes and attempts to lead those changes

Transactional leadership:

• Focuses on short-term goals, such as employee productivity and performance
• Emphasizes “what gets done” as opposed to “why it gets done”
• Doesn’t pursue change or innovation

For those interested in leading organizational change, the first type of leadership may appear to have clear benefits over the latter. And in many cases, this is true.

However, it would be more accurate to say that each leadership style has its own benefits, drawbacks, and use cases. Let’s explore a few of those in the next section.

What Are the Benefits of Transformational Leadership?

Here are a few areas where transformational leadership can be useful, or even necessary:

• Creating lasting change in the organization. Any organization that wants to change must have both change leaders as well as change managers. The leaders who spearhead change will craft a vision for change, create a change story, lead by example, and more.
• Cultivating a new organizational culture. New organizational cultures often go hand-in-hand with organizational change. Transformational leaders are often needed to motivate employees, embody the change that they seek, and, ultimately, cultivate a culture that supports their business goals.
• Improving the workforce and the workplace. As mentioned, transformational leaders pursue a purpose – and that purpose usually revolves around long-term goals, such as strategic initiatives. Such an agenda requires a focus on long-term goals, rather than on short-term aims, such as performance improvement.

Transformational leadership is a must in today’s fast-paced economy, which is driven by digital transformation, disruption, and innovation.

Yet transformational leaders can – and must – work alongside transactional leaders in order to realize their aims.

What Are the Benefits of Transactional Leadership?

Here are a few situations where transactional leadership is more useful than transformational leadership:

• Crises. During a crisis, maintaining business continuity is more important than long-term goals such as innovation. In such situations, transactional leadership styles focus on more immediate needs, such as protecting critical business functions and restoring lost assets and business functions.
• Maintaining the status quo. While transformational leadership attempts to change the status quo, transactional leaders work within the status quot. In situations where productivity is the main goal, therefore, leaders should stay within existing boundaries, rather than attempt to change them.
• Projects with specific rules and criteria. Many projects have strict rules that are already laid out, and there is no need to change them. In fact, changing those criteria can be counterproductive. In these cases, therefore, managers and leaders should focus on maximizing employee performance rather than on changing processes.

Clearly, there are situations where a transactional leadership style is more relevant than a transformational leadership style. 

However, this doesn’t mean that leaders need to choose one style over the other – rather, it is best to find ways to combine these leadership styles.

Good Leadership = Transactional + Transformational

Since both leadership styles have their use cases, leaders and managers should use each style when it is most appropriate.

Here are a few ways to ascertain the most suitable leadership approach:

• Align leadership styles with the company culture and the organizational structure. Every company culture has a different mindset and attitude. Some leadership styles will be more suitable for certain cultures than for others. And different organizational structures will be more suited to different leadership styles. An agile organization, for example, will be more receptive to transformational leadership than a company that is more rigid.
• Allow leaders to choose the style that suits them. Each leader has their own personality and their own way of managing others. A visionary leader with a sense of purpose, for instance, would naturally be more suited to a transformational leadership style. On the other hand, a detail-oriented manager who prefers to focus on efficiency would be less suited for that style.
• Lead different parts of the organization differently. Every business unit has its own function and mode of operating. A cross-functional team of innovators, for instance, would be more responsive to a transformational leadership style. On the other hand, a team performing a technical task, such as installing IT hardware, would have less use for the “higher sense of purpose” that comes with transformational leadership.

One key lesson from these examples: by choosing the most appropriate leadership style for each situation, business leaders can achieve better outcomes for their business and for their employees.