Transformational and Transactional Leadership

Posted on April 08, 2024 by Martin Hahn, One of Thousands of Career Coaches on Noomii.

Another way to consider leadership behavior is to consider what the leader is trying to accomplish. Some leaders focus on making incremental improvements to the status quo. Other leaders focus on making large-scale revolutionary changes to an organization. Transformational leadership changes the values and priorities of followers, motivating them to achieve more by doing things in new ways.

Transformational leaders inspire followers through a clear mission, optimism, enthusiasm, and emotional appeals. They provide personal support and encouragement, set a personal example, and behave ethically. Followers then connect deeply to the mission and seek ways to improve their performance. John F. Kennedy and Ghandi are good examples of transformational leaders.

Studies show that transformational leadership affects a wide range of employee outcomes (including motivation, satisfaction, and commitment) and organizational outcomes (including business unit performance). Transformational leaders can influence followers to change their priorities, set new goals, and develop confidence in their abilities by giving subordinates developmental work experiences, inspiring them to do their best, and demonstrating positive behaviors that followers want to emulate.

Transformational leaders are:

◗ Inspirational, and they communicate a future vision of the organization that can be shared with followers. The leader uses visionary explanations to depict what the employee work group can accomplish.

◗ Considerate, and they treat each employee as an individual rather than simply as a member of the group. A transformational leader tries to bring out the strengths of each employee.

◗ Intellectually stimulating, and they encourage employees to solve problems creatively by approaching old and familiar problems in new ways.

◗ Charismatic, or idealized by followers who develop strong emotional attachments to them.

Charismatic leadership during the early stages of a group’s life can influence the group’s belief that it will be successful, enhancing the likelihood that it will perform well. Although substantial research has found that charismatic leadership spurs high performance and follower satisfaction, it isn’t always needed. Charisma appears to be most influential when the environment has a high degree of uncertainty, with accompanying stress, or when the followers’ task is ideological in some way.

Transactional leadership focuses on a transaction or exchange of something of value that the leader possesses or controls and that the follower wants in return for his or her services. By offering promotions in exchange for work done, or bonuses in exchange for extra effort or good performance, leaders are able to influence and motivate others. With transactional leadership, employees comply because of contingent reinforcement, but with transformational leadership, employees comply because they are personally committed to the leader’s goals.

Transformational leadership and transactional leadership complement each other, and the choice of which to use depends on the situation. The best leaders are both transformational and transactional. The transactional style can work well for short-term goals when both leader and led understand and are in agreement about which tasks are important. Because transformational leadership results in employees adopting the leader’s mission, vision, and goals as their own, it is more effective for long-term goals and organizational change. Transformational leaders, if unsuccessful in gaining compliance by appealing to the values of the followers or peers, may resort to the transactional style to get things done.

When a leader use a combination of transformational and transactional leadership styles and channel his or her ambition into the goal of building a great company is called the Level 5 leadership style. Level 5 leaders are humble and willing to take the blame for failure while simultaneously setting high standards and demonstrating an unwavering resolve to do whatever it takes to produce the best long-term results.

Case of Level 5 Leadership

David Maxwell retired after turning financial-services company Fannie Mae around and leading it for nine years. His retirement package, which had grown to be worth $20 million because of Fannie Mae’s strong performance, drew the attention of Congress (Fannie Mae operates under a government charter). Maxwell responded by writing a letter to his successor expressing concern that the future of the company could be jeopardized and asked that the remaining $5.5 million balance instead be contributed to the Fannie Mae foundation for low-income housing. Such Level 5 leadership has gained popularity among executives, and some consider it to be the ultimate leadership style.