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Transactional Leadership: Active Management by Exception

Updated August 24, 2022 by Carl Lindberg

Active Management by Exception leadership is a version of transactional leadership which has both pros and cons. I have witnessed and even used active management by exception myself during my international leadership career, although I was very far from it when I was a CEO. Let us kick off this article on active management by exception with a quick overview.

What is active management by exception?

Active management by exception means that leaders engage in controlling and monitoring activities as well as outcomes. Leading through active management by exception involves intervening at early signs of problems to correct and rectify the situation, while reprimanding the team member who caused it.

Before we go deeper, I need to briefly introduce you to transactional leadership since active management by exception, is one of three different components of this style. If you are already familiar with transactional leadership, just continue reading further down.

Passive Management by Exception: Introduction to transactional leadership

Transactional leadership can be seen as the more directive and less engaging sibling of transformational leadership, but slightly better than Laissez-Faire leadership, which all belong to the Full Range Leadership Model.

Transactional leadership builds on a clear reward and punishment structure for different performance levels. Transactional leadership focuses on results, efficiency, and performance instead of people and relationships, making it very different to transformational leadership. (Read more about the commonalities and differences here: Transformational leadership vs. transactional leadership).

Transactional leadership is a development of bureaucratic leadership, created by Max Weber under the name of rational-legal leadership in the infancy of leadership studies. Transactional leadership has been developed further in the 1900s. (You can find bureaucratic leadership in our leadership styles portal, together with loads of other leadership styles.)

There are three different components or approaches to transactional leadership. Besides active management by exception, the other two components are passive management by exception and contingent reward.

The three components of transactional leadership

Transactional leadership contains a lot of task-oriented leadership, and comes in three different variants. Here are the three components of transactional leadership:

Contingent reward 

Contingent reward is a straightforward approach to rewarding the followers depending on task fulfillment and outcome. Contingent rewards include bonuses, promotions, recognition, and appreciation, for instance. We will describe this component thoroughly, with examples, in this article.

As outlined above, the active management by exception approach of transactional leadership involves controlling and monitoring activities and tasks as well as overall performance and the final outcome. The leader steps in and intervenes at an early stage, prompted by signs of problems or failure. This intervention will still result in negative consequences for the guilty part, but the consequences of the mistakes will be less than in the next approach.

With the passive management by exception approach, team members gain some more freedom since it prompts leadership intervention only when necessary, i.e., after an error or mistake has been committed, then followed up by reprimands or other negative consequences for the person that failed.

Advantages of the Transactional Leadership Style:

  • There is a clear connection between performance and rewards
  • It can be very productive, especially when it comes to short-term results
  • Clear order, structure, and rules, enabling repetition and swift onboarding of new team members

Disadvantages of the Transactional Leadership Style:

  • The sole focus on performance can be demotivating and disengaging
  • Rewards have a limited impact on people’s performance; at some point, other factors start to matter more
  • The strict structure hampers creativity and innovation

There is much more to learn about transactional leadership. Feel free to read our article on this style here: the transactional leadership style, if you are interested.

Active Management by Exception Leadership Explained

In active management by exception, the manager or leader, is involved throughout the work, controlling, supervising, and checking the work of the team members. This close involvement means that the leader can sometimes spot problems before it is too late, and corrective measures can be put into place, even avoiding consequences completely.

The active management by exception manager proactively avoids problems, but is also always present, guiding and showing the employees what to do. This gives the team members an opportunity to learn more about error avoidance, as well as receive more interactive coaching from their leader. The leader can also set a good standard for others to follow, similar to pacesetting leadership.

However, active management by exception is also focused on negatives, and avoiding errors, just like in passive management by exception, it is simply more proactive than reactive.

As with most transactional leadership approaches, active management by exception works well in repetitive environments where a limited number of activities and tasks are performed and the output speaks for itself.

The key to a good active management by exception approach to leadership is to stay close enough to the actual work to spot errors early, while also ensuring that the employees learn from these situations, reducing the risk for exceptions in the future.

The over-arching problem with transactional leadership remains also in active management by exception, that the focus is on errors and problems, and positive performance and achievements get less attention. Remember to learn more about transactional leadership and the overall Full Range Leadership Model to which it belongs. (FRLM is a great leadership model that you would gain from knowing more about, for sure.)

Situations when transactional leadership: active management by exception can work

Active management by exception can work in the following example situations:

  • Fast Food restaurant
  • Cleaning services
  • Warehousing and logistics
  • Assembly
  • Manual labor in agriculture and low and medium-complexity production environments

Just because it works, does not mean that you shouldn’t do better as a leader. You will always build more engagement and incentive by using more complex leadership, such as the four components of transformational leadership, or at least by adding concrete incentives as in the contingent reward case of transactional leadership.

As in the passive management by exception case, there are true limitations with active management by exception leadership. The attention to exceptions keeps your ambitions down, and there is little to no focus on the bigger things, vision, engagement, motivation, etc. It does provide some continuous improvement, which is important, but it is very much focused on avoiding problems, rather than improving in general.

Learn more about transactional leadership, including pros, cons, famous leaders, scientific aspects, and more: transactional leadership. If you are interested in more than 25 other approaches to leadership, visit our leadership styles repository.

Does the active management by exception approach of transactional leadership work?

Active management by exception works, and it works better than the passive case, but not as good as in contingent reward or transformational leadership. Even though it can be difficult to provide more engagement for employees in repetitive environments, where people simply put in their hours for their wages, a visionary leader can always find an overarching purpose to build commitment, thus boosting performance and reducing employee turnover.

Leaders with aspirations of improvement, and ambition and purpose to improve people around them should not settle for this rather basic form of leadership, even if it includes participation in performing the work. Always try to use transformational leadership components, and if the conditions or time restrictions prevent it, then at least try to implement the contingent reward version of transactional leadership.

Refer to the main article on transactional leadership for sources.

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