Transformational Leadership vs. Transactional Leadership – CEO Reflections #15


The transactional and transformational leadership styles are very different in general as well as in-depth. This comparison between transformational and transactional leadership consists of two segments, one with the obvious and major differences, and the other about the incentives connected to the different styles – this is relevant since transactional leadership has such a high focus on rewards.

Although this article provides an in-depth review of the similarities and differences between transactional and transformational leadership, I want us to start with some quick answers. Continue further for more detailed accounts of the differences and similarities of transactional vs. transformational leadership.

What are the differences between transformational leadership and transactional leadership?

This list shows the major differences between transformational and transactional leadership:

  • Transactional leadership builds on rewards and punishments connected to performance aimed at short-term results; transformational leadership builds on vision, inspiration, and long-term development.
  • Transactional leadership builds on people following strict rules and processes as they perform tasks, whereas transformational leadership builds on change, innovation, and creativity.
  • Transformational leadership builds on inclusion and participation in decision-making. Transactional leadership is directive and leaves minimal opportunity for team involvement.
  • Transformational leadership fits situations where change and development are required, whereas transactional leadership fits conditions with repetitive and precise tasks and easily measured processes.
  • Transactional leadership is faster and easier to implement, and implementation of transformational leadership is a longer and slower process

Let us provide an overview of the similarities as well.

What are the similarities between transformational leadership and transactional leadership?

The similarity between transactional and transformational leadership is that they are part of the same leadership mode: the Full Range Leadership Model. (You can read about this and other leadership styles frameworks here.)

Brief Introductions of Transactional and Transformational Leadership

The Transactional and Transformational Leadership Styles are part of the Full Range Leadership Model (FRLM) defined by James MacGregor Burns. Bernard Bass and Bruce Avolio developed the FRLM framework further with the addition of the Laissez-Faire leadership style. The modern version defines eight different leadership approaches, of which four belong to Transformational leadership, three others form the transactional leadership style, and the laissez-faire style is on its own. Refer to the image below showing all eight approaches.

Full Range Leadership Model and the eight approaches
Full Range Leadership Model and the eight approaches

Intro to Transformational Leadership

Transformational leadership creates substantial change for team members as well as organizations. Expectations, aspirations, perceptions, and values are transformed into something better. Transformational leadership develops the team members and motivates and inspires them to reach extraordinary success.

Refer to our separate article for an in-deep description of this style: Transformational Leadership.

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Intro to Transactional Leadership

Transactional leadership builds on a clear structure of reward and punishment for different levels of performance. Transactional leaders are focused on results, efficiency, and performance rather than people and relationships. Transactional leadership is often seen as the opposite of transformational leadership.

Refer to our separate article for an in-deep description of this style: Transactional Leadership.

Overall comparison between transformational and transactional leadership

Let us start by stating that transformational and transactional leadership are seen as opposites, which naturally means there are large and substantial differences between the two styles. In the original theory by Burns in the 70s, the definition built on these styles being mutually exclusive, i.e., a leader cannot use both styles. In the modern version of the Full Range Leadership Model, this definition has been changed, and a leader can theoretically and practically use both styles by choice.

The table below shows the major differences between transformational and transactional leadership.

AreaTransactional leadershipTransformational leadership
View of peopleAs performing tasks, cogs in a machineA vital resource that should be developed
View of futureShort-term goal and result focusLong-term strategic, visionary
Involving othersLittle involvement by team members, very directive leadership approachLots of involvement by team members, very participative
Time to implementFastSlow
How to motivate peopleIncentive focusedInspirational, visionary, and engaging

These differences are enormous. Essentially, transactional leadership treats people as part of a machine, to follow the rules and maximize short-term results. People are motivated by rewards and punishment. Transformational leadership shows the opposite, with a participative long-term people approach where motivation and inspiration fuel performance.

Incentive comparison between transformational and transactional styles

The incentivizing, rewarding, and punishing of team members are part of the main differences between transformational and transactional leadership. To compare the two styles from an incentive perspective, let us investigate two different exchanges between a leader and his or her followers. This approach puts the finger on the differences in the relationship between the parties for each leadership style.

Low-level exchanges are the simple and non-complex ones that are easy to detail. Concrete to their nature, they can mostly be specified in written form. Salary, days off, work hours, benefits, etc., are considered low-level exchanges between the leader and the follower.

High-level exchanges would be the more abstract exchanges between the two parties. This pertains to trust, personal commitments, loyalty, support, protection, acceptance, and other personal things. These exchanges are difficult to specify and very difficult to measure since they revolve around somewhat abstract personal relationships.

Transactional leadership revolves around low-level exchanges, whereas transformational leadership is the opposite and focuses on high-level exchanges. Most seem to consider, as mentioned above, transactional and transformational leadership to be polar opposites, i.e., two different sides to the same coin. However, the modern FRLM states that both styles could be used in the same setting by the same leader. This would mean that low and high-level exchanges can be taking place at the same time.

The transformational leader, focusing on the high-level exchanges, would likely motivate and inspire his or her team members better, resulting in a better long-term outcome. This would require more investment in terms of time to build relationships of course.

Can transactional and transformational leadership be used at the same time?

I do not see the above differentiation between types of exchange as proof that both styles can be used at the same time. Instead, I see the low-level exchanges including payment of a salary as the basics of an employment arrangement, often required by law. It is basically the bottom of the Maslow hierarchy of needs and is essential for any employment. Without this, there is no employment. These exchanges are management aspects in my opinion.

The high-level exchanges come on top of the low-level exchanges and here is where management becomes leadership. I wish the transformational business leader who only uses high-level exchanges good luck since I think it will be difficult to get anywhere without paying salaries to the employees.

The two styles can of course be used in different parts of the same organization, such as different functions and departments, but to me, this is not using both styles at the same time, rather using them selectively.

A brief example could be a highly innovative tech product company. The development, marketing, design, and sales department might be led by transformational leadership, but the assembly shop and the warehouses might be run with a transactional style. In the latter case, employees are likely to care less about the overall vision and instead want to get through their day. Furthermore, assembly and warehousing are areas with concrete and separable tasks that create a repetitive process, enabling measurement and a pay structure connected to performance. However, I guess the leaders of warehousing and assembly are transactional leaders, and the other department heads are hopefully transformational leaders. They are unlikely to use both styles thoroughly.

Further reading

I suggest you read our in-depth articles on these topics if you are interested in learning more.

I recommend the Daniel Goleman framework with six leadership styles for a different approach to leadership, which I have used successfully during my senior leadership career, you can it in the leadership styles area by the link a few lines up.

Carl Lindberg

Carl is a global business leader that has led 1-2000 people and had financial responsibility of 200-500 MUSD. During his career, he has led employees in twenty different countries and has lived in three continents.

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