What Is Transactional Leadership

Surprisingly, transactional leadership might be the style that's most needed today.   In our remote workspaces and agile teams, transactional leadership offers clear goals and boundaries.    Before we go further, let's define transaction leadership, then unpack the good parts that we might want to add to our own leadership style. 
what is transactional leadership

I recently came across the concept of transaction leadership.   It’s a bit older term and it doesn’t sound especially good.  In a sales business you might say that a person is transactional, meaning they only care about the money in the exchange and not relational.   Most of the fancy leadership terms out there are actual very literal.  Transactional leadership is no different, in that at it’s basis is leading by facilitating a transaction between follower and leader.     For the record, I’m in the camp that says the best leaders are relational, servant leaders that seek to set their followers up for success.  Transactional leadership sounds exactly like what you’d want to avoid.

However, I couldn’t be more wrong.

Surprisingly, transactional leadership might be the style that’s most needed today.   In our remote workspaces and agile teams, transactional leadership offers clear goals and boundaries.    Before we go further, let’s define transaction leadership, then unpack the good parts that we might want to add to our own leadership style.  There is no “perfect” style as they all have pros and cons, so let’s dive in.

Transactional Leadership Defined

Transactional leadership, or transactional contingent reward,(as Athena Xenikou refers to it in her study of transactional and transformational leadership) focuses on results, conforms to the existing structure of an organization and measures success according to that organization’s system of rewards and penalties. Transactional leaders have formal authority and positions of responsibility in an organization.

The common thread of transactional leadership, found in multiple sources is this, Transactional leadership is often used in business; when employees are successful, they are rewarded; when they fail, they are reprimanded or punished.

While that’s a cold sentence to read, isn’t that essentially the essence of a work relationship.   A job is to be performed, you will be rewarded with income and other things you find valuable and potentially more when you do well.   You will also lose access to these things when you don’t succeed.

Transactional leadership gets villainized a bit because the alternative, transformative leadership, and derivatives like servant leadership offer a more relational approach and explanation.  Look at one person’s take on transactional leadership:

According to a transactional leader, human relations are nothing but a chain of transactions. The roots of this leadership style are- reward, penalty, economic exchange, emotional and corporeal exchanges and other such “transactions”. International Journal of Industrial Management

It’s true there is a dark side to this type of leadership.  In Southeast Asia where transactional leadership is more common, sometimes the reward is simply that you get to continue in your position or worse continue to live.   Truth is, this term might have been coined to define the traits of an over dominant leader.  In fact, if a leader is acting like a transactional leader, as described above they are a positional leader (a level 1 leader) at best. However, as mentioned, leaders in 2023 could learn a lot from the transactional style of leadership.

4 Clear Things You Can Learn From Transactional Leadership

Clarity Around Vision

For a minute, let’s throw out all the negative connotations around this leadership style and see what we might learn.  The undeniable strength of transactional leadership comes from it’s clarity.   Transactional leaders aren’t scared to step on toes, they deliver the vision with clear achievable directions.   If we’re trying to stay strict to the definition, then they outline not only the objectives but the clear reward when those objectives are complete.

People do perform best when there is a clear vision.  Agile teams struggle when there is no vision to define their objectives.   Chaos ensues when team members have differing values over work ethic.    If there isn’t a clear leader in the group, then teams need to focus on being clear on objectives.  If you are a leader, then providing clear goal objectives can help propel the team forward.

Clarity Around Accountability

Accountability is also key in maintaining organizational health.   What might be seen as empathy to allow poor performance by an individual actually counteracts the leadership in organization by devaluing other’s work ethic.  Top performers want to want to work with the best and when other team members are allowed to languish it can create a culture of underachievement.  Accountability with clear rewards and punishments lets everyone know where they stand and what’s expected of them.   Healthy boundaries is good for any relationship, especially those you lead.

Clarity Around Rewards

While we’re on the subject of rewards, in the classic Kousez and Posner research on the best leadership, rewarding and celebrating wins is essential to great leadership.  Imagine working at a company that didn’t have any formal review process or system of rewards.  Is simply being told that you’re doing great enough?   Research says no.  To get the most out your team you either need constant affirmation or you need less frequent (but still consistent) affirmation and rewards.  Formal reviews may not seem like a reward, but it’s actually a ceremony, it solidifies the affirmation as a “truth.”   Which is why a negative review process can be the catalyst for great growth or an exit.   Rewards like raises reaffirm the progress that each team member is making.    Reviews and rewards aren’t special to transactional leadership, but they are clearer and more defined.

Clarity Around Roles

Transactional leadership might be the most opposite to agile leadership.  With a transactional leader, there is a clear hierarchy of authority.  Not just positional, but rather from a standpoint of authority.  In this instance the followers, look to their leaders for guidance.  While some empowerment might take place, it’s very clear who to go to with questions.  Compare that to an agile startup work environment.   If the company’s website goes down and you’re the first to notice, do you contact dev ops, your boss, or just spam everyone in the slack channel?   What about items that multiple stakeholders?  Do you contact one person at a time in an effort to win everyone over, or do a group huddle?  With transactional leadership, the roles are clearly defined and the point people are clearly demarcated.

Transactional Take-away

I’m not advocated the that leaders go out and try to become the textbook definition of transactional leadership, that’s literally the opposite of an intentional Kingdom Driven Leader.   What I am suggesting is that in our agile world and empathetic culture that we could use a little bit of clarity and accountability.   Clear accountability and vision will help both the top achievers and those with less drive perform well.   The definition of transactional leadership does sound like something you’d want to avoid, but in our effort to avoid it, we’ve become completely unbalanced in many of our work streams.  If you feel this is true, take a look at what you could learn from being 1% more transactional, just don’t take it too far.


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