Transactional VS Transformational leadership

In what organisational situations is the use of a transformational leadership style more effective than using a transactional leadership style?

In this contemporary business world, leadership and the process of leading in an organisation play a fundamental role in creating, developing and maintaining a successful business. Leadership is defined as “the ability to influence people towards the attainment of organisational goals” (Samson and Daft 2009, p. 552). A well-performed leadership is important to promote a successful company. Leadership theories and practices in these days are in some ways different compared to leadership approaches in the past as a result of particular factors. Diversity in workplaces for example, is one factor that differs conventional from modern leadership styles. In the past, it could be said that organisation might only have workers who came from similar social and cultural background. These days, it is found that organisations have diverse workers who come from different language, educational, and cultural background. The development of information technology is another factor that distinguishes contemporary leadership. This development allows leaders to have wider access to new knowledge and learning opportunities as well gaining new leadership experience. These have shifted the theoretical and practical paradigm of leadership. There are varieties of leadership styles that organisations use to improve their performance as well as to meet customers’ satisfaction. The leadership implementations may vary from its contextual and organisational circumstances. An example of this would be the use of transactional and transformational leadership styles that this essay will examine.

It is the aim of this essay to discuss the use of transformational and transactional leadership approaches in organisational situations as well as the roles of both in deriving employees’ high level of performances.  This paper will firstly demonstrate the theoretical background of transactional leadership style as well as the effectiveness of using this method in organisations. Secondly, this essay will also examine the notion of transactional leadership approach and its implementations within companies. The third part of this paper will be comparing both leadership styles and providing arguments on the notion of as to what extent of organisational circumstances the use of transformational leadership approach is more effective than transactional leadership mode.

First of all, Bennis (2001, cited in Bass, Avolio, Jung & Berson, 2003) argue that adaptive leaders work effectively in environmental uncertainty and cooperate well with followers to emphasize positive solutions in confronting challenges. They argue that adaptive leaders can maximally perform their jobs in unstable circumstances and should be able to work cooperatively with subordinates to respond to those situations. In these particular situations, managers play pivotal role as motivators and inspirations to improve workers’ performances. Bass (1985, cited in Bass, et al., 2003) describes this leadership style as “transformational” leadership (p. 207).

Transformational leadership is distinguished by its capacity to promote the idea of “innovation and change” (Samson and Daft, 2009, p. 571). According to Avolio, Walumbwa & Weber (2009; Avolio & Yammarino, 2002; Bass, 1985; Burns, 1978, cited in Wang, Oh, Courtright & Colbert, 2011; Bass, 1985; Conger & Kanungo, 1998; Shamir, House, & Arthur, 1993; Podsakoff et al., 1990; van Knippenberg & van Knippenberg, 2005, cited in Wang et al., 2011), transformational leadership is a manner that encourages subordinates to excel in performing their job and to move far beyond their personal goals and attain targets that benefit the organisation as a whole. Scholars have proposed that there is a very strong correlation between transformational leadership and followers performances (Samson & Daft, 2009; (Liao & Chuang, 2007; MacKenzie, Podsakoff, & Rich, 2001; , cited in Wang et al., 2011). Avolio (1999; Bass, 1998, cited in Bass et al., 2003) sum up this theoretical framework by saying that transformational leaders should be able to emphasize higher expectations to challenge workers in being creative and innovative to solve complicated problems  and have a sense of willingness to exceed in their job delivery.

There are four main components that construct transformational leadership style (Bass (1985; Bennis, 2001, cited in Bass et al., 2003, p. 208; Bass 1985, cited in Wang et al., 2011, p. 230). The first component is “idealised influence’ emphasizes the idea of leaders being an inspiration for subordinates. Employees’ needs are more important than leaders’ needs, and leaders share risks with staff according to policies and organisational values. Secondly, leaders encourage followers to be optimistic and enthusiastic in dealing with challenges through “inspirational motivation”. The third core function is “intellectual stimulations”, provides the idea of managers framing problems so that subordinates become innovative and problem solving oriented. Lastly, managers provide learning opportunity for employees to improve their skill and performance through coaching and training (Howell & Hall-Merenda, 1999, cited in Wang et al., 2011, p. 230). This is called “individualised consideration”.

Transactional leadership on the other hand, is said to be different from transformational leadership approach. Samson and Daft (2009) believe that transformational leadership style plays a pivotal role in organizations. This leadership style is built up upon “exchange-based forms” (Bass, 1985, cited in Wang et al., 2011). Similarly, House (1996, cited in Vecchio, Justin & Pearce, 2008) examine the relationship between transactional leadership style and the use of contingency rewards. They proposed that transformational leadership approach is dependent on the use of contingent rewards to encourage followers in improving their job performance.

This kind of leadership practice is described as a leadership style that also uses praises and appreciation from leaders to motivate followers to improve both individual and team performances (Wang et al., 2011). House (1996, cited in Vecchio et al., 2008) argues that the use of contingent rewards is an important factor that derives transactional leadership style. Transactional leadership method requires managers to have a clear clarification of employees’ roles and tasks, as well as the importance of leaders facilitating suitable rewards for subordinates when roles and goals are well-delivered (Podsakoff, Todor & Skov, 1982, cited in Bass et al., 2003). Leaders might also propose “disciplinary actions” when assignments are not being delivered accordingly (Bass et al., 2009). What this means is that by providing appropriate rewards, high level of performance can be stimulated.

In regards to leaders using contingent rewards to emphasize employees’ performance, it is very important to understand the use of “path-goal theory” (Evans, 1970, 1970b; Georgopoulos et, al., 1957, cited in Samson & Daft, 2009, p. 565).  The authors believe that this theory refers to the idea of leaders or managers must be able to encourage followers to improve their level of performance by providing strategic “management functions”. This includes identifying what kind of rewards that followers need to attain, as well as clarifying particular rewards that are more important to be achieved (Evans, 1974 cited in Samson & Daft, 2009).

In organisational situations where environmental uncertainty, turbulence and difficult challenges are evident, transformational leadership is more effectively used and well-applied than transactional leadership. According to Bass (1995, cited in Bass et al., 2003), transformational leadership approach is well applied in “distress” and emphasize the idea of how leaders value this difficult challenge in the process of goals attainment. A practical example of this would be the Queensland’s premier Anna Bligh in regards to floods that occurred in Queensland few months ago. This is an appropriate example of how the premier Anna Bligh set herself by example in dealing with the crisis and showed a very “inspiring vision of the future” (Bass, 1997, cited in Rowold & Rohmann, 2009, p. 42). She believed that Queensland will recover and move forward. Anna Bligh encouraged not only the people in Queensland, but also the entire Australian as a nation and the whole world to support and help Queensland to recover from the disaster.

In addition to this, international scholars have found that cultural contexts are relevant in examining the effectiveness of transformational leadership (Pawar & Eastman, 1997; Walumbwa & Lawler, 2003, cited in Rowold & Rohmann, 2009). Transactional leadership model is intended to exist in public organisations and non-profit institutions such as schools, banks and political or governmental institutions rather than private contexts such as industries (Lowe, Kroeck, and Sivasubramaniam, 1996, cited in Rowold &Rohmann, 2009).  For example, in Austrian banks, it is found that the relationship between transformational leadership and “short versus long term performance” is well integrated (Geyer and Steyrer, 1998, cited in Bass et al., 2003). They argue that the effectiveness of transformational leadership style in Austrian banks may be due to the fact that transformational managers are very inspiring and commitment oriented.

Another organisational context that uses transformational leadership more effectively is when workers are being discriminative and stereotypical towards themselves or other employees. Managers should also be able to pay attention to particular situations where followers are having some degree of doubts and unfaithful behaviours about their qualification in pursuing the organisational goals (Shamir, House, and Arthur (1993, cited in Bass et al., 2003). The authors believe that transformational leaders should manage to transform workers’ perception towards themselves and others, as well as at the same time to ensure that employees have a sense of collective belonging where they share common interests and mutual benefits solely for the organisation. Through this process, subordinates will build up stronger ties with relatives and develop their “group involvement, commitment and potency” to attain goals (Bass et al., 2003, p. 209; Guzzo, Yoss, Campbell & Shea, 1993, cited in Bas et al., 2003).

Furthermore, transformational leadership style is also more effective in non-profit organisation such as an orchestra. The use of this leadership approach is more relatively closer to outcome criteria and performance (Fuller, Patterson, Hester, and Stringer, 1996; Judge and Piccolo, 2004; Lowe, Kroeck, and Sivasubramaniam, 1996, cited in Rowold & Rohmann, 2009). Boerner, Krause and Grebert (2004, cited in Rowold and Rohmann, 2009) argue that even though the members of orchestra are amateur and work for non-profits organisation, they are still able to commit themselves in performing at high level. At this stage, leaders or musical conductors play important role to motivate and influence the musicians to deliver the performance at their best.

Transformational leadership is very useful to be implemented in military context. According to U.S. Army doctrine Field Manual 22-100, transformational leadership has a very significant function in deriving followers’ performance (Bass et al., 2003). Bass et al argue that in this military context, leaders are expected to be “ethical and moral conduct”. If leaders in this case lieutenants are capable of behaving in such way, platoons will be inspired and motivated to deliver their assignments and roles accordingly.

According to the research that was conducted by Shamir et al. (1998, cited in Bass et al., 2003), transformational leadership style that is used in military context resulted in a high performance and serious commitment within the unit group on the “leaders behalf”.  What this is referring to is that the lieutenants play important role in creating a serious commitment and sacrifices from their followers. However, transactional leadership also tends to exist in the context that was previously mentioned. The use of contingency rewards in military context is also evident in improving soldiers’ performance. This idea is derived from what Bass et all. (2003, p. 210) meant by platoons “concentrate full attention” in order to avoid mistakes. By performing jobs well, soldiers avoid mistakes and failure and at the same time could possibly gain rewards, leaders’ appreciation and positive recognition. These rewards may include promotion to a higher position in the department, recognition through medals and certificate and less casualty of soldiers being killed in carrying out their duties.

In conclusion, leadership is a fundamental aspect in organisation. A good leadership approach that suits the organisational will determine and indicate how successful the company will be in dealing with challenges that organisations encounter in this competitive business environment. As discussed above, transformational leaders serve fundamental roles in creating, developing and maintaining a good relationship between leaders and followers. If leaders are capable of performing their roles in a manner that can transform and motivate subordinates, they will be leading the organisation in a forward direction. This will certainly promote the idea of followers being inspired and motivated by leaders in delivering as well as improving their capability to perform their assignments at a high level.

Transactional leadership approach is also relevant in the reinforcement of high quality job performance. This can be seen through the use of contingency rewards such as promotion to a higher position, bonus and special recognition through medals and certificate. Leaders should be able to provide a strategic and appropriate rewards and certain kind of recognition if followers attain the organisational goals. This will reinforce creativity and innovation from subordinates. This will also attract a serious commitment from employees to work effectively for the benefits of the entire organisation. Above all, compared to transactional leadership style, transformational leadership will be more effectively implemented when organisations encounter difficult challenges, environmental changes and business turbulences. Transformational leadership approach will also prevent bias, discriminative and stereotypical behaviour towards personal and other employees in the organisations.


Avolio, BJ., Walumbwa, FO. and Weber, TJ. (2009). Leadership: Current theories, research, and future directions.  Annual Review of Psychology, 60, 421-449.

Bass, BM., Avolio, BJ., Jung, DI and Berson, Y. (2003). Predicting unit performance by assessing transformational and transactional leadership, Journal of Applied Psychology, 88(2), 207-218.

Rowold, J and Rohmann, A. (2009). Transformational and transactional leadership styles, followers’ positive and negative emotion, and performance in German nonprofit orchestras. Nonprofit management and leadership, 20(1), 41-59

Samson, D. & Daft, R. (2009). Leading in organisations (chapter 15). In Management (3rd Asia Pacific ed.). South Melbourne, Vic: Cengage Learning Australia.

Vecchio, RP., Justin, JE., and Pearce, CL. (2008). The utility of transformational and transactional leaderships for predicting performance and satisfaction within a path-goal theory framework. Journal of occupational and organisational psychology, 71, 71-81.

Wang, G., Oh, I., Courtright, S. & Colbert, A. (2011). Transformational leadership and performance across criteria and levels: A meta-analytic review of 25 years of research. Group & Organization Management, 36(2), 223-270.

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