Transactional Leadership Theory – Meaning, its Assumptions and Implications

The transactional style of leadership was first described by Max Weber in 1947 and then by Bernard Bass in 1981. This style is most often used by the managers.

It focuses on the basic management process of controlling, organizing, and short-term planning. The famous examples of leaders who have used transactional technique include McCarthy and de Gaulle.

Transactional leadership involves motivating and directing followers primarily through appealing to their own self-interest. The power of transactional leaders comes from their formal authority and responsibility in the organization.

The main goal of the follower is to obey the instructions of the leader. The style can also be mentioned as a ‘telling style’.

The leader believes in motivating through a system of rewards and punishment.

If a subordinate does what is desired, a reward will follow, and if he does not go as per the wishes of the leader, a punishment will follow. Here, the exchange between leader and follower takes place to achieve routine performance goals.

These exchanges involve four dimensions:

1. Contingent Rewards: Transactional leaders link the goal to rewards, clarify expectations, provide necessary resources, set mutually agreed upon goals, and provide various kinds of rewards for successful performance. They set SMART (specific, measurable, attainable, realistic, and timely) goals for their subordinates.

2. Active Management by Exception: Transactional leaders actively monitor the work of their subordinates, watch for deviations from rules and standards and taking corrective action to prevent mistakes.

3. Passive Management by Exception: Transactional leaders intervene only when standards are not met or when the performance is not as per the expectations. They may even use punishment as a response to unacceptable performance.

4. Laissez-faire: The leader provides an environment where the subordinates get many opportunities to make decisions. The leader himself abdicates responsibilities and avoids making decisions and therefore the group often lacks direction.

Assumptions of Transactional Theory

• Employees are motivated by reward and punishment.

• The subordinates have to obey the orders of the superior.

• The subordinates are not self-motivated. They have to be closely monitored and controlled to get the work done from them.

Implications of Transactional Theory

The transactional leaders overemphasize detailed and short-term goals, and standard rules and procedures. They do not make an effort to enhance followers’ creativity and generation of new ideas. This kind of a leadership style may work well where the organizational problems are simple and clearly defined. Such leaders tend to not reward or ignore ideas that do not fit with existing plans and goals.

The transactional leaders are found to be quite effective in guiding efficiency decisions which are aimed at cutting costs and improving productivity. The transactional leaders tend to be highly directive and action oriented and their relationship with the followers tends to be transitory and not based on emotional bonds.

The theory assumes that subordinates can be motivated by simple rewards. The only ‘transaction’ between the leader and the followers is the money which the followers receive for their compliance and effort.

Difference between Transactional and Transformational Leaders

Conclusion

The transactional style of leadership is viewed as insufficient, but not bad, in developing the maximum leadership potential. It forms as the basis for more mature interactions but care should be taken by leaders not to practice it exclusively, otherwise it will lead to the creation of an environment permeated by position, power, perks, and politics.