There are many ways to lead a company, but most leadership styles tend to be either transactional or transformative. Transactional leadership is primarily based on processes and control, and requires a strict management structure. Transformational leadership focuses on inspiring others to follow, and as such it requires a high degree of coordination, communication and cooperation.
The difference can be summed up as follows: transactional leadership looks at how to get things done, and transformation leadership looks at how to motivate people to do things.
Transactional Leadership in Action
Transactional leadership works best in situations when rules must be followed and hierarchy is critical, and there’s not much emphasis on innovation. Organizations that employ transactional leadership are the military, big corporations and NFL coaching.
The issue of contingency comes up frequently in discussions about transactional leadership. Contingency means that workers know their reward is contingent upon them completing the tasks that have been assigned to them. The leader must set explicit expectations that are understood by the worker.
Transactional leaders usually use management by exception, which means they won’t make changes or get involved if everything runs as expected. Negative exceptions, such as missing sales goals or production quality targets, get immediate attention.
Transformational Leadership in Action
Psychologist Ronald E. Riggio identifies four characteristics of transformational leaders:
These components, called the Four I’s, have a substantial impact on a leader’s ability to enrich both the organization and the individual. Riggio writes “… transformational leaders hold positive expectations for followers, believing that they can do their best. As a result, they inspire, empower and stimulate followers to exceed normal levels of performance.”
Transformational leadership may sound admirable, but it has some disadvantages. It can be ineffectual at some stages of business growth, and may not take root in a bureaucratic environment. If there is no management structure already in place, transformational leadership is not equipped to create one.
Comparing the Two Leadership Styles
It’s tempting to debate which style of leadership is better, but that misses the point. Both styles are valid, and what matters is context. Some organizations need rigidity and a clear chain of command. Others work best in a fluid environment where leadership sets an example and establishes goals. Leadership styles that work for Google won’t work for the military — and vice versa.
In fact, both types of leadership styles might be needed in the same organization to counterbalance each other and help achieve growth and development goals. Transactional leaders make sure the team is running smoothly and producing results today, while transformational leaders spur innovation and look toward tomorrow.