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- Elon Musk, Investor & Entrepreneur
4 min read
By Lisa Teh

How Does Transactional Leadership Work?


In business, transactional leadership is a skillset that someone may use when they are looking to lead a team of people. But what exactly is it? And how does it adapt to such work environments where leaders can thrive?

As someone who is in a leadership position, you want people on your team to trust you. Even if you don’t have a permanent leadership title, transactional leadership may come in handy if you are tasked to lead a group of people on a project or if you’re considered for a promotion or new job.

What is Transactional Leadership?

Transactional leadership is defined as a person who is focused on results. They use the current structure of the organisation and measure the success in accordance with the rewards and penalties based on how the organisation is set up. Those who have transactional leadership skills are usually authority figures or are in positions that require a great deal of responsibility.

A leader needs to maintain a routine that allows them to facilitate the group’s performance whilst also managing the individual performance of each team member. To do so, a transactional leader will often utilise both team and individual performance reviews. The team and each individual will be assessed based on such performance reviews so that they are made aware of their strengths and possible weaknesses.

The Difference Between Transactional vs Transformational Leadership

The difference between transactional and transformational leadership is quite distinct.

Transactional leadership is basically defined as ‘telling’ leadership. You’re ‘telling’ the person what needs to be done and you’re ‘telling’ them how they are performing as an individual and the group as a whole.

Meanwhile, transformational leadership is more of a “selling” style. More specifically, the role of a transformational leader is to ‘sell’ the future. They are ‘selling’ the positive results to every individual and group member by way of inspiration and motivation. Transformational leaders will often help their team paint a mental picture of certain scenarios through the use of ‘what-ifs’. What if the project is a success? Alternatively, what if the project was a failure?

Transactional leaders know what they want and how it needs to be done. They don’t need to sell anything to their team. It’s one result and one only, to be successful. If the tasks are done properly, the individual or team will be rewarded. Otherwise, they could be punished. The last thing any individual or team wants, is to be punished for failing at a task. If anything, the thought of being penalised for such a thing should drive them to get the job done.

Transactional Leadership Examples

Let’s take a look at the following transactional leadership example using one of the best tech minds known to the world:

Bill Gates, the founder of Microsoft, was known for his unique transactional leadership style. When his team was working on something big, Gates always wanted them to understand the goal of what they were working on. When the opportunity presented itself, he would ask the team members difficult questions until he was happy with the answers. This gave Gates an insight into how well the team was performing and whether or not they understood the goals that needed to be met.

What Is Transactional Leadership Theory?

Transactional leadership theory is based on the findings of a German sociologist named Max Weber. Weber discovered that transactional leadership was based on a reward exchange between a manager and an employee. For example, a manager wants something done and finds a person who may be reliable enough to get it done. The person that is responsible for the project also has something that they want, for example, a certain salary. In order to complete the project, they are promised the desired salary from the manager. As a result, the manager gets what they want and so does the person responsible for completing the project.

Final Thoughts

In any environment, transactional leadership is seen as the traditional thing to do. A leader rewards their team or an individual with something in return for what they want. And when rewarded, the individual and the group will work harder. Likewise, if such goals are not met, then the management may punish the individual or the group as a whole. It is a kind of leadership style that has long existed (perhaps since the beginning of time).

About the author


Co-Founder of Lisnic 🌏 Founder of CODI Agency (Digital Marketing)📱
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