A Comparative Analysis of Transformational and Transactional Leadership

Enhancing leadership is integral to increased organisational performance (Katou 2015). Given the competitive nature of the business environment, organisations are always seeking to identify relevant leadership strategies to gain and maintain competitive advantage (Hsieh and Liou 2018). To these firms, transformational and transactional leaderships have been termed relevant and as a result, transformational and transactional leadership styles are widely researched (Hsieh and Liou 2018). Transformational leadership refers to a motivational style of leadership where the leader presents the vision of the organisation to employees and inspires them to work towards achieving the vision; the leader inspires employees through connecting with them, understanding their needs, and helping them reach their full potential (Is it from the same References?) (Jensen et al. 2019). On the other hand, transactional leadership is a style of leadership where a leader makes clear the roles and actions that employees should take in order to achieve organisational goals (Jensen et al. 2019). However, the leader seeks a reciprocal relationship with employees where the leader offers rewards and benefits to employees in exchange for achieving the expected goals (Masa'deh et al. 2016). This essay objectively evaluates transformational and transactional leadership in order to establish which of the two is more valuable in business practice. It argues that transformational leadership is more valuable than transactional leadership. For business dissertation help, understanding these leadership styles is crucial for analysing their impact on organisational effectiveness and strategic management.

Transformational leadership focuses on transforming and motivating employees thus seeks to satisfy employees’ higher order needs in order to engage them in achieving organisational goals (Jensen et al. 2019). Therefore, transformational leadership intrinsically motivates employees to attain organisational goals. In addition, transformational leaders have an intent to activate employees’ higher order needs, which implies that even if the leader stops supporting the employees, they already understand what is required and on the long run they have the ability to achieve it even in the absence of the leader (Kark et al. 2018). On the other hand, transactional leadership uses pecuniary and non-pecuniary character thus motivate employees at a base level (Jensen et al. 2019). This implies that if the rewards and benefits are removed, the employees are no longer motivated to achieve the set goals as they are dependent on the leader for rewards (Pillai 2013). Therefore, transformational leadership has a long-term value in empowering employees to attain organisational goals unlike transactional leadership whose value ends once the rewards and benefits are removed.

Vision is the core element of transformational leadership (Jensen et al. 2019). When the leader clearly shares the vision, he is able to establish a shared sense of purpose where employees acquire the similar understanding of the organisational purpose (Hoogeboom and Wilderom 2019). This shared understanding of organisational purpose helps employees transcend their own self-interest and devote their efforts towards the vision (Lin and Hsiao 2014). On the other hand, transactions between the leader and employees are the core element of transactional leadership (Jensen et al. 2019). As such, transactional leaders tend to create employee self-interest in achieving organisational goals which implies that employees can only devote their efforts to the organizational goals if their interests are considered. According to Anderson et al. (2017), some incentives may not be deemed valuable by employees which results in a mismatch between the interests of these employees and the interests of employees inhibiting performance. This implies that the rewards and sanctions a leader chooses should directly relate to employees’ specific effort. In light of this information, transformational leadership is more valuable in that it helps employees transcend their self-interests and devote their efforts to attaining organisational vision regardless the benefits they will acquire. Looking for further insights on Transformational Leadership and Change? Click here.

Transformational leadership has five components including charisma, idealised influence, inspirational motivation, intellectual stimulation, and individualised consideration (Jensen et al. 2019). According to Uusi-Kakkuri et al. (2016), individualised consideration, charisma, and idealised influence significantly enhance creativity among employees which implies that transformational leadership helps strengthen innovativeness among employees. In the same vein, Sanda and Arthur (2017) write that transformational leaders encourage employees to think rationally on how the organisational vision can be attained thus stimulating employees intellectually. On the other hand, transactional leaders seek to continue the present situation; they define what employees should do and the goals to be attained thus hindering creativity among the employees (Sperber and Linder 2018). In sight of the ever-changing customer needs, transformational leadership is more valuable as it helps an organisation respond to the changing needs of its customers.

Tesco PLC has had a long history of transformational leadership under Sir Terry Leahy since he became the CEO in 1997 till his resignation in 2010. Leahy believed that an organisation cannot attain its vision by leading by central control (CBI 2015). He believed that any large organisation as Tesco cannot be led by one leader. As a result, he devoted great energy, time and money in developing employees so that they can be leaders in the organisation (CBI 2015). However, Leahy was clear that for these developed leaders to flourish, they must operate within a clear guiding purpose and values (CBI 2015), which are at the core of transformational leadership. Having developed leaders at all levels in Tesco, Leahy resigned from Tesco’s leadership in 2010 indicating he felt he had achieved his aim of developing a purpose and values that could sustain the company through its challenges (The Guardian 2015). This indicates that after a period of serving, transformational leaders can fully develop employees in leadership capacity and leave them behind certain their will accomplish the mission of the organisation.

Undoubtedly, transformational leadership is more valuable than transactional leadership. While transformational leadership satisfies employees high order needs, transactional leadership motivates employees at base level, which implies that the former can help an organisation attain its long-term goals with little continued effort. Transformational leadership also helps employees transcend their own self-interest while transactional leadership creates employee self-interest, which implies that once rewards and sanctions are withdrawn, employees cease to be motivated. Further, transformational leadership stimulates employees intellectually enhancing their creativity to better meet the changing customer needs. Adopting the transformational leadership style, Sir Terry Leahy was able to transform Tesco to a giant grocery store in the UK, which is a reflection of the strength of transformational leadership in driving organisational performance. Thus, transformational leadership ensures employees devote their efforts to attaining organisational vision, enhance employees’ creativity, and promote organisational performance.

References

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Hoogeboom, M.A. and Wilderom, C.P., 2019. Advancing the Transformational–Transactional Model of Effective Leadership: Integrating two Classic Leadership Models with a Video‐Based Method. Journal of Leadership Studies, 13(2), pp.23-46.

Hsieh, J.Y. and Liou, K.T., 2018. Collaborative leadership and organizational performance: Assessing the structural relation in a public service agency. Review of Public Personnel Administration, 38(1), pp.83-109.

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Lin, R.S.J. and Hsiao, J.K., 2014. The relationships between transformational leadership, knowledge sharing, trust and organizational citizenship behavior. International Journal of Innovation, Management and Technology, 5(3), p.171.

Masa'deh, R.E., Obeidat, B.Y. and Tarhini, A., 2016. A Jordanian empirical study of the associations among transformational leadership, transactional leadership, knowledge sharing, job performance, and firm performance: A structural equation modelling approach. Journal of Management Development, 35(5), pp.681-705.

Pillai, R., 2013. Transformational leadership for crisis management. In Handbook of research on crisis leadership in organizations. Edward Elgar Publishing.

Sanda, A. and Arthur, N.A.D., 2017. Relational impact of authentic and transactional leadership styles on employee creativity: The role of work-related flow and climate for innovation. African Journal of Economic and Management Studies, 8(3), pp.274-295.

Sperber, S. and Linder, C., 2018. The impact of top management teams on firm innovativeness: a configurational analysis of demographic characteristics, leadership style and team power distribution. Review of Managerial Science, 12(1), pp.285-316.

Uusi-Kakkuri, P., Brandt, T. and Kultalahti, S., 2016. Transformational leadership in leading young innovators–a subordinate’s perspective. European Journal of Innovation Management, 19(4), pp.547-567.

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