What You Need to Know About Transactional Leadership

Transactional leadership
Photo by Sora Shimazaki from Pexels

The pros and cons of managerial leadership

It was turning into my worst ever Monday morning. Certainly, my worst as a project manager and probably the most miserable meeting I had endured as a leader in any context.

When meetings go wrong

I was struggling to stay focused. The meeting was a disaster, playing out like a waking nightmare to my exhausted mind. I had just flown overnight, back from the US to Europe. For the first time, I really understood what flying the ‘red-eye’ really meant. My eyes felt like sandpaper. I had consumed some coffee – three rapid-fire espressos – but my tired and rebellious body just laughed this off and went on strike.

But I could not sleep. I had flown back to be at the Monday morning meeting with the property developer. This would usually be routine but as I strained under the weight of my leaden eyelids, I found myself ambushed by a project that had gone awry while I had been away. I was the project manager and – despite the fact I had been on vacation when things had gone wrong – I was held responsible in this Kafkaesque show trial.

The blame game

Various costs, delays, and mistakes were hurled at me in a steady bombardment. It was the first time I had heard of these misadventures, but no one cared. The various contractors and consultants, who were generally the cause of said mishaps, were not going to lift their heads above the parapet in my defence. 

The silence of the guilty. Their time would come.

I stayed on the ropes for two hours, absorbing each punch until the bell rang for the meeting to end. I tried to slope away afterwards, nurse my wounds, and start to consider what had just happened, but I was cut off by the lead developer. He took me around the back for a very personal verbal kicking. He questioned my character, competence and parentage.

I went from tired, to numb, to depressed, to angry. It took at least 24 hours, and some rest, to come up with a plan. I looked at each problem, identified the party who I believed was the root cause and then studied the legal obligations in their contracts. I did not hold much power, but I did hold the purse strings when it came to paying consultants. So armed with my contracts and cash flow projections I went into bat with the contractors. 48 hrs later and the project was back on track.

The project manager’s challenge

When I worked in the construction industry as a project manager it was a classic middle-man leadership position. As a project manager, I had very little actual power. What influence I did have, beyond my interpersonal skills, came down to contracts and cash. 

It is not my preferred style of management, but this is where the real leverage lies in these sorts of situations. If something goes wrong, relationships will get you some of the way, but when it really gets painful it is the legal wording and the threat of non-payment that brings people to the negotiating table.

What is transactional leadership? 

Transactional leadership is the name for this type of management. It is a leadership style following behavioural leadership theory. The approach is also related to the psychology of Transactional Analysis

This approach relies on people’s needs and a ‘give and take’ approach to keep the team on track. In this way, it is closely linked to Maslow’s Hierarchy of Needs. The rewards and punishments reflect a trade of basic human needs. The manager barters with the team, dangling the carrot of incentives such as wages or recognition while holding the stick of contract, discipline, or expulsion to maintain cohesion.

Transactional leadership is based upon the assumption that:

“In simple terms, better pay, (are linked to) better performance, promotion, further productivity” (Bass and Avolio (1994)).

This holds true to an extent. The more enlightened factory owners in the industrial revolution realised that adequate pay, better working conditions and rest did improve productivity. By providing the basic needs of shelter, enough money for food, rest and a secure job and environment, factory owners could have happier, more productive workers. But as we shall see, this approach has its limits. 

Carrot and stick

Transactional management uses both carrot and stick; rewards and punishments.

There is generally some benchmarked expectation of performance, contracted between worker and manager. Performance above this baseline of work can be rewarded, and equally, if productivity dips below the line then punishments are used to ensure compliance.

Any parent knows that there are times when this mode of leadership is needed. In the same way, there are times – when things may be less than pleasant or time-dependent – when transactional leadership may be necessary to carry through a project or phase of delivery. 

The transactional approach to management is generally effective and ensuring a reasonable level of productivity but the challenge comes when you want to inspire people beyond that. 

An Introduction to Transactional Leadership

The pros and cons of transactional leadership

On the plus side, transactional leadership is a simple and fair approach and can assure a level of performance. Because it relies on basic human needs and behaviours it is broadly effective in making people work. For the aspiring manager, it is also easy to understand and implement.

But, as mentioned previously, transactional leadership rarely gets the best from anyone. Going back to the discussion of Maslow’s hierarchy, once people have their basic needs covered – such as enough food to eat, basic shelter and security – just increasing a person’s potential resources does not necessarily lead to a proportional increase in productivity. 

Research has shown that monetary incentives do not necessarily improve performance. Also, if penalties are too harsh, workers will be unwilling to take risks. People won’t take risks if they are worried about their pay or job security. Fear of punishment is a poor atmosphere for creativity. To allow people to experiment (and therefore likely fail) there needs to be an environment of psychological safety.

Transactional leadership, when carried to extremes, is the tool of despots and authoritarian regimes. There may be rewards but in these cases, the threat of punishment becomes the regimes preferred means of coercion.

Therefore, it is hard to develop a high performing team with transactional leadership alone. This is why transactional leadership is usually seen as the poor cousin of transformational leadership. Transformational leadership is about inspiring the team with a vision, supporting the growth of individuals, and achieving a higher purpose rather than just getting a job done.

When to use managerial leadership

But there are times when you do just need to get the job done. You may not have the big vision, the team you would choose or the task you want, but you have to complete the project or task. At these times – as I experienced as a project manager – transactional leadership can be effective. 

Transactional leadership is suitable for tame problems. These are problems that are well defined and understood. Tame problems may be complicated, but they have tried and tested solutions, even if a degree of creativity is involved. A process can therefore be applied to these types of problems and this process can then be managed towards a solution. This is why transactional leadership is also known as managerial leadership.

Basic project, programme and production management fall into this category. A product being pieced together in a factory may be complex in its composition, but all of the construction steps are pre-defined. Similarly, most buildings, even if they have a novel exterior design, are constructed in tried and tested ways. Some crisis and emergency situations can also fall into this category. If there is a known process for dealing with the issue, then the situation can be managed. 

However, the managerial approach falls short when problems are wicked in nature or when creativity is needed. The highest performing teams and the most challenging problems require other leadership approaches.

Keep transactional leadership in your toolkit

I still feel slightly queasy when I remember back to that Monday car crash of a meeting. Fortunately, I was able to recover my situation with the help of transactional leadership.

Transactional leadership is not my preferred style of management but there are times when it is necessary. When things go wrong, and relationships break down, it is an approach to fall back on. Then it is important to be straight with people. Down the line, by the book, firm but fair.

So, as a leader make sure you have transactional leadership as a tool in your back pocket. And back up this contingency plan with the contracts or other levers you will need if things go wrong. But always remember: the carrot and stick approach is not as powerful as visionary, or servant leadership can be. People want a higher purpose to work for. Not just cash and contracts.


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