Transformational vs. Transactional leadership: Which style is best?

Are you a carrot-and-stick style leader, encouraging staff and organisational performance through rewards and punishment? Or do you adopt a leadership method that nurtures staff, and aims to inspire and motivate?

There are many different types of leadership and many ways to lead people. In this article we look at Transactional vs Transformational leadership. What are the characteristics of each and which style is more effective?

What is transactional leadership?

A transactional leadership style manages employees by establishing an action-and-outcome relationship between the manager and the staff. With this dynamic, the outcome can be either positive in the form of a reward, or negative through punishment – depending on whether the agreed action was achieved. Think of it as a philosophy of “if you do this, you’ll get this in return”. That is the “transaction” component of transactional leadership.

Transactional leadership is about managing the day-to-day work that needs to get done. This style is better suited for organisations that are looking to maintain the status quo and focus primarily on achieving short-term goals. This style of leadership encourages employees to comply with set rules and regulations to reach their goals. It can also help to create a culture of accountability and responsibility within the organisation. 

Transactional leadership has been condemned by many leadership philosophers for adopting a one-size-fits-all approach. There is a common notion that the practice conditions staff to develop a relationship of “shallow, temporary exchanges” with the leader, rather than fostering an environment that allows the employee to be inspired to perform by seeing how their efforts contribute to the development and success of the organisation. 

Jeff Bezos, CEO of Amazon is a classic example of a transactional leader. He has created a culture of high performance and accountability at Amazon, and his leadership style has been credited with the company’s success. Why? He sets clear goals and expectations, and he holds people accountable for meeting them. He also encourages innovation and risk-taking, and he rewards employees for their hard work and dedication.

We have learnt during times of crisis such as the COVID-19 pandemic, transactional leadership may not allow for much flexibility, where the situation is fluid and constantly changing. It is difficult for transactional leaders to adjust quickly to new realities and to make decisions that are beneficial to the organisation.

What is transformational leadership?

Where transactional leadership can be simply described as an action-and-reward dynamic, transformational leadership seeks to empower staff through a manager who inspires, motivates and nurtures.

Rather than micromanaging, transformational leaders value independent thinking, creativity and professional development. Despite its detractors, this leadership approach has been empirically proven to work in environments where the growth and upskilling of staff for long-term careers—like the aged care sector—is a priority.

Transformational leadership focuses on developing relationships and inspiring people to reach higher levels of performance. During times of crisis such as the COVID-19 pandemic, transformational leadership can be beneficial as it encourages employees to think creatively and come up with innovative solutions to problems. It also allows for greater flexibility and encourages open communication between leaders and their teams, enabling better decision-making and problem-solving.

Steve Jobs was the co-founder and CEO of Apple Inc. He was a transformational leader who inspired his employees to think differently and innovate. He was known for his passion and enthusiasm for the products he created, and his ability to motivate and inspire his team to create ground breaking products.

Which one is right for you as an aged care leader?

Ultimately, the best style of leadership for your organisation will depend on the goals and objectives of the organisation. It is impossible to identify one approach as better or worse than the other, and there is substantial evidence to suggest that the best leaders in people-centric industries like aged and health care adopt a blend of both transactional and transformational approaches. 

Why? Because leadership is an extremely diverse and challenging beast, and to overcome it successfully as your career progresses, it may be necessary to adopt a hybrid approach to leading your people.

Each style has its advantages and disadvantages and can be used to create a positive work environment and foster employee engagement. Understand what motivates them and that will help identify a leadership style catered for them.

By using both styles, leaders can create a balanced approach to leadership that encourages employees to reach their goals while also providing them with the necessary rewards and guidelines to stay on track.