Transactional Leadership: Is It Costing Us Talent?

Transactional leadership is a results-driven approach to management. It is the kind of leadership that values order, structure, and hierarchy. And it is usually built around the idea of targets-based growth. That means everyone has their own responsibilities. Everyone has their own targets. And everyone is held accountable for their performance.

Q What are the advantages of transactional leadership?

Transactional leadership is very popular in big companies. That’s because it sets clear expectations for employees. If they hit their targets, then they are rewarded for doing a good job. And if they miss them, then they are expected to get back on track. It’s a tough leadership style but it is often effective in driving short-term growth. Transactional leadership is also very popular in certain sectors, such as finance, that rely on standardised procedures and operational efficiency.

Q Where does transactional leadership fall short?

The problem with transactional leadership is that it only rewards a limited set of behaviours. It can make managers feel like they need to focus on short-term profitability. And it can make employees feel like their work is only valued in terms of ‘transactions’, rather than in long-term contributions.

The other problem is that transactional leadership often leaves less room to grow. If you build a business based on strict hierarchies and rigid targets, then you miss out on the kind of creativity and collaboration that can only thrive in a more flexible workplace. And if you take transactional leadership too far, and run your teams based on a ‘one-size-fits-all’ approach, then you risk demotivating or even losing your most promising talent.

Q So who could thrive on transactional leadership?

There are many people who respond well to transactional leadership. It is good for self-motivated people who work well in a structured environment. It is also good for many others including newcomers, tacticians, and empowerers.

1 - Newcomers

The people most likely to benefit from transactional leadership are the newcomers. They could be someone who is new to the company. In this kind of situation, having a clear hierarchy can make it easier for them to understand how the company works and where they fit into it. They could also be someone who is new to a particular discipline. In this kind of scenario, having defined responsibilities and clear workflows can make it easier for newcomers to understand their role and how their work contributes to the bigger picture. Transactional leadership can also create opportunities for scaling targets, as team leaders can start small, and then increase a newcomer’s responsibilities over time.

2 - Tacticians

The people most likely to thrive under transactional leadership are tacticians. A tactician could be someone who is naturally results-driven or who works in a results-oriented field, such as sales or business development. In this case, transactional leadership could work well because it provides both measurable goals and tangible incentives. A tactician could also be someone who is process-driven and who focuses on improvement through procedural change. In this case, transactional leadership is also appropriate because it encourages organisational discipline and personal responsibility.

3 - Empowerers

The people most likely to shine from transactional leadership are empowerers. An empowerer could be someone who is a non-managerial leader. In this kind of situation, transactional leadership allows them to help others understand the company strategy and work towards team goals. An empowerer could also be someone who is a junior manager. And in this type of scenario, transactional leadership helps them to plan their career paths and to work towards senior management positions.

Q Who might prefer a different approach?

For most people, money and perks are a powerful motivator. Transactional leadership won’t work for everyone though. There are many who simply need more freedom in what they do, or who want the chance to grow in more than one area. For example, transactional leadership may be less helpful for nurturers, storytellers, and innovators.

1 - Nurturers

A nurturer could be someone in a client-facing role who values service over stats, like a customer service representative. In this case, transactional leadership can sometimes lead to unrealistic targets. It can make nurturers feel like they need to focus solely on performance figures, like reducing wait times, rather than on performance quality, like solving client problems. Here, nurturers might respond better to leaders who let them share their insight, have a say on company procedures, and who help them focus on what is most important - client satisfaction.

A nurturer could also be someone in a staff-facing role who values culture over stats, like a HR manager. In this case, transactional leadership can sometimes be burdensome. It can make nurturers feel like they need to focus on upholding existing procedures, through standardised policies, rather than showing greater flexibility and creating a happier work culture. If it comes with unrealistic financial targets, it can also make it harder for HR managers to recruit, train, and properly incentivise staff. Here, nurturers might respond better to leaders who show they value unity, that they prioritise employee well-being, and that they know what is most important - taking care of their staff.

2 - Storytellers

A storyteller could be someone in a creative role who is responsible for the company brand. In this case, transactional leadership can sometimes lead to unreasonable targets or restrictive work practices. It may make storytellers feel like they don’t have the time or resources they need to produce high-quality work. Here, storytellers might respond better to leaders who work with them to increase productivity in other ways, such as negotiating deadlines, facilitating collaborations between departments, improving feedback procedures, and encouraging true creativity.

3 - Innovators

Last but not least, we have the innovators. An innovator could be someone in business or product development. In this situation, transactional leadership can sometimes be counterproductive. Innovators sometimes need to work outside of existing policies and procedures. Here, people might respond better to leaders who give them the freedom they need to try new things and bring about real change. Maybe they need to take a crazy idea and run with it. Maybe no one else is doing it. But, maybe that’s the point?

Q Is there still a place for transactional leadership in 2023?

Transactional leadership is still a valid and effective leadership style. It can enable big companies to achieve their goals and drive short-term growth. It can also enable them to standardise procedures and achieve greater operational efficiency. But, it does come with risks. As transactional leadership tends to be based on financial KPIs, it can sometimes lead to unrealistic targets, bad work practices, and low employee morale.

As any good leader will tell you, transactional leadership should be used on a discretionary basis. It’s important for leaders to work towards financial targets, but it’s also important for leaders to tailor their leadership style to each individual, and to create the kind of work environment that attracts and retains top talent. After all, transactional leadership and a resultsdriven approach can only work if you have the right people in place to help drive the company forward.

And if you’re ever worried about someone not hitting their targets, don’t be afraid to try a new approach. The talent is always there, you just need the right measure.