Transformational leadership must always occur before transactional leadership.

By Indeed Editorial Team

Updated September 8, 2021 | Published January 3, 2020

Updated September 8, 2021

Published January 3, 2020

Choosing a leadership style can help you refine your approach to leading a team. While many types of leadership styles exist, two terms are most common: “transactional” and “transformational” leadership. In this article, we explain what these two terms mean and their differences, what qualities make for a transactional or transformational leader and which leadership style may work best for you.

Related: Top 8 Leadership Styles - Definitions & Examples

Jenn, an Indeed Career Coach, explains the top leadership styles in management and how to identify the one that's right for you and your team.

What is transactional vs transformational leadership?

Transactional versus transformational leadership refers to two different styles of leadership that are opposites of one another. Many leaders fall under either of these two categories. Each one is best suited for different situations and people, making it important that you choose the right one based on your circumstances. Below are the qualities that define both transactional and transformational leadership along with some information to help you decide which one is right for you. 

Related: Top 6 Leadership Skills

Transactional leadership qualities

A transactional leader is someone who follows a routine or set of rules. They focus more on sticking to the procedure to achieve results, rather than trying new ideas or innovating. The term “transactional” comes from the fact that these types of leaders are looking to motivate by exchanging performance for rewards or discipline. A transactional leader will set a list of criteria for their employees or team members to meet, then judge them based on how well they meet those criteria.

Transactional leadership is advantageous in a few scenarios such as:

• You have a team full of self-interested or self-motivated people.

• You need a clear structure for systems that require repetitive tasks, specifically in larger organizations or groups.

• You want to achieve short-term goals quickly.

However, there are a few negatives with transactional leadership. For example, while your team may be motivated by money now, this won’t always last. If you have nothing else to motivate your team with besides the initial transaction, they may lose focus over time. Also, these leaders don’t reward personal initiative, which in turn limits it. Allowing your team members more creativity is a great way to find out if there’s a better way to do things, but this is discouraged under transactional leadership. 

A great example of a transactional leader is a drill sergeant. The military has a specific way of doing things and every member is expected to follow these guidelines. The drill sergeant will have a set of goals for their trainees to reach—for example, how fast they can run a mile—and reward or discipline their subordinates based on how they perform. 

Transactional leaders do well in the military, but they also exist in civilian life. You can find them at the head of major corporations as well as within small teams inside smaller companies. Some examples of transactional leaders include:

• First Responders

• Coaches

• CEOs

• Sales Team Leaders

Transformational leadership qualities

Transformational leaders are more focused on the future and embrace creativity. A transformational leader will encourage their subordinates to innovate and try new things, with the ultimate goal of creating future success for the organization. With this style of leadership, you are less focused on the day-to-day operations and short-term goals, but rather on long-term success. 

Whereas a transactional leader may micro-manage the work of an employee, transformational leaders will give them more room to operate. This allows employees to take on larger responsibilities and use more of their creativity. In turn, the employee feels like they have a larger stake within the organization. 

A good transformational leader will do a few things, such as:

• Encourage employee growth and development

• Train subordinates to become leaders themselves

• Move employees away from self-interest and into a mindset of communal success

• Provide subordinates enough space to make their own decisions

• Encourage team building and improve communication among team members

A great example of a transformational leader is an entrepreneur starting their own business. Since there are no current guidelines in place, and the entrepreneur doesn’t know the best way forward, they will encourage their new hires to innovate. They’ll also want their new hires to stay for the long-term, requiring that they foster an environment of unity. 

A transformational leader wants each team member to be their best so that they can ultimately help the organization improve. They do this by motivating the team member not through money or punishments, but by getting them to see themselves as a part of something bigger. 

Related: 15 Leadership Qualities That Make a Great Leader

Choosing between transactional vs transformational leadership

Deciding between transactional and transformational leadership will depend on the type of organization you’re working for and the job you have to do. If you need to achieve short-term results, or if you’re working in a field with strict guidelines, then becoming a transactional leader is a better fit for you. On the other hand, if you want to focus more on long-term goals and providing your subordinates with more room to operate, then consider being a transformational leader.

Of course, there are other types of leadership as well. You could be a hands-off leader, a democratic one, a visionary, a coach or something else entirely. Before settling on a leadership style, it’s a good idea to read up on all the different kinds. That way, you can make the best decision about which style you’d like to try to emulate.

If you still can’t decide, try taking some principles from multiple styles. For instance, you could stick to the guidelines already in place at your organization, but also encourage employees to become more invested in the organization by giving them a space to share their ideas. Or, you could micromanage your employees in the beginning, but become more hands-off over time.

Transactional and transformational leadership styles may be opposite from one another, but that doesn’t mean you can’t be a leader that’s somewhere in the middle and pull ideas from different methods. You need to find a management style that not only suits your personality and skills but also the job you’re required to do.