Transformational and transactional leadership
The research issue
Bass’s (1985) theory of transformational leadership distinguishes between transactional leaders and transformational leaders. Transactional leaders base their relationships with their followers on a series of exchanges or bargains. They reward followers for accomplishing agreed objectives by giving recognition, bonuses, merit wards or particularly stimulating projects. They also ‘transact’ with followers by focusing on their mistakes, and delaying decisions or avoiding intervening until something has gone wrong. Transformational leadership, in contrast, is characterized by behaviour that helps followers to develop their knowledge and skills, stimulating them intellectually and inspiring them to go beyond self-interests to achieve or pursue a higher vision, mission or purpose. Transactional leadership focuses on short-term corrective or reward-based transactions, whereas transformational leaders employ charisma and give more consideration to each individual’s needs. Transformational leaders focus on longer-term goals and place emphasis on developing a vision that inspires their followers. Of course, all leaders are likely to display elements of both styles of leadership, but, according to this framework, it is proposed that there will be considerable variation between leaders in the extent to which they employ predominantly one or other style. Howell and Avolio (1993) decided to investigate the extent to which transactional and transformational leadership behaviours predicted business performance.
Design and procedure: The researchers worked with 78 managers in a large Canadian financial institution, which was one of the oldest and most successful in the country. They measured leadership behaviour by administering the Multifactor Leadership Questionnaire (MLQ) to (on average) four of the followers of each of the 78 managers. The MLQ measures transformational leader behaviour by items such as ‘uses symbols and images to get his or her ideas across’, ‘provides reasons to change my way of thinking about problems’ and ‘spends time coaching me’. Transactional leadership is measured by items such as ‘points out what I will receive if I do what needs to be done’, ‘is alert for failure to meet standards’ and ‘things have to go wrong for him or her to take action’. One year later, the researchers gathered data on the performance of the business units for which each of the managers was responsible. These data included productivity improvement, size of operating expense budget, conformity of salaries to budget and total project costs.
Results and implications: The managers who displayed less transactional leadership behaviours and more consideration for individuals, intellectual stimulation of followers and charisma had better business unit performance one year later. Transactional leadership behaviours were also negatively related to unit performance.
The results suggest that managers need to develop a transformational leadership style in order to be more effective and to contribute to the performance of their business units or organizations. But the authors point out that their results are not entirely consistent with previous studies. Although previous studies reveal positive relationships between transformational leadership styles and performance, they also showed positive relationships between transactional behaviours and performance.
Transactional leadership behaviours may lead to poorer performance in an environment, such as the financial services industry, where there is much change and turbulence. Employees may need to develop a longer-term vision of their work to cope with long-term change, which transactional styles (focused as they are on meeting short-term goals) do not encourage. Interviews with senior managers in the organization revealed a concern that some managers had become too transactional and spent too much time on meeting immediate goals and achieving short-term results rather than motivating, empowering and inspiring employees. The researchers suspected that the negative relationships between transactional styles and performance might have been a consequence of employees feeling that rewards were being used to control their behaviour rather than reward performance. The positive impact of transformational leadership on performance could be due to followers internalizing the charismatic leader’s vision or values and consequently working hard to achieve that vision, regardless of the short-term consequences for them. Such effects are more likely to be powerful (according to theory) in organizations that are coping with considerable change, where a focus on the long-term future helps to distract employees from the short-term stresses of additional workloads or major change in their work. The researchers speculate that transformational leadership may have a direct effect on the commitment levels of followers and their preparedness to be good organizational ‘citizens’ who contribute beyond what they are required to, and that this, in turn, affects business unit performance. The investigators call for more research to help us understand not just whether, but how, transformational leadership behaviours influence job performance.
Howell, J.M., & Avolio, B.J., 1993, ‘Transformational leadership, transactional leadership, locus of control, and support for innovation: Key predictors of consolidated-business-unit performance’, Journal of Applied Psychology, 78, 891–902.
The research issue
Bass’s (1985) theory of transformational leadership distinguishes between transactional leaders and transformational leaders. Transactional leaders base their relationships with their followers on a series of exchanges or bargains. They reward followers for accomplishing agreed objectives by giving recognition, bonuses, merit wards or particularly stimulating projects. They also ‘transact’ with followers by focusing on their mistakes, and delaying decisions or avoiding intervening until something has gone wrong. Transformational leadership, in contrast, is characterized by behaviour that helps followers to develop their knowledge and skills, stimulating them intellectually and inspiring them to go beyond self-interests to achieve or pursue a higher vision, mission or purpose. Transactional leadership focuses on short-term corrective or reward-based transactions, whereas transformational leaders employ charisma and give more consideration to each individual’s needs. Transformational leaders focus on longer-term goals and place emphasis on developing a vision that inspires their followers. Of course, all leaders are likely to display elements of both styles of leadership, but, according to this framework, it is proposed that there will be considerable variation between leaders in the extent to which they employ predominantly one or other style. Howell and Avolio (1993) decided to investigate the extent to which transactional and transformational leadership behaviours predicted business performance.
Design and procedure: The researchers worked with 78 managers in a large Canadian financial institution, which was one of the oldest and most successful in the country. They measured leadership behaviour by administering the Multifactor Leadership Questionnaire (MLQ) to (on average) four of the followers of each of the 78 managers. The MLQ measures transformational leader behaviour by items such as ‘uses symbols and images to get his or her ideas across’, ‘provides reasons to change my way of thinking about problems’ and ‘spends time coaching me’. Transactional leadership is measured by items such as ‘points out what I will receive if I do what needs to be done’, ‘is alert for failure to meet standards’ and ‘things have to go wrong for him or her to take action’. One year later, the researchers gathered data on the performance of the business units for which each of the managers was responsible. These data included productivity improvement, size of operating expense budget, conformity of salaries to budget and total project costs.
Results and implications: The managers who displayed less transactional leadership behaviours and more consideration for individuals, intellectual stimulation of followers and charisma had better business unit performance one year later. Transactional leadership behaviours were also negatively related to unit performance.
The results suggest that managers need to develop a transformational leadership style in order to be more effective and to contribute to the performance of their business units or organizations. But the authors point out that their results are not entirely consistent with previous studies. Although previous studies reveal positive relationships between transformational leadership styles and performance, they also showed positive relationships between transactional behaviours and performance.
Transactional leadership behaviours may lead to poorer performance in an environment, such as the financial services industry, where there is much change and turbulence. Employees may need to develop a longer-term vision of their work to cope with long-term change, which transactional styles (focused as they are on meeting short-term goals) do not encourage. Interviews with senior managers in the organization revealed a concern that some managers had become too transactional and spent too much time on meeting immediate goals and achieving short-term results rather than motivating, empowering and inspiring employees. The researchers suspected that the negative relationships between transactional styles and performance might have been a consequence of employees feeling that rewards were being used to control their behaviour rather than reward performance. The positive impact of transformational leadership on performance could be due to followers internalizing the charismatic leader’s vision or values and consequently working hard to achieve that vision, regardless of the short-term consequences for them. Such effects are more likely to be powerful (according to theory) in organizations that are coping with considerable change, where a focus on the long-term future helps to distract employees from the short-term stresses of additional workloads or major change in their work. The researchers speculate that transformational leadership may have a direct effect on the commitment levels of followers and their preparedness to be good organizational ‘citizens’ who contribute beyond what they are required to, and that this, in turn, affects business unit performance. The investigators call for more research to help us understand not just whether, but how, transformational leadership behaviours influence job performance.
Howell, J.M., & Avolio, B.J., 1993, ‘Transformational leadership, transactional leadership, locus of control, and support for innovation: Key predictors of consolidated-business-unit performance’, Journal of Applied Psychology, 78, 891–902.
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