Transactional leaders tell their team exactly what to do and motivate employees via perks or rewards. While this leadership style is useful for short-term pushes or emergency situations, transactional leadership should be used with caution. Read on to learn about the pros and cons of transactional leadership, when to use it, and some alternative styles to consider.
We talk a lot about leadership at Asana. As a leader, it’s your responsibility to inspire, motivate, and encourage your team. You want to provide both the resources they need to succeed and the structure they need to perform well. Yet, according to the Anatomy of Work Index, only 15% of knowledge workers feel completely heard by their organization. Many leaders start a dialogue with their team but have a hard time maintaining the dialogue or turning it into an action plan. When we fail to act, our team can experience stress, lack of clarity, or even burnout.
There is no one right way to lead—and the best leaders use multiple leadership styles. Transactional leadership is one style of leadership that, when used intentionally, can help your team members excel at specific tasks or specific situations. In this article, we’ll cover what transactional leadership is and when you can use it—as well as when to avoid it and use other types of leadership styles instead.
Transactional leadership is a style of leadership that focuses on order, structure, and goal-oriented planning. A transactional leader will directly tell their team what to do—as a result, this leadership style prioritizes maintaining the status quo, rather than challenging it.
With this type of leadership, leaders often operate from a system of rewards to motivate their team. Transactional leadership appeals to the self-interest of each team member, encouraging them to do a good job in order to receive perks or incentives. In some cases, transactional leadership theory involves a laissez-faire style, in which a team lead will be hands-off until they’re needed.
At Asana, one of our company values is, “Be real (with yourself and others),” so we’ll be real with you—you shouldn’t use transactional leadership frequently. Transactional leaders use extrinsic motivation and contingent rewards (i.e. rewards that are dependent on behavior or achievement). The advantage of this type of leadership is that you’re initially motivating people with things that might matter to them, like money or recognition. However, the disadvantage of transactional leadership is that team members tend to focus on achieving short-term goals in order to get those rewards.
As a result, transactional leadership works in concentrated moments or emergency situations. With transactional leadership, there is only one decision-maker, which can be beneficial if you and your team need to solve a short-term goal with a tight turnaround time. However, it’s important to temper the structured environment of transactional leadership with other leadership styles that recognize employee performance more holistically to ensure you’re creating an open and collaborative work environment.
Teams that use transactional leadership:
Sales teams that have commissions are using a form of transactional leadership. When a member of the sales team hits their quota they receive a reward—but on the inverse, corrective action may be taken if they don’t hit their goals for the quarter.
Sports teams often use a form of transactional leadership to convince team members to do something unpleasant, like training, in order to hit a personal reward—in this case, doing well in a competition.
Emergency or crisis situations can benefit from transactional leadership if everyone needs to band together and get a short-term goal done quickly. This form of managerial leadership works best if a team needs to execute on a problem, rather than iterate on possible solutions.
Should you use transactional leadership? Like any leadership style, there are pros and cons to transactional leadership. Here are a few reasons to use transactional leadership—sparingly—and a few tips on when to avoid it.
Transactional leaders execute on specific (usually short-term) goals. Because of this, the teams they lead tend to be laser-focused on those goals. The clarity and short-term focus means team members know how to prioritize in order to get where they need to go.
In short bursts, this level of clarity can help your team members focus on particular tasks. In our research, we found that 29% of employees who felt burnout in the last year reported feeling overworked from a lack of clarity on tasks and roles. By giving your team a clear goal and telling them what to do through a transactional leadership style, you can remove those doubts and help them focus on the right priorities. For example, a transactional leader might set a goal to publish a certain number of articles this month or connect with a certain number of customers in a week.Read: Four ways to manage tight schedules and shifting priorities
When you use transactional leadership, you should communicate clear goals that your team should aim for. But, in order for those goals to feel achievable, they tend to be short-term goals.
That’s why you should practice different types of leadership at different times. Transactional leadership can help your team think short-term, but you also need to help your team build long-term goals as well. A key way to do that is to think of yourself not just as a leader, but as a coach. Supporting team members not just as a manager but also as a coach can help your team set concrete-long term goals. To learn more about how to set long-term goals to help your team develop their skills, read our article on how to coach teammates.
Depending on how your team members are motivated, transactional leadership can increase motivation by setting a reward at the end of a short-term goal. This method is most frequently used in sales teams in the form of commissions. For example, a sales team might offer a small, immediate bonus for the team member who books the most calls at the end of a sales cycle.
Transactional leadership can motivate some team members, but not every team member is motivated by rewards and perks. Additionally, the transactional leadership model doesn’t encourage team members to go above and beyond or be creative in their roles.
That’s why you shouldn’t exclusively rely on the transactional leadership model—and avoid implementing this leadership style consistently with your team. Make sure your team is effectively motivated and supported, and always give them opportunities in at least some projects to be creative. This is a critical factor in motivating team members to do their best work—44% of employees cited having work that’s engaging and enjoyable as a motivating factor of what would make them work better in 2021.Read: What is intrinsic motivation and how does it work?
When you set a short-term goal as a transactional leader, you should also set clear goals and guidelines on how to get there. These guidelines can include when the goal should be accomplished, any risks or dependencies that might impact the goal, and any relevant project milestones along the way.
Providing all of these details up front can be particularly helpful on teams that don’t always have clear-cut goals. Knowing exactly what they’re aiming for and how they’ll get there can help team members more easily gauge success and effectiveness at the end of a period of time.
Transactional leadership tends to maintain the status quo—not challenge it. Because there is a clear chain of command on this type of team, this leadership style can be ineffective for creative teams. If your team is relying on you to set the goal post and identify their short-term goals, they’ll be less likely to iterate or think outside the box.
To combat this, make sure you’re creating a supportive work environment that prioritizes diverse ways of thinking. Encourage your team members to build their teamwork and collaboration skills and build cross-functional relationships within your company.Read: 10 easy steps to boost team collaboration
At the end of the day, transactional leadership is effective. But depending on the specific scenario, work environment, and team, it might not be the best leadership style. Like most aspects of leadership, you’ll want to adjust to fit your team and work.
For example, if you manage a team of volunteer firefighters, transactional leadership would be a great fit. That’s because a directive approach can help improve group performance and potentially save lives. But if you’re leading a team of designers? Probably not. Since they have a creative job by nature, designers need more active management and support in order to function effectively as individual contributors. In that case, taking a more supportive style of leadership will likely be more beneficial.
The modern workplace is mentally cluttered and “always on.” Every day, we lose clarity to the chaos of murky priorities, duplicative work, and work about work. This lack of clarity and stress can lead to burnout—almost one in four of workers experience burnout four or more times per year. Additionally, knowledge workers around the world struggle to focus on the right work at the right time. Over half of workers feel they have to respond to notifications immediately and over a third feel overwhelmed by persistent pings.
As a leader, you’re empowered to guide your team in the right direction. One of the most powerful things you can do as a leader is to help your team connect daily short-term goals to team and company objectives. By giving your team the big picture about how their work leads back to the company’s mission or vision, you can motivate them to get high-impact work done.
Similar to building your management style, finding your leadership style is a lifelong process. But you can start by considering your current leadership approach—what leadership skills do you already have? And where is there room for leadership development?
Don’t be afraid to look to leaders you respect for advice, as well. Like these key lessons that Asana’s CEO Dustin Moskovitz learned over decades as a leader:
Delegating is both good for you as a leader and the people who are receiving the work, getting more autonomy, and learning more skills.
Acknowledge that everyone is a partner in what you’re trying to do and not an enemy.
Recognize that you agree with people more than you think you do. Where you disagree is probably a difference of assumptions and not a real conflict.
Don’t let perfect be the enemy of the good. Make decisions, even if you’re unsure of which decision is strictly the best one at that very moment. Letting a decision linger for too long is energy-draining.
Make sure there are regular checkpoints for reflection and that there’s time to think at a high level—don’t just be tactical all the time.
Transactional leadership is one of many different leadership styles. Here, we compare it to other common leadership styles including transformational, democratic, and servant leadership.
In transformational leadership, a leader will develop and execute on an idea in conjunction with their team. Transformational leaders prioritize putting autonomy and authority in the hands of their direct reports, instead of centralizing the decision-making process.
Transformational leaders are always focused on the future—their goal is to think “outside the box” and implement new ideas at their company. Transformational leaders inspire commitment and tend to focus on their charisma to support, encourage, and motivate their employees.
If this type of leader sounds magnetic, it’s because they typically are—in fact, people sometimes say transformational leaders have “followers” rather than team members or employees, because of the way they tend to become role models for their direct reports. Like transactional leadership, this has its pros and cons. While transformational leadership puts decision making in the hands of the team—instead of consolidating the decision making at the top—a study published in the Journal of Applied Psychology showed that transformational leadership led to lower job satisfaction and job performance than transactional leadership.
With servant leadership, the leader acts as more of a guide than a commander. The focus is on serving the team and finding ways to be supportive, as opposed to telling them how to work. It’s a people-first approach, where the members of the team always come before deadlines, tasks, or goals.
Servant leaders are always focused on their people—what they need comes first even at the expense of work. As a result, employees with servant leaders typically have high team morale and show a lot of integrity with their work.
This comes at the cost of losing some authority as a leader. If your work relies on you being more autocratic, then servant leadership won’t be a good fit. If, however, your work is more flexible and can benefit from having a happy, supported team, then servant leadership is a great way to lead.Read: Servant leadership: How to lead by serving your team
Democratic leadership could be considered the opposite of transactional leadership. This is a team that by definition is run “by the people.” Decisions are made as a group, and you are always encouraged to challenge thoughts and ideas. Employees tend to be highly engaged and work by hosting group brainstorming sessions and cross-collaboration to complete projects.
Democratic leadership is best for highly integrated and creative teams that don’t operate on strict deadlines. It can take a while for the team to decide, and they might use their democratic culture to challenge it even when they have. This can make forward-progress slow. At the same time, team members will feel heard and seen throughout any discussion and can see themselves in all aspects of the work.
The best leaders vary their leadership styles depending on the situation, their employees, and the particular needs of a project. Every team member is different, which means they’ll respond to different styles or situations. As a leader, the best thing you can do is to identify the most effective motivators for each team member and use those to support them.
Even still, aim to use transactional leadership sparingly. These leadership qualities tend to foster less creativity and be less flexible than other leadership styles, like transformational leadership. But transactional leadership can bring clarity and goal-oriented focus to your team. Implementing this leadership style in structured ways can help you better guide your team towards success.
Leaders come in all styles and sizes. To read more about leadership and find a style that best fits you, read more of our leadership resources.