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Meaning and concept of Leadership have been changing through times. The basic understanding of leadership stands as leading and influencing someone for something to accomplish. It is about finding out what a company wants to achieve and then influencing the people of that company to follow and achieve that. Leadership can be seen as a complex relationship between people and the relationship is shaped and guided by trust, emotions and commitment. In very simple words, it is the process of influencing other people for accomplishing something common (Northouse, 2015). The concept of leadership has been defined by many experts in different ways depending on various contexts. Leadership theories are structured ways to analyse how the concept of leadership has been used and practiced in different ways. Leadership can be conceptualised in different ways and leadership theories has identified those ways in a systematic aspect. From time to time, leading people is seen as influencing or guiding or commanding. Different leadership theories explained the relationship between leaders and followers in different way (Antonakis, 2017). This report analysed two leadership theories namely Transactional Leadership and Transformational Leadership in detailed. Further, in this report, mentioned two theories discussed in detailed with suitable examples. Also, these two theories have been compared with each other to understand the in-depth perspective of each one.
The word “Transaction” means act of transacting something between groups or within the group. Transactional Leadership can be understood as management process of organising, supervising or controlling subordinates to achieve certain performance. In transactional leadership, followers are motivated by self-interest which is appealing to them. It can be simply viewed as exchange of rewards for the purpose of compliance with regards to followers. It based on basic idea that employees are not self-motivated to do something, so leaders need to give something to employees and in return employees will do something which a leader wants. Employees require instructions, guidelines, structure and monitoring to do and complete the tasks assigned (Furtner, Baldegger & Rauthmann, 2013). Transactional Leadership is useful in the organisations where structure is very important and it is not effective in organisations where taking initiatives are encouraged. Transactional leaders work within the established structure to achieve results. In this type of leadership, leaders are given with power and they can correct, evaluate and train their subordinates to achieve predetermined goals. It primarily focuses on achieving goals in exchange of giving something; it can be reward or punishment (Hamstra et al. 2014).
This theory was first developed by Max Weber in 1947 and then further research and development was done by Bernard M. Bass in 1981. This leadership style was widely practiced in the United States of America after World War II. It is most commonly adopted by managers in business organisations as it increases the ability to confirm the implementation of management process (McCleskey, 2014).
In this aspect, there some important assumptions of transactional leadership theory; First, it is assumed that employees are only influenced and motivated by the means of reward and punishment. Second, employees have to obey and act accordingly as per the instructions and orders given by the superior. Third, leaders follow the telling style; it means leaders tell subordinates about what to do as subordinates are not self-motivated. To achieve desired performance and predetermined goals, a transaction takes place in between leaders and followers. In general sense, transactional leaders believe that human being always tries to maximise their pleasurable experience and minimise their non-pleasurable experience (Dinh et al. 2014).
In transactional leadership, motivation work as external approach. It means employees are rewarded for desired outcome and punished for deviation. Leader leads team in a reward-punish system within which teamwork play a narrower role. Leaders following transactional style of leadership are very practical as they are only concerned and focused with desired result. They are adverse to change; it means they want to work in the existing system. Transactional leaders are not proactive; they are passive in nature as they react when something happens. They micro manage things and want things should go as per predefined plans. In this leadership style, organisation structure is strictly followed; hierarchical importance is there. It is also focused on short-term goals and inflexible in nature (McCleskey, 2014).
This type of leadership is very effective in terms of achieving short term goals. It works well in structured and organised business organisations. In this framework of leadership, rewards and punishments are clearly defined for employees. Also, there are certain disadvantages are associated with transactional leadership. Transactional leaders can only motivate base level employees as the concept of transaction works well for base level employees only. This type of leadership limits the scope and applicability of creativity. Also, employee initiatives are not appreciated and rewarded in transactional leadership (Tyssen, Wald & Spieth, 2014).
In today’s world, there are places where transactional leadership can work well. Especially in multinational companies where diversified group of employees work together, transactional leadership is the best style to guide employees as it works on the basis of clear structure. It is very easy to learn and implement. Extensive training requirement is low in this type of leadership. Due to its simplicity in learning and implementation, it is preferred leadership style in crisis situation. In military and police organisations, transactional leadership is adopted. In some cases, transactional leadership is viewed as insufficient but it is not ineffective and bad style of leadership. Transactional Leadership forms the basis of mature communication within an organisation but precisely leaders should take care about exclusive and extensive practice of it (Huijun & Jianjun, 2015).
Many military leaders and CEOs of well-known multinationals are known to be Transactional Leaders. To explain transactional leadership, in this report well known American Businessman Howard Schultz is discussed as an example. He is former CEO of Starbucks and now he is the executive chairman of Starbucks. He was born in July 19th, 1953 in New York, USA. He is a Northern Michigan University graduate. He stared his career as sales representative in Xerox Corporation in 1975. In 1979, he became General Manager of Swedish company HAMMARPLAST. Later on, in 1982, he stared his journey in Starbucks. He joined as Director of Retail Operations and Marketing. He tried to fancy Italian coffee culture in Starbucks but failed to get the permission from then owner of Starbucks. He left Starbucks in 1985 and opened his own coffee bar “Il Giornale”. In 1987, Schultz purchased Starbucks from its owner in $3.8 million (Starbucks Newsroom, 2017). His transactional leadership was based on dominant trait as contingent rewards. It includes more pay to employees above the minimum pay, offer of extra benefits, and offer of stock options and promotions options. It proves to be effective in Starbucks as employees felt motivated due to all these efforts. As a result of his transactional leadership efforts, Starbucks share rose up to 6%, employees got well trained in handling customers, employees were motivated to do their assigned tasks as proper guidelines were provide with them and as result employees turnover decreased up to 50%. Schultz as a transactional leader became successful in many aspects but his leadership style worked only in base level. He achieved obedience of his employees but in long term due to low task satisfaction, employees lost their commitment (Venngage, 2017)
Transformational Leadership refers to the process of transforming an organisation by empowering employees to initiate major changes. Transformational Leaders are motivators and they motivate their employees to do more. Through transformational leadership both leaders and follower can be raised to a higher level of motivation and morality by engaging with one another. Leaders who are transformational, they believe that employees can be inspired to achieve extraordinary results (Mitchell et al. 2014). Along with this process, leaders can become more good leaders as it lifts the process of positive transformation for both leaders and followers. Leaders are treated as ideal by followers in this type of leadership. Transformational Leaders pay attention to individuals and show concern for followers as they want their followers should achieve more. Transformational Leadership follows a process. It starts with creating a vision which should excite and attract followers. Then leaders should try to sell the unique vision among followers to develop network. This way transformational leaders guide their followers through a roadmap. They take charge of leading task, always visible and lead from being in the front (Carter et al. 2013).
The concept of transformational leadership was first developed by J.V. Downton in 1973. Then in 1978, James McGregor introduced this term in his book “Leadership”. In 1985, Banard M. Bass has discussed the formal framework for Transformational Leadership. In 1986, a book named “The Transformational Leadership” was written by Noel M. Tichy and Marry Anne Devanna and in this book they have discussed this concept in detail (McCleskey, 2014).
There are certain assumptions of Transformational Leadership. First, people will naturally follow a leader who inspires them. The passion and vision of transformational leader can influence his or her followers to achieve more great things. Third, in this type of leadership, leader’s positive energy and enthusiasm are most important to motivate and inspire their followers. Fourth, leaders must challenge their follower in order to stimulate their intelligence to do more and achieve more (Herman & Chiu, 2014).
Transformational Leadership based on the leaders’ belief that motivation is internal and self-management is most crucial. Difficult decisions are taken on the basis of clearly stated vision, goals and objectives. Transformational Leaders can initiate required transformation within the organisation as they can put aside their ego and work for organisation’s objectives. In transformational leadership, leaders take risk on the basis cost and benefit, which is better known as calculated risk. Leaders who adopt this leadership should know about the circumstances of the organisation and it will increase their knowledge base about the organisation. Transformational leaders are good listener and they appreciate new ideas. They work as proactive and visionary (Carter et al. 2014).
In Transformational Leadership, leaders can assure higher achievement and efficiency by employees. Leaders focus on employees and put emphasis on their needs, morals and values. It creates a positive and enthusiastic work environment which helps to achieve more. Also, through transformational leadership, leaders can develop future leaders from his followers. An organisation where transformational leadership is practiced, employees feel they are working in more creative and innovative work environment. As employees are inspired to work more, they will work for their leader if they are not monetarily well paid. In spite of all these advantages, there are some limitations and disadvantages of transformational leadership. In transformational leadership, the outcome is totally depends on leaders’ ability. Transformational Leadership lacks some conceptual clarity. Sometimes, leaders may lack some required skill and characteristics which are required to inspire and motivate their followers (Vito, Higgins & Denney, 2014).
Transformational Leadership is best applicable in an organisation which needs transformation due to being out-dated with regards to present business environment. It also works best in small business organisations as they try to achieve big and very adaptive to change. In big organisations, transformational leaders can be brought by board of directors to motivate employees and inspire them to achieve organisational goals in a better way, whenever it is needed. Transformational Leadership is best in developing trust between employees and leaders (Breevaart et al. 2014).
To discuss transformational leadership, in this report, Elon Musk and his leadership style have been discussed. Elon Musk is an American Businessman, Inventor, Investor, Engineer and CEO of many famous companies. He is well known for founding and leading companies like SpaceX, PayPal, Tesla Motors, Hyperloop, SolarCity and many more. Elon Musk is famous for his visionary approach towards his work and dream. He leads his team to drive towards excellence and solving problems for mankind. In such a manner, Musk is always inspirational for his employees. Employees feel inspired as vision of Musk keep them motivating as they feel they are part of a great journey (Blazek, 2016). The incredible journey of Elon Musk started in South Africa. He did not experience a happy childhood. Despite of all these facts, he pushed himself to achieve more and got admission in Ph.D. program in Applied Physics of Stanford University; but he left this program in two days to work on his entrepreneurial dreams. In PayPal, due to his approach and transformational style of leadership, he got involved in conflict situation with other leaders. Tesla Motors experienced many failures time to time, it is Elon Musk who continued to fund Tesla Motors and build the trust between employees. Musk always outspoken about his ability and eagerness to learn new things, which in turn, provided road map for his employees. When Tesla Motors were facing funding issues, Elon himself work at very ground level with team and given outstanding efforts for raising funds. Its altogether proves his transformational leadership and leading from being in the front (Braun el al. 2013).
The difference between transactional and transformational leadership is quite large and considerable. In simple words, Transactional Leadership is about telling leadership and Transformational Leadership is selling leadership. Transactional Leadership focuses on rewards and punishment, in other words it is about positive and negative enforcement; while Transformational Leadership is about inspiration and motivation by leaders. Transactional Leaders are reactive as they only react when something happened; Transformational Leaders are proactive as they belief on inspiring their followers. Transactional Leadership is concerned with appealing to individual’s self-interest and Transformational Leadership is concerned with progress of group (Taylor, Cornelius & Colvin, 2014). Transactional Leaders are mostly successful in big organisations where there is a proper structure is in place. Transformational Leaders are mostly successful in small organisation format as small organisations are adaptive to change and visionary transformation (Odumeru & Ogbonna, 2013). Transactional Leadership deals with the present situation while Transformational Leadership deals with new expectations of followers. Regarding organisation culture, transformational leaders change organisation culture through bringing new ideas and on other side transactional leaders within the existing organisation culture. Transactional Leaders try to implement management by exception to maintain status quo. Transformational Leaders crate learning environment and opportunities for their followers and inspire their followers to learn new things and solve problems. Transactional Leadership can be viewed as normal social exchange between leaders and his or her followers. In contrast, through transformational leadership, higher level of trust can be built between leaders and followers (Rowold, 2014).
Conclusion
Review of Transformational and Transactional Leadership Theory shows that concept of leadership is broadly contrasted in practice and depends on the organisation structure and requirement. Every leadership style has its own advantage and disadvantages; it is on the wisdom of leaders to apply which one in which context. Application of suitable leadership in right context can increase productivity and efficiency of organisation (Vito, Higgins & Denney, 2014). Leadership and Leaders can influence employees and followers and in turn organisations’ and groups’ performance is impacted. In conclusion, it can be said that a great and good leader is who, who is able chose and apply different types of leadership style according to the situation. There is not effective and efficient leadership style for any particular organisation structure or situation, applicability of leadership style largely depends on choice and personality of a leader (Buble, Juras & Mati?, 2014).
References
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