Explaining the Transactional Leadership Business Model and Its Main Uses

Effective leadership is an essential part of any thriving organization. In fact, a recent study found that 79 percent of engaged employees have trust and confidence in the company’s leadership. Industry experts hail the importance of employee engagement and today’s trends seem to indicate that leadership plays a huge role in the process.

Leadership comes in many shapes and forms, but one style that is particularly popular is the transactional leadership style. In this article you’ll discover the definition of transactional leadership, who in the organization generally practices this style, ways it can help your business, and strategies for effectively practicing this form of leadership and communication.

teamwork and leadership efforts cartoon

What Is Transactional Leadership?

This popular form of leadership was initially introduced in 1947 by economist Max Weber. The theory has progressed and trickled into today’s most modern business practices. Transactional leadership is also commonly referred to as managerial leadership and focuses on an internal system of reward and punishment. The transactional style functions best in an organized and controlled environment and in situations that require short-term planning or immediate action. Professionals using this form of leadership will often motivate employees by appealing to their own interests and a system of extrinsic rewards.

Proponents of this style believe that employees are not always self-motivated and must be enticed by factors like money, time off, or other tangible rewards. They also believe that employees will comply because they are expected to follow the directions of a superior or a person in a role of authority.

Who Uses Transactional Leadership?

This style is most often used by managers who are evaluated based on the performance of their subordinates. The process is most often adopted by employees who have a formal leadership role within the company. They can use their formal and public role to exercise this leadership style. The leader will choose this style based on a number of factors including personality, values, confidence in the employees, and security or comfort with the unknown. Leaders with limited confidence in the subordinates might exercise this form of leadership more often. In addition, leaders with a dominant and more directive personality might also use this style with more frequency.

How Will This Style Help My Business?

Transactional leadership can be very effective in many organizational structures and is especially helpful in organizations that are more established with a clear set of expectations and guidelines. This style can be implemented when the organization has certain financial goals or compliance requirements as transactional leaders often offer little opportunity for creativity and focus more on existing boundaries and goals.

Of course, good leaders are able to tailor their styles based on each situation, but this particular style can be helpful when trying to increase productivity and efficiency and when trying to reduce costs. It is also helpful if the company is facing legal trouble and a policy must be followed. Many human resources professionals or financial mangers will adopt this style to ensure the company remains financially and legally in the green. Overall, a transactional leader can help an organization meet deadlines, stay in compliance, increase productivity, improve efficiency, and reduce costs. This impacts the company’s bottom line and its ability to maintain a viable presence in the market. These facts demonstrate that the transactional leadership style is a necessary piece of the puzzle.

Five Tips for Practicing This Style

1. Clearly Communicate the Goal

The premise of transactional leadership is that subordinates must achieve an established goal. Therefore, it is extremely important that the leader communicate this goal in a clear and direct way. Subordinates must know exactly what is expected in order to perform. The leader cannot be ambiguous and must concisely outline the end goal.

2. Choose the Reward Carefully

This leadership style relies almost exclusively on reward as the main motivator for performance. Therefore, it’s important you put in the time to craft a reward that will actually matter to the subordinate. If you choose a reward that has little significance, your strategy may backfire. Choose a reward that is fairly universal and acceptable to the entire staff. Money and additional time off are fairly popular with most employees and will serve as a driver for organizational goals.

3. Avoid the Friend Zone

Another pitfall when using this leadership style is the temptation to become less authoritative and more friendly with the people you are trying to motivate. This style relies on an authoritative presence to be effective, so it’s extremely important that you establish that boundary and focus on managing the process rather than socializing.

4. Provide Constructive Criticism

If your strategy is going to be effective, you’ll need to feel comfortable offering constructive criticism to your subordinates. This leadership style won’t work if you dance around the issues so be prepared to make corrections as needed to stay on track with your target goal.

5. Follow-Through on Your Word

Another piece of this style is using fear of reprimand or punishment as a tactic. If you establish the expectations and share potential consequences with the group, you must be prepared to hold them accountable. If your team discovers there is no real consequence, then this style is less effective and you will be less likely to achieve the desired results.

businessman leader with the world in his hand


Overall, transactional leadership can be very effective with the right personality and situation. This style is best served in crisis, emergency, or status quo situations where a firm stance and directive authority is needed. The theory relies on the premise that employees are motivated by a system of reward and consequence and work best in a structured and organized environment. If you’ve worked in a system centered on transactional leadership, or identify as a transactional leader yourself, feel free to share your experiences with us!

Images from depositphotos.com.