Transactional vs. Transformational (Part 2): Leadership in practice

Timo Gerhardt, Monday 11 July 2022 | Reading time: 5 min.

In the first article on transactional and transformational leadership, we looked at the special features of the two leadership styles and showed how they differ. In the second part, we explain the practical relevance of the two styles. Find out in which situations the transactional leadership style makes more sense and where a transformational approach will get you to your goal faster. First, let’s revisit what basically distinguishes the two styles:

Transactional leadership Transformational leadership
Performance-oriented reward Focus on intrinsic reward
Leadership through active control Passive leadership through vision & mission
Leadership by exception Intervening by constantly questioning the status quo

In practice, managers use both styles and adapt them for their teams or their company. The transitions are fluid, and the optimal leadership behavior can vary greatly depending on the industry, project or corporate objective. In everyday life of a company, therefore, leadership cannot be categorized so easily. Nevertheless, in many situations it is worth consciously choosing one of the two options to achieve the best possible result.

Project controlling: advantages of transactional leadership

If the success of the project is at risk, it is advisable for the manager to actively intervene and take a task-oriented approach. Such a situation may arise if the project plan turns out to be faulty during implementation. For example, if the team is behind schedule or the project is going over budget, the project manager should take a transactional approach. In order to still avert a project failure, a clearly structured and well thought-out completion of tasks must be ensured. Benefits of transformational leadership, such as generating intrinsic motivation, are secondary in this context.

This approach can also make sense in the opposite situation. If all team-related, project-relevant and environmental factors favor the project, a transactional approach should also be chosen. Since optimal conditions for the project are already in place, the focus should now be on the most efficient and effective processing of tasks. In this way, an optimal project result can be achieved in the shortest possible time.

Motivation and innovation: advantages of transformational leadership

If the project is on track, project management can be handled transformationally to strengthen overall motivation and company loyalty. Since strict task orientation is not needed to avert project failure, project management can focus on optimization: Co-workers with individual strengths in communication, ideation or identification of synergies, for example, can be promoted beyond the project context. This benefits the further development of employees individually and the company in general. 

Transformational leadership is particularly useful when there is a focus on innovation and creativity in the project. Both are actively encouraged by a transformational style by creating an emotional bond to the project goal. A transformational leader encourages employees to continuously question the status quo in order to develop and improve products, services or processes in creative, new ways. Ideally, the freedom provided by the transformational leadership style inspires each individual and breaks down old patterns of thought and action. If, on the other hand, the challenges of a project are more rational in nature, a transactional approach often makes more sense. For example, if the goal of the project is to optimize internal production processes, an analytical view and goal-oriented task structuring are of great importance due to the high level of complexity.

The time horizon of the project team also plays a role in the leadership style. In the case of long-term teams, the project manager should take transformational elements into account in his leadership style. In this way, team spirit and interpersonal relationships enable effective long-term cooperation. However, for one-off project teams, a transactional style is usually the more effective approach.

Ultimately, you should not choose either leadership style to be the best possible project manager. Instead, you should always analyze the leadership situation at hand and then consider the extent to which the transactional or transformational leadership style is appropriate. Through this type of situational leadership, you will always achieve the best possible result.

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