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Difference Between Transformational and Transactional leadership

The Highrise Team
August 3, 2022
Transactional vs transformational leadership image
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Multiple leadership styles have developed throughout the years, but the two most interesting are transactional and transformational leadership. These two styles oppose each other, yet their strong personalities and unrivaled results connect them.

Transformational and transactional leadership have different underlying theories of productivity but also promote positive change in their industry. While both styles share similarities, it's essential to understand how they differ but continue to be equally effective.

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Transactional vs. Transformational Leadership: The difference

The main difference between transactional and transformational leadership styles is their approach to employee motivation. Transactional leadership focuses on extrinsic motivation, while a transformational style focuses heavily on intrinsic motivation. 

A contingent reward is the main focus of a transactional style leadership approach. Transactional leadership is therefore seen as a contingent reward leadership style.

This straightforward process of rewarding employees for their performance helps create an environment based on personal performance and individual success rather than an environment of creativity and collaboration.

Employee performance is heavily measured on their output in a transactional leadership style. This style works perfectly for a fast-paced work environment built on mass production and short-term results.

Transformational leadership opposes transactional leadership. It focuses more on intrinsic motivation and organizational change. Employee development is a high priority in this leadership style as it benefits from the individual growth and innovation of those involved.

A transactional leader working with his employees

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What is Transformational Leadership?

Transformational leadership means the transformation of those who follow. Also seen as coaching leaders, transformational leaders focus on teaching and cultivating employees to stand independently and lead themselves. 

Taking plenty of research from applied psychology, the International Journal of Leadership Studies emphasizes the importance of a homogenous transformational leadership climate to improve organizations beyond their standard capabilities.

Leadership effectiveness doesn't only mean how well employees understand calls made by their leaders. It's also about individual consideration as each employee has different needs and motivations.

The appeal of a transformational approach comes from its active involvement with followers. Transformational leaders focus on personal and professional growth for everyone. That's why their strong personality tends to attract and encourage followers naturally.

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The Four Elements of Transformational Leadership

While the idea may seem simple, the execution of transformational leadership styles is more complex. Transformational leadership, also known as the four “I’s,” emphasize how much leadership behaviors rely on charisma, adaptability, and communication. 

Elements of transformational leadership infographic

1. Individualized consideration

Transformational leaders cater and adapt to the individual to ensure everyone finds success. Motivational tactics aren’t universal. Each individual responds uniquely to different stimuli and will perform better or worse depending on their feelings.

Understanding what your employee best responds to comes with an essential transformational leadership skill: listening. Since these leaders are seen as good listeners, their interactions with employees are more customized than most other styles.

2. Inspirational motivation

Finding inspiration can be difficult, and the lack of inspiration leads to suboptimal outputs. Transformational leaders, therefore, become the embodiment of motivation by showing spirited enthusiasm and inspiring others to work beyond their normal abilities.

This leadership style provides an engaging, creative, and exciting atmosphere that pushes employees to succeed. Creating a vision or goal that unifies employees is how a transformational leader inspires and motivates employees to go beyond what’s expected of them.

3. Idealized influence

Transformational leaders take the role model position. Ideally, they act and carry themselves in a way that those who follow them respect. Employees respect, idolize, and trust their leader always to do the right thing and provide support when needed.

High ethical and moral standards are set for these individuals, which comfort those who follow. They inspire their employees to take risks and innovate through intrinsic reasons, such as doing the right thing for the betterment of their peers or the company.

4. Intellectual stimulation

Typical work environments limit individualism and try to standardize practices as best as possible. Doing so eliminates costly errors and speeds up production, and facilitates tactics that do work. 

Transformational leaders believe differently. These individuals choose to promote and stimulate their followers to think outside the box and find creative and impressive ways to solve problems. 

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Transformational Leaders

Like any leadership style, such as transformational or democratic leadership, there will be inherent benefits but downsides to using that style. Regardless, these individuals perform valiantly in crisis situations and continue to promote a healthy and creative work environment.

Examples of Transformational Leaders

The best leaders excel in motivating employees and creating a desirable work environment. This can be seen in fantastic examples of transformational leadership qualities such as that of:

  • Jeff Bezos
  • Tim Cook
  • Steve Jobs
  • Oprah Winfrey
  • Reed Hastings

These individuals define their respective businesses, promoting their employees to think outside the box and reach ambitious goals. Compared to transactional leadership, employees aren’t motivated extrinsically. They’re intrinsically motivated, leading to more loyal followers.

While there have been great leaders who have changed the world for the better, there have been leaders who have changed the world for the worst. Prominent figureheads like Jim Jones have proven how impactful this style can be for people.

In an example of bad leadership, Jim Jones ultimately convinced his followers to end their lives to protest the inhumanity of capitalism. Not only can this type of leadership lead to damaging results for a business, but it can also lead to life-changing damage to followers.

Conceptually executing an effective transformational leadership style also proves tricky, as measuring its effectiveness consistently is difficult. Compared to a transactional leadership style that shows measurable inputs and outputs.

A transformational leader working with his employees

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What is Transactional Leadership?

Transactional leaders focus on a structured approach. These individuals expect employees to perform at their best by following instructions, not making their own decisions. Influential leaders get results and motivate followers to reach their specific targets.

Employees that follow a leader like this understand calls made by their managers and higher-ups. The company structure is heavily emphasized, and direct reports drive how things get done.

Of the two styles, transactional styles focus on the status quo to a high degree. Employee development isn't critical in this style as it's more of a military relationship.

This style makes employees feel dispensable; therefore, new ideas are usually kept to the individual. A transactional leader may find success in their military relationship with employees but may run into some inherent problems such as the following:

  • Reaching long-term goals
  • Innovation
  • Pressure to perform
  • Costly mistakes

Despite these downsides, organizations prefer to implement transactional leadership because of its simplistic structure to reach the status quo.

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Examples of Transactional leaders

The leaders most relevant to this style include:

  • Norman Schwarzkopf
  • Vince Lombardi
  • Henry Ford
  • Bill Gates

These are some of the most effective transactional leaders with unmatched leadership skills. Each leader has their respective organization towards extraordinary success and paved the way for future leaders to learn and thrive off their leadership style.

Bill Gates, commonly referred to as one of the wealthiest men in the world, shows that this leadership style works. Bill Gates also understands the difference between transactional vs. transformational leadership and actively switches when necessary like a true leader.


Despite transactional and transformational leadership differences, they aren't mutually exclusive and should be used interchangeably when the situation calls. Both styles prove effective as different industries call for a different or blended approach.

Leadership and management don’t come naturally. It’s something that’s earned through training as well as trial and error. Mentorships and programs are available to help guide and facilitate strong leadership qualities if you want to improve and learn how to become a leader.

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Become a better leader with Highrise

With Highrise, our team has created a perfect example of an executive coaching platform that strives to push leaders beyond their current capabilities. Through our coaching, you’ll skip past the natural trial and error process and maximize your time and effort.

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