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Dr. Piero Sciotto, MBA January 2014

Transactional and transformational leadership

The central idea of the transactional leadership theory was created in 1978 by
J. M. Burns and is based on Webers (1947) theory of leadership and authority and
Kohlbergs stages of moral development (Boie, 2000). Burns (1978) identified that
political leaders had a kind of exchange relationship with their electors as they
offered materialistic, emotional or ideological rewards for their vote. This exchange
(transaction) seems to exist in companies, too: A leader (or rather a manager) who
shows transactional behavior knows the needs and motives of his/her coworkers and
rewards them for respecting directives, performing, and reaching defined/expected
goals (e.g. Contingent Reward, linked also to motivation concepts like Management
by Objectives). Therefore transactional leaders are leaders who guide or motivate
their followers in the direction of established goals by clarifying role and task
requirements (Robbins and Judge, 2009:419). Many (former) leadership theories
rather concern transactional leaders; examples would be the Fiedler contingency
model, Hersey and Blanchards Situational Leadership Theory (SLT) or Houses
Path-Goal Theory.
Transformational leadership is an extension of the concept of transactional
leadership and builds on top of it, as it influences (changes/transforms) the behavior
and consciousness of followers and colleagues of leaders in a positive way towards a
higher level and points out sense and relevance of common corporate goals and
ideals. Leaders and followers are equally challenged, inspired and motivated to
contribute in a reasonable way to the success of an organization and thus to the
realization of the common mission and goals. Transformational leaders know how to
create enthusiasm and confidence, are able to successfully motivate and enthuse
others, are considered to be a role model and create a feeling of pride and
appreciation at their followers (Bass and Avolio, 1990b:3ff). According to Maslows
hierarchy of needs, transformational leaders elevate people from lower levels of need
(focused on survival) to higher levels (Kelly, 2003 and Yukl, 1989). Therefore
transformational leaders are leaders who inspire followers to transcend their own
self-interests and who are capable of having a profound and extraordinary effect on
followers as well as paying attention to the developmental needs of individual
followers and changing followers awareness of issues by helping them to look at old
problems in new ways (Robbins and Judge, 2009:419). Examples for extraordinary
transformational leaders are Sir Richard Branson (Virgin Group), Lee Iacocca (former
CEO of Chrysler), General Colin Powell (former secretary of state of the USA) or
Alan G. Lafley (former CEO of Procter & Gamble); Bass (1985:26) even concludes,
that the leadership of the great men (and great women) of history has usually been
transformational, not transactional.
In general, transactional leadership has to be considered as less effective than
transformational leadership and is represented by a more passive behavior of the
leader (see Figure 1). According to Bass (1985:29), both transactional and
transformational leadership can be directive, negotiative or persuasive, consultative,
participative and delegative. But transactional and transformational leadership should
not been considered as oppositional approaches they complement each other with
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transactional leadership representing a kind of basement or (minor) subset of
transformational leadership, enriched then by transformational leadership itself on
top. Thus being a transformational leader without using transactional behavior is not
very likely. Robbins and Judge (2009:419) bring it to the point and state that
transformational leadership produces levels of follower effort and performance that
go beyond what would occur with a transactional approach alone. But the reverse
isnt true. So if you are a good transactional leader but do not have transformational
qualities, youll be only a mediocre leader. And furthermore (what should be
highlighted): The best leaders are transactional and transformational (which
relativizes Bass (1985:36) conclusion about great man or women in the history).
Bass (cited in Robbins and Judge, 2009:419) identifies the following four
characteristics of transactional and transformational leaders (slightly adapted):
Table 1 - Characteristics of Transactional and Transformational Leadership
Transactional Leader Transformational Leader
Contingent Reward
Leader contracts exchange of rewards for effort,
promises rewards for good performance and
recognizes accomplishments.
Idealized Influence
Leader provides vision and sense of mission,
instills pride, gains respect and trust and becomes
a role model. For both leader and follower, trust is
built on a solid moral and ethical foundation.
Management by Exception (active)
Leader watches and searches for deviations from
rules, standards or procedures and takes
corrective action.
Inspirational Motivation
Leader communicates high (challenging)
expectations, creates team-spirit, uses symbols to
focus efforts, expresses important purposes in
simple ways (e.g. via methods like story telling).
Management by Exception (passive)
Leader intervenes only if standards are not met.
Intellectual Stimulation
Leader promotes intelligence, creativity,
innovation, rationality, and careful problem solving.
Laissez-Faire
Leader abdicates responsibilities and avoids
making decisions.
Individualized Consideration
Leader gives personal attention, treats each
employee individually, advises, mentors &
coaches.
Source: Slightly adapted characteristics according to Bass (cited in Robbins and Judge, 2009:419)
While most authors in this field propose that transformational leadership is mainly
identified by these four characteristics, Leithwood and Jantzi suggest six (Leithwood
& Jantzi, 2000:112) which indeed do not differentiate very much: Building vision and
goals, providing intellectual stimulation, offering individualized support, symbolizing
professional practices and values, demonstrating high performance expectations and
developing structures to foster participation in decisions. These characteristics have
to be considered as additive, resulting in an additive effect of transformational
leadership because managers must pull together the components to reach
performance beyond expectations (Northouse cited in Hall et al, 2002:2).
Regarding characteristics of transactional leadership I would like to disagree with
Robbins and Judge (2009) as management-by-exception (passive) and laissez-faire
leadership behavior should not be considered as kind of transactional leadership but
as an independent passive and avoidant leadership style. On the one hand
Bass (2008:50) states that transactional leadership encompassed contingent reward,
management by exception, and passive or laissez-faire leadership. This was
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confirmed empirically by Avolio, Bass, and Jung (1999), among others., on the other
hand he considers it as an additional, passive leadership style (Bass 2008:142)
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Therefore it is better to separate them (see also Figure 1).





Regarding the question whether transformational leadership and charismatic
leadership could be considered as the same or at least seem to have a lot of
similarities: According to Staehle (1994:315) the difference between transformational
and charismatic leadership could be found in operationalization and within the
context of both terms. The concept of transformational leadership primarily analyzes
the observable and measurable behavior as charismatic leadership (as defined by
Max Weber) in the first instance refers to the hardly explainable heroic personality
structure, claim to power and the uniqueness of the charismatic leader. Robert
House, who introduced charismatic leadership, considers it as similar to
transformational leadership with only minor differences; Bernard Bass, who first
researched transformational leadership, considers it as broader field then charisma,
arguing that charisma itself is insufficient to account for the transformational process
(Bass (1985) cited in Robbins and Judge, 2009:421). According to Robbins and
Judge (2009:421) on the one hand many researchers think that transformational
leadership is broader than charismatic leadership, but on the other hand studies have
shown that leaders who score high on transformational leadership are also likely to
score high on charisma. Therefore both leadership concepts (transformational /

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regarding the Multifactor Leadership Questionnaire (MLQ) see also Den Hartog et al (1997)
Figure 1 - Transformational Leadership according to Bass and Avolio (Full Range of
Leadership Model)
passive behavior active
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Individualized
Consideration
Laissez-Faire
Management by
Exception (passive)
Contingent Reward
Intellectual Stimulation
Inspirational
Motivation
Management by
Exception (active)
Idealized Influence
Source: Own figure according to Bass, B. M. (1990), p. 22 and Robbins, S. & Judge, T. (2009), p. 420
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charismatic) can be considered as powerful and being roughly equivalent; finally both
of them are definitely broader and more powerful than transactional leadership.
How does transformational leadership create a higher level of moral aspiration for
followers and leaders alike?
According to Burns (1978), leadership has to have moral ends and has to raise the
moral consciousness of followers to be transformational (Bass, 2008:201) and
therefore transformational leadership is intrinsically tied to higher order values. As
already mentioned above, transformational leaders know how to create enthusiasm
and confidence, are able to successfully motivate and enthuse others, are
considered to be a role model, inspire followers to transcend their own self-interests
to the good of the group, are capable of having a profound and extraordinary effect
on followers, and create a feeling of pride and appreciation at their followers. These
effects representing a higher level of moral aspiration can also be explained by need
theories (e.g. Maslows Hierarchy of Needs, Alderfers ERG Theory, McClellands
Theory of Needs). In analogy to Maslows theory (see Robbins and Judge,
2009:176f.), transformational leaders elevate people from lower-order needs
(physiological needs and safety, focused on survival and satisfied externally) to
higher-order needs (like e.g. self-actualization, satisfied internally) and typically help
their followers or colleagues to satisfy as many of their individual (human) needs as
possible (focusing on higher order needs) which is often satisfying their own
high-order needs, too. Similar to Maslows theory (higher-order needs esteem and
self-actualization) this is represented in Alderfers ERG theory by a group of core
needs called growth. The characteristics of transformational leadership (described in
detail in Table 1) could be mapped to higher-order needs as follows: Idealized
Influence (self-actualization), Inspirational Motivation (self-actualization), Intellectual
Stimulation (esteem) and Individualized Consideration (esteem). So for example trust
for both leader and follower is built on a solid moral and ethical foundation
(characteristic: idealized influence).
Figure 2 Maslows Hierarchy of Needs

Source: Maslow, A. (1970) reprinted in Robbins, S. & Judge, T. (2009), p. 176
Last but not least, after having analyzed several lawsuits, Odom and Green (2003)
argue that characteristics and principles of transformational leadership (e.g. idealized
influence) applied to ethical dilemmas faced by managers will more likely offer the
prospect of less litigation and better ethical outcomes than the more common
transactional leadership style (and corresponding approach to ethics).
Taking these points into consideration, transformational leadership creates a higher
level of moral aspiration for both leaders and followers
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One remark regarding ethical leadership: In general Northouse (cited in Bass, 2008:202) identifies
six approaches of ethical leadership: Egoistic (leader maximizes what is best for him/her), Utilitarian
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