Transformational vs. Transactional Leadership

Transformational and transactional leaders bring different values to organizations. The goal of this paper is to review the most essential facets of the two leadership styles, using the figures of Bill Gates and Joseph McCarthy as examples. What makes the two leaders either transformational or transactional is also discussed. The added value brought by both leaders to their organizations is assessed. The paper discusses the conditions and contingencies that make either of the two leadership styles the most effective. The overall effectiveness of each leadership style is evaluated.

Keywords: transformational, transactional, leadership, organization.

Transformational vs. Transactional Leadership

Leadership has become a buzzword in organizational development and research. With the growing emphasis on diversity, leadership has also acquired new fundamental features. Still, the most essential leadership styles often become a good foundation for the emergence of strong leaders. Most of what has been accomplished in the field of organizational leadership continues to revolve around the transformational-transactional dichotomy. Transformational and transactional leaders represent the two opposite ends of one leadership continuum. While the former use their talents and visionary skills to inspire and transform others, the latter focus on transforming themselves. Under certain conditions and in the presence of certain contingencies, both leadership styles have the potential to direct the organizations to the desired strategic outcomes.

Transformational and Transactional Leadership: Bill Gates and Joseph McCarthy

Bill Gates: The Transformational Leader

Bill Gates is often cited as one of the most prominent contemporary transformational leaders. Yet, an important question is what makes Bill Gates a transformational leader. According to Huse (2003), transformational leadership is essentially about transforming the organization and its followers. In other words, transformational leaders are leading their followers through the changes (Huse, 2003). The distinguishing feature of a transformational leader is in his/her ability to articulate an explicit vision and motivate the followers to spearhead the change (Huse, 2003). Ismail et al. (2011) further states that transformational leadership has four distinguishing characteristics: individualized consideration, intellectual stimulation, individualized influence, and individualized attribution. Transformational leaders bring value to the organization, by showing genuine concern for their followers and advancing their interests over self-needs.

This is, actually, a brief picture of Bill Gates, a true transformational leader who makes special emphasis on serving the needs of his followers. It is by serving followers’ needs and articulating a clear vision that Bill Gates meets one of the most essential transformational leadership criteria – generating subordinates’ perception of his effectiveness and maintaining high level of satisfaction with his leadership decisions among followers (Northouse, 2004). Santos (2011) also speaks about Bill Gates as a person with expert knowledge in his field, genuine inspiration to succeed and make his followers successful, and charisma that adds to his inherent ability to influence people. The essence of Gates’ transformational leadership is in being able to motivate others to think and create outside of the box. He builds social networks and invests his efforts and resources helping others to develop. Gates does not “buy” his followers. Instead, he builds credibility and trust, which have become the most important features of the organizational culture at Microsoft. He sets a positive personal example and does not betray his vision. His ability to self-sacrifice and a strong moral conviction add to the inherent benefits of transformational leadership and expand its positive influence. Under this influence, Gates’ followers become much more motivated in their striving to transform themselves and the organization they work for.

Joseph McCarthy: Ruthless Transactional Leadership

An entirely different example of leadership is that of Joseph McCarthy. Today, Joseph McCarthy is often considered as one of the cruelest and most ruthless political leaders in the history of the United States. Simultaneously, the significance of his transactional leadership attributes can hardly be overestimated. McCarthy was a transactional leader in the best sense of this word. Huse (2003) suggests that transactional leaders motivate subordinates through a combination of rewards and punishments. They prescribe assignments and outline the conditions of work and effective task completion (Huse, 2003). Transactional leaders often manage by exception, choosing to remain silent and invisible, until any of their subordinates fails (Huse, 2003). To a large extent, transactional leadership is an exchange-based style of managing subordinates. It is much more pragmatic and less spiritual than transformational leadership (Northhouse, 2004). Unlike transformational leadership, which results in a coherent relationship between the leader and the followers, transactional leadership is a contingent and fair exchange between the manager and the subordinates, where the lines of authority and responsibility are clearly delineated.

What made Joseph McCarthy a transactional leader was his remarkable ability to provide the necessary rewards to achieve the most desired goals. A person without charisma and even ugly in appearance, McCarthy quickly learned that he could stay popular in press by sharing sensations in public (Herman, 1999). McCarthy lacked any moral conviction that is characteristic of Bill Gates, and he was even willing to lie if that lie could have any political effect on his career (Herman, 1999). His best organizational and political results were achieved through a combination of visible rewards and punishments. Like any transactional leader, McCarthy motivated his subordinates by punishing them for noncompliance and rewarding them for exposing communist liars and infiltrators. Unlike a transformational leader who cares for his followers and operates above self-interests, a transactional leader like Joseph McCarthy focuses on self-development and career growth. It is a well-known fact that McCarthy has lied about his military records, because it has benefited his career and political position at that time (Herman, 1999).

Transactional and Transformational Leaders: Value-Based versus Value-Added Leadership

One of the biggest questions facing present-day leaders is whether transactional or transformational leaders can add value to organizations’ improvement efforts. Theoretically, both leadership styles have something to offer to their organizations and subordinates. Transactional leadership results in a reciprocal relationship between the leader and the follower, in which both can derive something of value (Kuhnert & Lewis, 1987). Like Joseph McCarthy, transactional leaders bring value by making the rules of organizational game explicit to everyone. Under McCarthy, the number of communist infiltrators brought to the public served as the chief measure of subordinates’ compliance and performance. Still, transactional leadership is value-based, not value-added, as it relies on a comprehensive exchange of values, also called “bartering” (Sergiovanni, 1990). Good work is exchanged for positive reinforcement, merit pay increases with better performance, and promotion results only from increased workplace persistence and commitment to the goals set by the transactional leader (Sergiovanni, 1990).

Everything is different with transformational leadership, where value is derived from inspiration, charisma, and motivation to work beyond one’s basic capacity. The success of Microsoft led by Bill Gates is a result that speaks for itself. Transformational leadership brings value, by uniting leaders and followers into a coherent team of productive workers, who pursue higher-level goals and move in the same direction (Sergiovanni, 1990). Transformational leaders like Bill Gates are charismatic; they “infect” followers with their talent and vision. As a result, their efforts usually lead to higher task performance and higher levels of workplace satisfaction compared to those, who work with transactional leaders (Bhargava, 2003). Bill Gates relies on socialized power, which has little to do with his formal organizational position but entails the use of authority and influence that are based on his talent and vision. Unfortunately, at times, Gates can be verbally combative, which negatively impacts his positive leadership image (Santos, 2011). Nevertheless, he sees the organization as a holistic entity, which should be continuously transformed to meet the demand for competitiveness and develop a sustained market advantage.

Transactional and Transformational Leaders: Conditions and Effectiveness

Not all conditions favor the implementation of transactional and transformational leadership styles. Culture and subordinates’ qualities play a huge role in the development of a sustained leader-follower fit. In any leadership context, followers will be more likely to respond positively to the leader’s style, when it reflects and coincides with their own orientation (Benjamin & Flynn, 2006). A transformational leader like Bill Gates finds it much easier to work with people, who have a strong orientation towards change. The Microsoft team is full of energy and creative power to challenge the existing status quo. By contrast, those who worked with Joseph McCarthy were more willing to evaluate and articulate numerous alternatives before taking the final action (Benjamin & Flynn, 2006). As mentioned earlier, McCarthy’s followers could succeed only if they followed the rules of the political game, showed dependence on their transactional leader, and constantly monitored any deviations from the established performance standards. As any other transactional leader, McCarthy made corrective actions and applied micromanagement to ensure that everything went well for him and his political career (Herman, 1999). He would not succeed in a culture where experiential learning and positive influence through wisdom and charisma are appreciated.

Still, every leadership style is good when the time for it is right. McCarthy’s reliance on transactional leadership premises reflected the public concerns about communism and coercion during the Cold War. Transactional leader Joseph McCarthy was pursuing the goal to “get the “queers” as well as the “reds” out of the State Department and other agencies” (Herman, 1999). In the face of the tough political opposition, he did not give up the rules of the game he had established for himself. His former experiences as a boxer added strength to his transactional leadership commitments, where everyone had to accept the rules and fight with all their heart against the communist risks (Herman, 1999). As a transformational leader, Bill Gates also emerged when the context favored his leadership evolution. The information technologies industry demands creativity and continuous improvements and does not tolerate any rigid standards and boundaries. Transformational leadership of Bill Gates is the most effective for his IT projects, as it unites his followers around a common vision that motivates them to work cooperatively for the sake of continuous improvement.

Conclusion

Transformational leadership is a leadership of continuous transformations and positive change. Bill Gates, a prominent transformational leader, serves the needs of his organization by motivating his followers to change, learn, and transform. His vision and charisma “infect” his followers and inspire them to work cooperatively in order to achieve the most challenging organizational goals. By contrast, transactional leaders like Joseph McCarthy seek to establish explicit rules and provide a fair performance-reward exchange. Unlike transformational leadership, which is value-added, transactional leadership is value-based. Both leadership styles hold the promise to enhance organizational performance, when the conditions and contingencies of work favor the implementation of their models. The figures of Bill Gates and Joseph McCarthy suggest that followers’ characteristics greatly influence the value and effectiveness of their leadership approaches.