Transactional Vs Transformational Leadership in Digital Transformation.

by Chris Futcher

Transactional Vs Transformational Leadership in Digital Transformation - Cavendish Wood - Blog

Being chosen to lead and carry out a digital transformation programme is both exciting and scary, and Chief Executive Offices (CEOs) and Chief Information Officers (CIOs) who want to succeed often find it hard to overcome the barriers they experience.

With a clear understanding of the differences between transactional vs transformational leadership models, however, you’ll be able to meet your company’s expectations.

Defining the Different Styles.

There are several different styles of leadership recognised in business these days, but two of the most common are based on transformational and transactional leadership theories developed by James Macgregor Burns and Bernard Bass. These models are almost complete opposites because while transactional leaders focus on maintaining the status quo, usually through careful organisation, staff supervision and group results, transformational leaders challenge the status quo and emphasise creating change inside an organisation.

Transactional leaders use disciplinary power and a range of incentives to encourage good employee performance. The “transaction” that takes place is the act of exchanging reward for performance.

Companies under this kind of leader usually operate smoothly, enjoy high productivity, and can deal with small operational changes easily. This makes it an effective management style for many traditional companies.

Transactional leaders use disciplinary power - Cavendish Wood

Transformational leaders, however, go beyond the day-to-day operational management and work hard towards taking their organisation to higher levels of success. Methods used to do this include promoting teamwork, inspiration and co-operation between employees at different levels, to make sure they carry out corrective actions to improve performance.

This style of leadership is really good for developing and growing small to medium-sized businesses, which need creative thinking to expand.

Both of these leadership styles have a place in successful companies. However, many organisations are now facing an urgent need for digital transformation, which often depends on making cultural changes.

Applying Transformational Leadership Style to Digital Change.

The concept of transformational leadership can apply to almost every industry, including healthcare, education and government agencies, but it’s especially important in IT as companies set goals and start their journeys towards digital transformation. Adapting to quickly-changing technology takes innovation and strong leadership to stay ahead of the pack and continue to be competitive. And since digital transformation is basically about people, achieving a successful digital agenda begins by changing the mindset of a company to increase the emphasis on its people.

Research by the Harvard Business Review shows that any changes made that don’t empower employees typically don’t succeed and that empowering people through change is the only way to have the lasting digital transformation needed for companies to grow.

Applying Transformational Leadership Style to Digital Change - Cavendish Wood

Transformational leadership style is based on four pillars, which can all be applied to achieving digital change in an organisation:

  • Intellectual stimulation, which includes creating a company setting where workers feel safe to be creative, voice their ideas, and challenge current thinking. Where a transactional leadership style of “command and control” might achieve some success, teams do better by having guidance and the opportunity to solve problems on their own. 
  • Individualised consideration, which transformational leaders achieve by adapting their methods to match the skills and the people in their teams.
  • Inspirational motivation, which requires leaders to pay attention, have a clear vision and strategy, and to be able to passionately communicate their vision to their teams. By using ways that help them to see the big picture, transformational leaders enable workers to go beyond the immediate task and aspire to be part of something larger.
  • Idealised influence, which means leaders need to base their actions on accepted values, work towards the greater good, and lead their teams by example. This ensures that the final results are supported by strong morals and ethics, and they can stand up to close examination.

Transformational leaders don’t always have to be managers, either. Anyone can be (or become) a transformational leader in the field of digital disruption. The actions needed to make the shift to a digital universe effective depend to a large degree on the needs of the business and the organisational culture. In some instances, it might be necessary to use some transactional leadership methods, too.

For example, all processes across an organisation going through digital disruption will have to find new digital solutions, which could mean restructuring departments, starting to use new tools, and making changes to tasks such as:

  • the way sales are made,
  • placement of orders,
  • preparation of reports,
  • changes in skill-sets,
  • and monitoring of processes.

Many of these activities are done well as a result of the structured methods of organisation and the supervision of staff by the transactional leader, which helps them to achieve their goals.

Advantages and Disadvantages of Using Transactional vs Transformational Leadership Styles.

Both styles of leadership have their pros and cons, particularly when it comes to digital transformation. Transformational leadership is recognised for its ability to quickly assess a company’s situation, set goals for improvement and growth, and to create a positive work environment for the team. By using the four pillars listed above, this leadership style results in motivated and inspired workers, who typically deliver better efficiencies and results.

A Transformational leadership style results in motivated and inspired workers - Cavendish Wood

It can also face difficulties, though, such as a challenge with detail orientation that is obvious in transactional leadership methods. Also, transformational leaders occasionally get so passionate and excited that they overlook reality and truth, resulting in less-than-ideal use of logic and research. And not every transformational leader is good. Adolf Hitler and Osama bin Laden are both listed as examples of this type of leader because they were able to motivate followers to put aside their individual interests and work together towards a common goal.

The benefits offered by transactional leadership methods, on the other hand, include:

  • Employee motivation through rewards and punishment, which is often effective in particular industries.
  • The presence of achievable short-term goals that are realised in a shorter timetable, which makes them easier to fulfil and less demoralising for workers.
  • A clear, concise structure that allows workers to understand and achieve exactly what is expected of them.
  • Sound management of productivity and costs, based on short-term goals that enable workers to get things done according to a strict plan.

Disadvantages of this leadership style include the fact that it is usually viewed as “stiff” by employees, and has negative factors like job suspension and termination. It limits creativity and makes it hard for workers to present ideas that aren’t in line with existing goals, and also it discourages employees from aiming for higher positions in the company.

Employees often don’t take enough accountability and ownership, because they are given their tasks and expected to complete them within the framework provided. And since the rules usually exist for a reason and can’t easily be changed, employees have less concern for the company’s welfare than they would if they felt personally accountable for success.

Since digital transformation is fundamentally about people, getting it right mostly requires transformational leadership. Leaders might need to adapt their style, however, to account for instances when transactional leadership is needed as part of the transformation process.

Healthcare often suffers from restrictive guidelines and transactional management

Examples of this include the healthcare environment, where strict guidelines and transactional management styles apply even during a larger transformational process. This is because healthcare employees still have to operate according to fixed programs and tasks, making the environment more suitable to the transactional style. Leaders could well find themselves using a combination of transactional vs transformational leadership styles in different circumstances. 

Do you understand your own type of leadership? Are you ready to take up the mantle of a transformational leader? For more information about transactional and transformational leadership styles and how the choice of style affects your success, please contact us.

Let's talk about your digital transformation journey. Talk to Chris Futcher and get free actionable commercial insights.