Transformational and Transactional Leadership

Transformational leadership is a form of influence based on a developmental relationship that elevates others to higher levels of moral and professional development, promotes adaptability and change, and results in performance beyond expectations. Transactional leadership is a form of influence based on an exchange relationship in which the leader provides direction and rewards in exchange for a follower’s delivery of agreed-upon performance. Together, these leadership styles can foster adaptability and responsiveness to changes in markets, broaden collective skill sets for generating more creative solutions to problems, and challenge and develop people more fully. Such processes are necessary for productivity and profitability in organizations.

Research on transformational-transactional leadership was originated by James MacGregor Burns as a way to differentiate outstanding leaders who change people, groups, organizations, and nations (transformational leaders) from mundane leaders who simply maintain efficient operations in social, organizational, and political systems (transactional leaders). Bernard Bass and Bruce Avolio and their colleagues have expanded on Burns’s seminal work by studying trans-formational-transactional leadership theory with leaders from military, industry, and nonprofit sectors from all continents except Antarctica. This stream of research has contributed much to what we know about leadership styles within transformational-transactional leadership theory; characteristics of individuals who display these styles; effects of these styles on individuals, groups, and organizations; and the conditions that are most favorable for these styles.

Forms of Leadership within Transformational-Transactional Leadership Theory

According to Bass and Avolio, leaders have a repertoire of leadership behaviors that they can display in various frequencies depending on their mental model of leadership. There are five leadership behaviors, ranging from the more passive and ineffective avoidant or corrective styles to the active and effective constructive and transformational styles:

  • Laissez faire (LF). This is a nontransactional form of “leadership” that involves highly passive and ineffective behavior, such that the leader avoids leadership and abdicates responsibility for tasks. The leader takes a lazy approach toward responsibilities and often is absent when needed.
  • Passive management-by-exception (MBE-P). This is a somewhat more effective corrective transactional leadership behavior in which the leader focuses on mistakes only after they have occurred and patches problems. The leader waits for things to go wrong before taking action.
  • Active management-by-exception (MBE-A). This is a more active and effective corrective transactional leadership behavior in which the leader searches for what is done wrong, not what is done right. The leader closely monitors work performance for errors to solve problems before they occur, as in “micromanagement.”
  • Contingent reward (CR). This is a constructive and generally more active and effective transactional leadership behavior in which the leader develops well-defined roles and expectations to achieve desired performance levels. The leader uses goals and “carrots and sticks” (i.e., rewards and punishments) to shape the behavior of followers.
  • Four I’s of transformational leadership. The most effective leaders add the following behaviors to transactional CR leadership to get their followers to perform beyond expectations. Inspirational motivation (IM) involves articulating a future desired state (i.e., vision) and a plan to achieve it. Idealized influence (II) involves gaining trust, respect, and confidence from followers and setting and role modeling high standards of conduct for self and others. Intellectual stimulation (IS) seeks to question the status quo and promote continuous innovation and process improvement, even at the peak of success. Individualized consideration (IC) energizes followers to develop and achieve their full potential through mentoring and appreciation of diversity.

Research indicates that leaders who spend more time displaying the more active transformational and transactional CR behaviors and less time displaying the more passive or corrective leadership behaviors are associated with the highest levels of individual, group, and organizational performance.

Characteristics of Transformational Leaders

Research on traits of transformational leaders indicates that they have positive attitudes. They are intelligent and energetic, open to learning and change, and feel that they are in control of events. They adapt well to new situations and search for opportunities for development. They possess people-oriented traits such as extraversion, nurturance, and humor. They are emotionally and socially intelligent individuals who, through their understanding of their feelings and effects on others, are able to build developmental relationships with followers.

Research on life biographies of transformational leaders depicts them as more satisfied with life, as better performers in high school and college, as recognized for their achievements, and as positive about their prior work experiences. Their parents showed interest in their development, displayed high moral standards of behavior, and provided strong, supportive homes. They were popular and active in high school and liked teachers who were hard graders. They also were bothered by people’s lack of initiative, were active in clubs and communities, attained high goals in their work, and engaged in religious activity a few hours a week.

On average, women are perceived as displaying more transformational and transactional CR behaviors, and less MBE-A, MBE-P, and LF behavior, than men. It appears that women have the ability to perform very well as transformational leaders in organizations because success often depends on teaming, professional and strategic networking, and providing excellent products and services. Teaming is an outcome of IM, networking is an outcome of both IM and IC, and advocating quality is an outcome of IS.

Motivational Effects of Leadership Styles on Followers

When a leader displays LF behavior by avoiding his or her leadership responsibilities, followers typically become demotivated and dissatisfied and perform poorly. Followers generally exert work effort in a manner that is consistent with what they see demonstrated by their leader. When a leader role models laziness, followers typically follow suit. Although such equitable disengagement on the part of followers is common, it is also possible for highly motivated professional followers to pick up the slack of the laissez faire leader by substituting for the leadership not provided by the LF leader.

When a leader displays MBE-P or MBE-A behavior by focusing on correcting mistakes, followers typically are motivated through intimidated compliance that can stifle creativity and innovation. Such leadership instills fear in followers, who are treated like children who cannot be trusted and must be monitored to conform to standards. As a result, followers pay careful attention to maintaining the status quo in the fear of reprimands from the leader.

More positive motivational effects are achieved when a leader displays CR behavior. The goals set through CR behavior establish an expectation of the receipt of a reward by followers for meeting a specified performance target. Followers see that their compliance with the leader is instrumental to their attaining valued rewards. Such extrinsic motivation can be particularly effective in sales organizations. However, some followers may feel manipulated by leaders who use only carrots and sticks as a means of motivation.

Even more positive motivational effects on followers can be achieved by leaders who display transformational leadership. When a leader displays IM, an increased sense of optimism and intrinsic motivation (i.e., action aroused by innate enjoyable or meaningful aspects of tasks/visions) is stirred in followers. Through appropriate role modeling (II), a leader can arouse followers to identify with the leader or the vision and to internalize the leader’s values and beliefs. When a leader displays IS and IC, followers become motivated because they are encouraged to be creative and use their unique knowledge, skills, and abilities.

Outcomes of Transformational/ Transactional Leadership

Transformational and transactional CR leadership can have a variety of positive outcomes. Such leadership makes followers feel satisfied with their leader, empowered, and self-motivated, and leads them to do more than what is included in their job descriptions. As a result, followers often report earning promotions. Such leadership motivates followers to exert extra effort and be more creative and effective in their jobs. It also helps to reduce followers’ stress and burnout.

For groups, transformational leadership produces enhanced collective confidence, morale, and cohesion.

It results in enhanced group productivity, effectiveness, and creativity, and satisfaction with the leader and task. It can also build shared leadership, defined as “leadership by the team,” in which leadership functions are distributed among members.

Organizational outcomes that result from transformational leadership include innovation, retention, organizational commitment, business unit goal attainment, unit financial performance, market share and customer satisfaction, and occupational safety.

Conditions That Foster Transformational Leadership Effectiveness

Certain environmental conditions promote the effectiveness of transformational leadership. Organizations with strategic plans that encourage adaptation and boundary spanning support transformational leadership’s focus on promoting change and making connections with customers and suppliers. Flat organizations that possess a simple rather than a complex structure, unstructured tasks, or a clan or collectivistic culture and mode of organizational governance support transformational leadership’s emphasis on collaboration and interdependence. Environmental turbulence and crises, in which followers look to a leader to make sense of the situation and articulate a vision of a brighter future, also promote transformational leadership effectiveness.

Developing Transformational Leadership

The transformational leadership literature offers a plethora of suggestions for improving organizational effectiveness. The following are several empirically validated recommendations:

  • Use a combination of transformational and transactional CR leadership to satisfy both the higher-order (e.g., recognition, personal growth) and lower-order (e.g., safety, security) needs of followers and promote organizational effectiveness.
  • Allow time for followers to accept messages of change and identify with the vision of the transformational leader to produce organizational effects.
  • Implement research-based training to develop transformational and transactional leadership. Training programs should collect leadership ratings from the leader, superior, subordinate, and peer levels, and provide development plans, feedback, and follow-up coaching.
  • Select candidates for training who are emotionally and socially intelligent, ethical, effective as communicators, and willing to change their behavior.
  • Build transformational and transactional cultures through organizational development so that leadership can be shared through collaboration and shared values.


  1. Avolio, B. J. (1999). Full leadership development: Building the vital forces in organizations. Thousand Oaks, CA: Sage.
  2. Bass, B. M. (1985). Leadership and performance beyond expectations. New York: Free Press.
  3. Burns, J. M. (1978). Leadership. New York: Harper & Row.
  4. Sosik, J. J., Avolio, B. J., & Kahai, S. S. (1997). Effects of leadership style and anonymity on group potency and effectiveness in a group decision support system environment. Journal of Applied Psychology, 82, 89-103.

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