I was recently asked about the impact of transactional leadership on business. Given that a part of Ethical Reading’s vision is to reduce workplace stress through better leadership, I thought that sharing my answer might be of interest.  Transactional leaders manage by numbers and motivate through carrot and stick. They direct with authority and expect obedience without question.

As with most complex questions the answer depends on the situation. A good (situational) leader will adapt their style to the context, but some leaders only adopt a transactional style. A transactional style is ideally suited to crisis management where the leader has a clear and coherent picture in mind and needs people to fulfil their roles instantly and without question. If everyone does as asked, the crisis can be managed with a minimum of communication. In a crisis, leaders with a decisive manner instil much needed confidence and miscommunication one of the biggest causes of delayed resolution.

Transactional leadership also works well in a system of production where tasks are prescribed and deviation causes overall efficiency to reduce. A lean “just-in-time” production line is a good example.

Transactional leadership reduces both the opportunity and requirement for individuals to think. In a battle, emergency or in a complex production system this can be a good thing where the leader has the best overview and there are dependencies between tasks that are critical for overall success.

But on a sustained basis, it saps motivation and prevents innovation. The best lean production systems take time out for individuals to assess the performance of their parts in the system (Kaizen in Toyota speak). This sustains motivation by giving people more ownership of their tasks and also enables bottom up performance improvement because those closest to the tasks usually have the best view of how they might be done better.

Transactional leadership is a significant reason why so many change programmes fail. People are told to do things in a different way. Often, they cannot because the details of their task won’t allow them. Sometimes they refuse because compliance would compromise their wellbeing. In contrast, a more consultative (transformative) style of leadership is a good way to overcome “change resistance” by engaging with people to understand their positions. Transformative leadership builds a consensus around the desired outcome, motivating people to come up with their own mechanisms to achieve the goal.

Transactional leadership is disastrous for innovation – particularly where customer facing staff are not empowered to bring their insights into the product development process or front line production staff are not consulted on continuous improvement. For many aspiring leaders that I work with, it is a huge relief to realise that they do not need to have all the answers – assuming of course that their ego allows them to recognise the fact. This has far more impact on behaviour than trying to engage staff for engagement’s sake. It provides a more authentic leadership style with far more motivated and productive staff. But it does take more effort and time than directing through KPIs.

The big risk here is that even though all the KPIs are looking good, a competitor or challenger can quickly take market share with a more innovative offer.

Some of the biggest brand leaders have gone down very quickly in recent years, victims of not changing with the times so investing in a coaching style of leadership seems well worth it.

Mark is an executive coach, award winning mentor and innovation author. He is founder of social venture Grow Inspires, working for sustainable social inclusion through enterprise.