transformational vs transactional

Nowadays, everyone wants to be the game changer, the underdog, the disruptor or whatever the next buzz word is – but in the pursuit of greatness and IPO’s, many leaders lose their way and forget “how” to manage people.

For some it’s quite easy because they are better leaders than managers but for others who have no choice but to assume both roles – the challenge can be quite complex.

With all the talk these day about the cloud and innovation, it would make perfect sense why a transformational leader is what’s needed and required by the largest brands on the planet whose products literally and figuratively make living possible. However, there are many leaders out there who masquerade as a transformational leader but model the behavior of a transactional leader.

In fact, you may be reading this right now thinking you work for the next Jeff Bezos only to find out they are more like Jeff Foxworthy. The point is this:

  • “Being a transformational leader can be magical if it’s true to who you are”

If you aren’t, the reality of you showing up as someone more transactional is a far greater possibility. Being transactional is in some respects easier and one could argue more in tune to our natural hardwiring but it surely doesn’t make it better. Here’s why:

Transformational vs. Transactional

The following are the major differences between transactional and transformational leadership. Of course, I will let you decide which is better but it’s quite evident that transformational and transactional leadership are polar opposites when it comes to the underlying theories of management and the psychology of motivation.

The Impact Of Being Transformational

According to a study done by the American College of Occupational & Environmental Medicine:

  • A transformational leadership style — valued for stimulating innovation and worker performance — is also associated with increased well-being among employees, a new study finds.

As we dig deeper into this topic, it pays (literally) to understand how this shows up in organizations. Let’s face it, you can have a transformational leader but if she/he is working in a company that is far from it, both their innate talents will be lost as will the opportunity for that company to benefit from this individual’s unique mindset and skillset. To test this theory, HBR identified 57 companies that have made substantial progress toward transformation and narrowed the list to 18 finalists using three sets of metrics:

  1. New growth. How successful has the company been at creating new products, services, and business models? This was gauged by assessing the percent of revenue outside the core that can be attributed to new growth.
  2. Core repositioning. How effectively has the company adapted its legacy business to change and disruption, giving it new life?
  3. Financial performance. How have the firm’s growth, profits, and stock performance compared to a relevant benchmark during the transformation period?

And here are the results of what their research told them about the importance of having a transformational leader at the helm of an organization and what characteristics they displayed which enabled them to move their companies forward:

  • Transformational CEOs Tend to be “Insider Outsiders”. The list is topped by companies headed by visionary founders with no prior experience in their industries. They had 14 years of tenure on average before getting the top job. That knowledge helped them understand how to make change happen inside an organization. Yet these executives also had an outsider role where they worked on an emerging growth business or consciously explored external opportunities, giving them critical distance from the core. For example: @jeffbezos came from the world of finance, and Reed Hastings from software and some other notable names listed where Satya Nadella of Microsoft and Adobe’s Shantanu Narayen.

The Mindset Of The Leader & The Organization

I couldn’t talk about a transformational leader without briefly touching upon their mindset. They must possess a certain level of thinking and understanding about the mechanics of an organization and the culture that fuels them. Quoting from one of my books “Transforming HR – Creating Value Through People” – there are four basic characteristics these individuals display when it comes to being transformational:

  1. Transformation must be relevant to their organization. They draw lessons from other organizations, but recognize it’s not a one size fits all solution. They stress the importance of contingent thinking and leading over best practice.
  2. Transformation must bring about significant change within the whole system and therefore a systems mindset is needed.
  3. Systematic change can only be achieved through active involvement and co-creation of solutions with key stakeholders & therefore requires a process consulting mindset.
  4. They recognize that the org benefits of transformation will best be realized if change is managed in a structures way with clear governance and benefits tracking, which requires a project management mindset.

Regardless of the mindset (and there are others outside of these four) – the transformational leader goes the extra mile – passed the managing day-to-day operations and focuses on next level thinking and motivation for the performance of their people. They are always thinking about team-building, motivation and collaboration with their people at scale.

Final thoughts: These four mindsets mentioned above are in no way the final word and in fact if you asked any of the leaders I mentioned above or anyone you know who is transformational, they would probably give you a few other ideas to kick around and that’s okay. In fact, it’s better than okay – it’s what you should expect as these are unique individuals tackling and solving issues that are specific to their organizations. Both transactional and transformational styles have their place in the halls of leadership and depending on the organizations roadmap to success – both may be imparted from time to time and usually are.

The floor is yours: What transformational leader do you admire?

Please leave your comment below as your insights are greatly appreciated and a learning opportunity for everyone reading this article.

With leadership,

Joshua /

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