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The Impacts of Transformational Leadership and Transactional Leadership on

Organisational Performance and Change

Research · February 2021

DOI: 10.13140/RG.2.2.18549.29927

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Mohammed Hamed
University of Salford
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2/7/2021
LEADERSHIP STYLES The
Impacts of Transformational Leadership
and Transactional Leadership on
Organisational Performance and Change

MOHAMMED HAMED
SBS SWISS BUSINESS SCHOOL
 Table of Contents
1.0 Introduction .......................................................................................................................... 2

2.0 Literature Review................................................................................................................. 2

2.1 Impact of Transformational Leadership on Organisational Performance and Change.... 2

2.2 Impact of Transactional Leadership on Organisational Performance and Change.......... 4

3.0 Conclusion ........................................................................................................................... 5

References .................................................................................................................................. 7

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1.0 Introduction

Every company, business, or organisation has some senior employees named the
company's executives. Where they take the major decisions regarding the operations of the
company. Similarly, the junior and the lower-level staff tend to follow their footsteps to comply
with the company and sustain its brand image. The current study will focus on the leadership
styles that are followed by different managers and executives of the company (Yauney, 2018).
Leadership is the most discussed topic in the current competitive environment where the
organisations are in various competition due to the increase in the number of new entrants
(Khan et al., 2018). Therefore, the organisations have incorporated the leadership styles within
their companies that the employees follow to have better productivity within the organisation.
All the employees work for a common goal for tom to achieve the mission of the respective
organisation. Leadership can be defined as one of the intrinsic qualities of a person that makes
other people follow him/her.

A leader tends to associate the other employees/workers with his personality and tries
to motivate them to achieve a common goal. Leadership is all about motivating a group of
people to accomplish a goal or the defined objectives. However, there are many types of
leadership styles that the leaders incorporate to motivate the employees. In contrast, in the
respective study, the leadership styles that will be discussed are the transformational and
transactional leadership styles. The literature will be provided further to support the
effectiveness of the transformational and transactional leadership styles.

2.0 Literature Review

2.1 Impact of Transformational Leadership on Organisational Performance and Change

There are different complexities related to the job description and the job specification
in the workplace that can affect the employees' productivity and hinder the execution of the
objectives. Therefore, the managers and the leaders implement the transformational leadership
style to increase the employees' motivation level. The transformational leadership is the one
where the leader incorporates different qualities like idealised influencing, inspirational
motivation and intellectual stimulation. According to Nguyen et al. (2017), in the
transformational leadership, the employees are encouraged and motivated to perform better and
work according to the company's vision and have better productivity than the competitors. In
this case, the leaders need to incorporate a strong sense of the culture that is followed within
the organisation.

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 As discussed by the author Alqatawenh (2018), the transformational leaders are the one
that does not micromanage their employees or create pressure on them to instruct every single
detail as it can make them feel inferior or in-confident. Therefore, the leaders that follow the
transformational leadership style encourage the employees to stay confident and make
decisions that are meant to be taken within their job. This development of trust on the
employees built up by the leader helps them feel more confident, which allows them to perform
better and move towards the organisation's goals, directly affecting its productivity. Therefore,
it can be analysed that the role of the leader has a significant effect on the performance and the
productivity of the employees. Hence, transformational leadership has some characteristics that
emphases the employees' performance and motivate them to be more productive (Busari et al.,
2019). These elements encourage the employees to perform better and stay committed to their
job. These characteristics related to the transformational leadership are the motivation and the
positive development of the employees, which helps them to be more productive.

Similarly, transformational leadership increases the implementation of the moral

standards that are being followed within the organisation and the respective employees.
Moreover, it also has an emphasis on the values of the organisation and the priorities.
Furthermore, every company follows a culture that helps the employees maintain standards and
form an emotional bond. Hence, transformational leadership helps create a culture within the
company, which promotes the employees to work for a common goal.

It can be evaluated by observing the attributes and the effects of transformational

leadership that it increases the strength of the employees that allows them to follow the culture
of the organisation and being more loyal by incorporating their own skills that affect their
performance and the profitability of the organisation (Nguyen et al., 2017). In transformational
leadership, the individual leadership style encourages the employees to become leaders,
contributing to their betterment. As discussed by the author Duggan (2018), the effectiveness
of the transformational leadership can be analysed by observing the revenues and the corporate
culture of the companies that follow the individual leadership style within their operations and
their employees as well. These companies are IBM, Intel, Microsoft and Apple. Therefore, it
can be evaluated that the most profitable companies in the world like Apple that have their
revenues in trillions use the transformational leadership to have a defined corporate culture and
an adverse impact on the performance of the employees (Nguyen et al., 2017). Apple, IBM,
Intel and Microsoft are known for the technological advancements that they have imbibed
within their operations in order to have better strategies formed, and a more significant number

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of leaders created that can help the organisation to sustain their brand's image and gradually
sustain their performance in the competitive environment and their relative industry as well.
Therefore, it can be evaluated that in response to being more successful and have a more
significant market share the employees should be provided with immense value with the use
of transformational leadership style (Baškarada et al., 2017).

2.2 Impact of Transactional Leadership on Organisational Performance and Change

It is necessary to maintain its image in the current business environment and sustain its
productivity to compete within the respective saturated business environment. As identified by
the individual author Chaudhry, and Javed (2012), the leaders use leadership styles to improve
their organisation's effectiveness to increase their revenues. The leadership styles are developed
and implemented for two significant reasons: enhancing the employees' performance or
bringing change within the organisation. The leadership styles can be identified as helping the
manager form a bond with the employees. Therefore, in the current study, the leadership style
used is the transactional leadership style that supports the organisation to change the company
with time by incorporating values, strategies, and motivating employees to be more productive.

The transactional style can be explained as, the transactional leadership is about passing
on an order or an objective to the employees that is to be executed at any cost and on that bases
the employees are rewarded with incentives, bonuses, encashment and different types of prizes
that helps in building motivation among the employees or they have to face punishment if they
fail to come up to the expectations of the employer. The transactional leadership style is
followed mostly in the organisations with no tolerance for mistakes or errors in their operations,
either the military operations, the company's supply chain or the organisations with live time
operations. However, as per the author Adriansyah et al. (2020), the transactional leadership is
not applicable in the organisations that require innovation or creativity but is useful for the ones
that are only executed to incur profits for the company and are based on increasing the number
of the sales only. In the transactional leadership style, employees' growth is minimal. They only
work on the bases of specific incentives, fear of losing the job, fear of being demoted, or having
their salary reduced. Although, if they come up to the employer's expectations, they are
provided with monetary benefits, incentives, and bonuses. Hence, it can be evaluated that the
transactional leadership style can contribute to the effectiveness of the employees' performance
but is less effective in bringing change into the organisation's operations.

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 Moreover, it has been identified by the author Saeed, and Mughal (2019), that the
transactional leadership style can be implemented when the firm or the organisation is going
through a critical stage and demands immediate productivity from the employees where they
need to portray their skills and work as per the objective is defined to them. Therefore, this
type of short-term changes can be expected from the implementation of the transactional
leadership style. Moreover, many organisations in the world opt the transactional leadership
style where they need aggressive profits or performance in the industry. The example of
transactional leadership can be related to the organisations like the Military groups, the coaches
of NFL (national football League) and different other firms which sometimes require the short-
term goals to be met with the deadline also follow the transactional leadership style (Chaudhry,
and Javed, 2012). This leadership style differs from the other leadership styles that have aimed
to work on the growth of the employees and their attributes and skills as they can work for the
organisation's productivity to incur more remarkable revenue streams.

3.0 Conclusion

The respective study has focused on the two most common leadership styles: the
transformational and the transactional leadership styles with immense emphases on the
employees' productivity or earning revenue through it. There are differences identified in the
respective research regarding the two most common leadership styles: the transformational and
the transactional leadership styles. The transactional leadership is more focused on attaining
the objective of the organisation and possess about positive and negative features only for the
respective employees as the transactional leader provides the employees with two options that
are about executing the operations of the company within time to get benefits and rewards or
if they fail to achieve it they would be given several punishments which are either related to
their salary, bonuses or their promotion (Baškarada et al., 2017).

On the other hand, transformational leadership has been explained, which focuses on
the betterment of the employees and their excessive growth by increasing their skills and
attributes. The transformational leader has a long-term approach that focuses on the employee's
skills and attributes, which can benefit the organisation in the near future (Khan et al., 2018).
Therefore, the transformational leaders have an immense focus on developing the employees
and creating value for them, increasing their loyalty towards the brand.

In comparison to the organisation's performance and the change related to the

leadership style, it can be analysed that the transformational leadership style has greater

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effectiveness for bringing change within the organisation and developing the skills of the
respective employees to increase the firm's performance. Furthermore, it can be evaluated that
the transformational leaders tend to demand nothing in return like the attributes that the
transactional leaders require (Chaudhry, and Javed, 2012). Similarly, it has been identified that
the transactional leaders demand performance from the employees regarding monetary benefits
and incentives offered by the respective leaders to enhance the firm's profitability. It can also
be evaluated through the findings of the respective research that the transactional leadership
style can cater to increase the performance of the employees but is not viable to bring changes
as it works for the short-term period only. However, the transformational leadership style can
cater to both the employees' characteristics and the organisation, bringing change within the
organisation and improving employee performance.

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References

Alqatawenh, A.S., 2018. Transformational leadership style and its relationship with change
management. Verslas: teorija ir praktika, 19(1), pp.17-24.

Baškarada, S., Watson, J. and Cromarty, J., 2017. Balancing transactional and
transformational leadership. International Journal of Organizational Analysis.

Busari, A.H., Khan, S.N., Abdullah, S.M. and Mughal, Y.H., 2019. Transformational
leadership style, followership, and factors of employees' reactions towards
organisational change. Journal of Asia Business Studies.

Chaudhry, A.Q. and Javed, H., 2012. Impact of transactional and laissez-faire leadership style
on motivation. International Journal of Business and Social Science, 3(7).

CNBC, 2017. The self-made tactics billionaire Elon Musk uses to motivate his teams.

Duggan, t., 2018. [Online] Yourbusiness.azcentral.com. Available at:

<https://yourbusiness.azcentral.com/transformational-leadership-examples-business-
4571.html> [Accessed 3 February 2021].

Ibrahim, A. and Daniel, C., 2019. Impact of leadership on organisational

performance. International Journal of Business, Management and Social Research,
6(2), pp.367-374.

Khan, S.N., Busari, A.H., Abdullah, S.M. and Mughal, Y.H., 2018. Followership moderation
between the relationship of transactional leadership style and employees reactions
towards organisational change. Polish Journal of Management Studies, 17.

Manzoor, Q., 2012. Impact of Employees Motivation on Organizational

Effectiveness. European Journal of Business and Management, 3(3).

Nguyen, T.T., Mia, L., Winata, L. and Chong, V.K., 2017. Effect of transformational-
leadership style and management control system on managerial performance. Journal
of Business Research, 70, pp.202-213.

Odumeru, J. and Ogbonna, I., 2013. Transformational vs Transactional Leadership Theories:

Evidence in Literature. International Review of Management and Business Research,
(2).

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 Saeed, M. and Mughal, Y.H., 2019. Role of transactional leadership style upon performance:
Mediating role of culture. Journal of Managerial Sciences, 13(1), pp.47-57.

Yauney, R.H., 2018. Leadership Development: A Study of Elon Musk. Marriott Student
Review, 2(2), p.4.

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