Transformational vs. Transactional Leadership

Volume 6.13
November 9, 2009

I often get asked to explain the difference between transformational and transactional leadership, and I recently saw an example of a large corporate change that illustrates it. The leadership of this corporation set out to reduce the number of call centers that it had around the world. It had a highly diversified business model with a number of different customer bases.  The call centers had grown up locally without a central strategy.  Now they wanted to create an overall strategy for call centers and at the same time reduce the overall number as well as create some technological consistency throughout them all.



Now let’s talk about it.  Of course, I’m going to talk about leading this change, not the change itself.  For clarification here’s a working definition.

 

  • Transactional leadership – Exchanging “this for that” as you lead people.

  • Transformational leadership – Changing the beliefs, ideas, and overall values as you lead people.

I should say right here that every leadership act has elements of both transactional and transformational styles.

For this one, there are two choices as a leader.
 


  1. Set up projects to reduce the number of call centers and programs to communicate the whys and hows of the change.
     
  2. Set up culture change processes to change the value set of the organization AND set up projects to reduce the number of call centers.

Either approach will require elements of each style, and they will yield significantly different results.The difference lies in the fundamental intention and overall direction of the vision.



The first approach will achieve the goal of reducing call centers and will achieve transformation of thinking in some of the people.  Most likely this approach will have a
 strong governance component added to ensure that the numbers stay down.However, without a deep culture change, as turnover occurs in leadership and in governance structures, it is likely that the number of call centers will go back up.  Why?  Because the overall organization will not get changed through the effort.It is impacted, changed in some ways, but not at the level of thinking.  Only those people who are involved with the thinking of the effort experience the transformation.  After the project, these tend to get dispersed around the organization an often feel stranded among people who do not see the world the same way.



The second approach will have the primary intention of changing the culture of the overall organization.The effort will center on what it takes to change the
 thinking of the entire system while giving the opportunity to make real changes that align with that thinking.  The majority of the effort of the organization will be on culture.  During the process, the people will find many things that need to be changed in order to accommodate the new thinking beyond the umber of call centers.This type of change is more organic and is highly specific to the environments where people actually live and work.



Of the two, the second approach is more sustainable.Okay, here’s where I get challenged.How do I know which will be sustainable and which will not?  The answer, based on thinking of the system, is that the organization’s decision processes and “right answers” all led to multiple call centers.  The same level of local answer probably
 exists in many other systems.Unless that is changed, the same sort of decisions will get made again.  There is always the choice in a change effort as to whether or not to take on the entire organization’s belief set. This must be answered based on the overall long-term vision.


Here’s a way to think about this.The mindset of an organization is like DNA.Any time the organization reproduces some part of itself, the new parts will use that DNA imprint and re-create the old in the new.  Unless you change that DNA, the organization will continue to spring forth around your project work.A transactional leadership
 effort will focus on changing the artifacts (number of call centers) while supporting the transformational efforts required for the change (the belief sets of individuals involved in the projects).  A transformational leadership effort will focus on changing the DNA of the overall organization while supporting the transactional efforts (projects) required in the overall change.