Transactional And Transformational Leadership

Max Weber was the pioneer in developing theory of transactional and transformational leadership, but the theory was further explored by James MacGregor Burns (1978) to Bernard Bass (1985). According to Kuhnert and Lewis (1987), this theory is to explain how personality differences in leaders lead to either transactional or transformational leadership styles (Kuhnert & Lewis, 1987).

According to Burns (1978) as cited by Kuhnert and Lewis (1987), transactional leadership occurs when one takes the initiatives in making contacts with others for exchanging something valued. Whereas transformational leadership occurs when one focuses the needs, the beliefs, and the values of followers.

According to Yukl (1981) as cited by Kuhnert and Lewis (1987), transactional leadership involves exchange of information between superior and subordinates and influences each other reciprocally so that each derives something valued. In other words, it is a win-win situation for both superior and subordinates in getting something they valued. Kellerrmen (1984) as cited by Kuhnert and Lewis (1987) claimed that both the transactional leaders and followers engage in mutual dependence in which the contributions of both sides are acknowledged and rewarded. However, leaders are still influential in making decision and the range is in the best interest of the followers. To be an effective transactional leader, they must regularly fulfill the needs and expectation of their followers. Thus an effective transactional leader is able to respond to the reactions and meet the expectation of their followers (Kellermen, 1984) in (Kuhnert & Lewis, 1987).

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Although transactional leadership is described as exchanging valued outcomes, some literature review suggested that not all exchanges are equal. Graen et al. (1982) in Kuhnert and Lewis (1987) studied the impact on both high-quality and low-quality exchange relationship had on turnover rate of employees in an organization. The result of the study is that employees who engage in exchanging emotional support and resources (high-quality) were less likely to leave an organization compared to employees who engage in exchanging contractually agreed upon elements such as eight hours schedule per day (low-quality). Graen et al. (1982) suggested low-quality exchanges are based on goods or rights. In contrast, high-quality exchanges are based on interpersonal bond between leaders and followers. However in these exchanges, transactional leaders have to clarify the roles and task requirements followers must complete in order to reach to their personal goals and in the same time fulfill the mission of the organization (Kuhnert & Lewis, 1987).

Kuhnert and Lewis (1987) also indicated that transformational leadership originates the personal values and beliefs of leaders, not involving any exchange of commodities between leaders and followers. Both Bass (1985) and Burns (1978) as cited by Kuhnert and Lewis (1987) stated that transformational leaders demonstrate their deeply held personal value systems that include such values as justice and integrity. Burns (1978) refers these values were not exchangeable or negotiated between individuals. By expressing their values and specific standards, transformational leaders are able to unite followers and change followers’ goals and beliefs thus achieve organizational goals. This form of leadership results in higher achievement of performance among individuals (Bass, 1985) in (Kuhnert & Lewis, 1987).

Kuhnert and Lewis (1987) stated that transformational leaders gain their influence by displaying important personal characteristics. These personal characteristics in a leader were described by Bass (1985); some of them are intellectual stimulation, individualized consideration, and level of charisma.

According to Dionne et al. (2003) in Ismail et al. (2011), intellectual stimulation is viewed as a leader who cares about intelligence, rationality, logic and careful problem solving in an organization. Leaders stimulate followers to re-examine ways of doing things, use of rational thinking before taking actions. In addition, individualized consideration is viewed as leaders concern about their followers’ needs. Leaders encourage followers reach to their full potential through proper coaching and mentoring and link followers’ need to the organizational strategy and goals (Ismail et al., 2011).

Thus, successful transformational leaders are able to articulate goals, build an image, demonstrate confidence and inspire followers. These behaviors can convince and motivate followers without exchanging for goods or rights, which characterizes transactional leaders (Kuhnert & Lewis, 1987).

5.2 Interactions between Transactional and Transformational Leadership

According to Hamilton (2010), Bass (1985) proposed that:

“there are situations in which the transformational approach may not be appropriate,” [and that] “organizations need to draw more on the resources of charismatic leaders, who often can induce followers to aspire to and maintain much higher levels of productivity than they would have reached if they had been operating only through the transactional process” (Bass, 1985, p. 40) in (Hamilton, 2010).

Bass (1999) also indicated that there are plenty of works needed to be done in order to have confidence in “full range of transactional and transformational leadership” (Bass, 1985, p. 10) in (Hamilton, 2010).

To show how transformational leadership and transactional leadership interact with one another, a research has been conducted by Corrigan and Garman (1999) as cited by Hamilton (2010). This study was about how the two (transactional and transformational leadership) interact within the realm of team leadership. Researchers explored how transformational and transactional leadership skills are needed to develop team cohesion. In this study, team leaders needed to have transformational skills: “inspiration and charisma, intellectual stimulation, and individualized consideration” (Corrigan et al., 1999, p. 304) in (Hamilton, 2010) that allowed them to inspire team members and help the team move forward with creative problem solving. This motivational need and focus requires the leaders to not only exhibit transformational skills but transactional skills. In making transactions, the leaders had three goals which are “clarifying expectations, motivating improvement, and recognizing achievements” (Corrigan et al., 1999, p. 308) in (Hamilton, 2010). Transactional skills are needed to help maintain effective programs. The interaction between transactional and transformational skills were valuable for leaders in which they utilized skills, which allowed them to meet both present and future needs of team members and organization (Hamilton, 2010).

It was concluded that a manager can be both transformational and transactional leader depending on various situations. It results in more effective leadership behaviour of leaders in an organization (Hamilton, 2010).

5.3 Transformational and Transactional Leadership on Organizational Commitment

5.3.1 Employee Attitude and Customer Satisfaction

Mowday et al. (1979) as cited by Emery et al. (2007) found that organizational commitment reflects employees’ identification and involvement. To be more specific, it holds three dimensions: “a strong belief in and acceptance of organization’s goals and values; a willingness to exert considerable effort on behalf of the organization; and a strong desire to maintain membership in an organization” (Mowday et al., 1979) in (Emery et al., 2007).

According to Emery et al. (2007), there are several findings indicated there are positive relationship between a person’s willingness to participate in quality improvement efforts and organizational commitment. Morris (1995) in Emery et al. (2007) found that employee job satisfaction is one of the critical factors in delivering satisfaction to customers. In addition, it also concluded that employee job satisfaction comes from: “the job itself, supervisor relationship, management beliefs, future opportunity, works environment, pay/ benefits/ rewards, and co-worker relationships” (Morris, 1995) in (Emery et al., 2007).

Another study of retail banking industry, Brown and Mitchell (1993) in Emery et al. (2007) found that job dissatisfaction of customer contact personnel was positively correlated with lower customer satisfaction. In addition, there is a similar research has been conducted by Atkins et al. (1996) in Emery et al. (2007), authors examined level of customer satisfaction by nurses’ services at a major Midwestern hospital, the correlation between nurses’ job satisfaction and patients’ recommendation of which units they preferred was .85 (Atkins et al., 1996) in (Emery et al., 2007).

5.3.2 The correlation between Leaderships and Organizational Commitment

According to the research done by Emery et al. (2007), the purpose of this study is to examine the connection between transactional and transformational leadership and job satisfaction and employee commitment. The results indicated that transformational leadership was found to have higher correlation with job satisfaction and employee commitment compared to transactional leadership.

Bass (1985) as cited by Emery et al. (2007) indicated that transformational leaders are likely to find more acceptances in an organization, where receptivity to change and a propensity for risk taking are available. However, leaders who question the status quo of an organization which bound by tradition, rules and sanctions may be viewed as too unsettling or anxious thus perceived as inappropriate. Thus, open to creative suggestion, innovation and risk taking may be more conducive to transformational leadership compared to challenge the status quo of an organization (Emery et al., 2007).

Bass (1985) suggested that transactional leadership are preferred over in service sectors such as banking sector. However, Emery et al. (2007) found that the employees in banking sectors preferred transformational leadership. It could be explained that the system of reinforcement in mechanistic organization is so thoroughly entrenched in the organizational structures, which leaders do not need to provide contingent reinforcement.

Emery et al. (2007) found that charisma is preferred beyond contingent-reward behaviour in relation to leader effectiveness. These findings are consistent with other researches done by Hater and Bass (1988) and Waldmen et al. (1987) as cited by Emery et al. (2007) where it had demonstrated the importance of charismatic leadership in level of organizational commitment. However, Emery et al. (2007) failed to support that the charisma is only important at the highest management levels. It is due to lower-level managers somehow comply with the decisions of the higher-level charismatic leaders by receiving contingent rewards.

Another finding by Emery et al. (2007) indicated that there are no gender differences in terms of magnitude and preference of particular leadership styles. Female managers are equally display transformational style as males, both males and females managers exhibit similar level of charisma, intellectual stimulation and individual consideration.

This study by Emery et al. (2007) supports the use of transformational leadership to increase job satisfaction and organizational commitment of customer contact personnel. These findings become more significant as service corporations attempt to empower their employees and strive to retain customers through relationship strategies. Another evidence is that result indicated that transformational leadership and particularly charismatic is preferred by employees although they received low paid in an organization.

According to Emery et al. (2007), employees place a great deal of trust in their leaders’ judgment; they adopt leaders’ values and form strong emotional ties to the leader. Leaders’ personal characteristics are directly support the dimension of service quality (Parasuraman et al., 1988) in (Emery et al., 2007).

According to Bass (1994; 1999), Howell and Avolio (1993) and Ismail et al. (2010) as cited by Ismail et al. (2011), since it is an era of global competition, many organizations shift the paradigms of their leadership styles from transactional to transformational leadership as a way to achieve their strategies and goals. Transformational leaders are effective leaders that develop their followers’ full potential, higher needs and motivate them to unite, link their goals to organizational goals and beliefs (Ismail et al., 2011).