Transactional and Transformational Leadership

  • 07 Pages
  • Published On: 21-12-2023


Leadership refers to the action of leading an organization or a group of people. Leadership takes the form of transformational or transactional form. Transactional leaders focus on supervision, group performance, and organization. These leaders are concerned with establishing a status quo and day-to-day progress toward company objectives (Bennett, 2018).On the other hand, transformational leaders function by enhancing followers' engagement and motivation by guiding their behavior toward a shared goal. Though transactional leadership functions in the company existing boundaries of structure and processes, transformational leadership challenges the existing states and is change-oriented. Over the last decades, many studies have reviewed transformational leadership and transactional leadership (Bennett, 2018). Transactional leadership requires a strict management structure, while transformational leadership focuses on motivating others to follow and promotes high coordination, cooperation, and communication. Therefore these kinds of leaders focus on team-building, collaboration, and motivation of workers at various levels of a company to accomplish change for the better. In contrast, Transactional leadership focuses on the responsibility, discipline, and expectation of the leader. Other than leadership theories, there are strategic theories that are applicable to explain organizational performance. Such theories include PESTLE analysis. Nandonde (2019) states that PESTLE analysis is a system that analyses major factors- Political, Economic, Sociological, Technological, Legal, and Environmental which impact a company from the outside. Therefore this paper will compare transformational and transactional leadership and a strategic theory - PESTLE analysis.

Transformational vs. Transactional Leadership


Transactional leadership focuses on promoting organization success and performance through punishment and rewards and maintaining compliance with an organization's norms and culture. Evidence revealed that transactional leaders focus on supervising and managing workers (Griffin et al., 2020). Therefore, in this kind of leadership, employees are monitored to assess any deviation from expected standards. Therefore, leaders using this approach utilize incentives to motivate employees and disciplinary power to make employees productive. In this leadership, leaders work within a rigid, existing organizational structure. This indicates that they must shape their work based on the current enterprise structure and organizational culture. Besides, according to Cho et al. (2019), leadership is concerned with maintaining the normal operation flow.

In contrast, transformational leadership is a flexible style concerned with individualized consideration, inspiration, influence, intellectual stimulation, and motivation. Evidence revealed that this kind of leadership stimulates creativity and ideas from employees by creating a secure environment to challenge the status quo. Besides, the leaders in this leadership style possess a vision that motivates subordinates to achieve critical objectives and goals. Therefore, subordinates identify with the leader's values and vision. According to Griffin et al. (2020), this kind of leadership emphasizes employee strengths and weaknesses and enhancing their commitment to the organization and capabilities. Therefore, leadership is concerned with subordinate transformation-change (Cho et al., 2019). In this leadership, the leader works with the subordinates to create the desired change in an enterprise. Unlike transactional leadership, transformation leadership goes beyond managing daily activities and design strategies for taking the organization to the next level of success and performance. This view means that the leadership must focus on collaboration, team-building, and motivation to accomplish change for the better. Besides, due to its flexibility, it creates an opportunity for individual growth. Also, while transactional leadership reacts to an issue after it has arisen, transformational leadership often addresses issues before becoming problematic.

Regardless of the differences, both leadership theories involve followers and leaders with a shared objective to benefit from one another. Also, the leaderships are motivational in their tactics and have inherent objectives in mind. Also, both types of leadership involve trust, integrity, delegation, vision, respect, and influence on followers.

Transactional leaders function within an organizational culture and norms. This leadership includes setting goals for followers. Transformation leadership is designed to take the organization to the next level of success and performance. It is applied to create an inspiring vision of the future.

Learning the leadership theories have improved our management and behaviors that we can adopt in the future to boost our leadership abilities.

PESTEL analysis

A PESTEL analysis is a framework used to monitor and analyze the macro-environmental elements that might affect the company's performance. This tool is critical in entering a foreign market and creating new enterprises (Rastogi et al., 2016). The Political factors in the theory assess the extent to which a government impacts the economy. For example, these factors might include imposing a new tax. Also, political factors include tax policies, trade tariffs, Fiscal policy, among others. Another element is an economic factor that is determinant of performance and impacts the company in the long term. For instance, inflation might impact product prices and prices of services, thus impacting client purchasing power. Therefore, economic factors include foreign exchange, interest rate, inflation rate, and economic growth patterns. Similarly, a pestle analysis includes Social factors which scrutinize the social environment. Example of such social factors includes demographic, cultural trends, and population analytic (Rastogi et al., 2016). Also, technological factors are a critical aspect of the PESTLE analysis and include innovations in technology that might influence the operation of a company in an industry. These factors include research, automation, and development. Another factor is Legal aspects which include certain laws that affect the business environment (Perera, 2017). For instance, ethics, consumer laws, and labor laws. Lastly, environmental factors include the surrounding environment of a company. It includes limited climate, global climate changes, and geographical location.

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Leadership theories explain how and why certain people become leaders. The leadership theories focus on traits and aspects which are used to increase their leadership capabilities. Leadership promotes a high level of performance through strong human relations. Leadership help maximizes efficiency and achieves organizational goals. Unfortunately, these goals might be impacted by the external and internal environment. Therefore, PESTEL analysis help leaders who apply various leadership theories to establish the external factors that could impact decisions made inside the organization.


Transactional leaders are focused on promoting organization success and performance through punishment and rewards and maintain compliance with the norms and culture of an organization. On the other hand, transformational leadership is a flexible style concerned with individualized consideration, inspiration, influence, intellectual stimulation, and motivation. Therefore, a leader cannot adopt the two leadership at once though it can be switched based on need. On the other hand, PESTLE analysis is critical in analyzing the external environment of a business led by leaders using transformational leadership.


Bennett, D., 2018. The relationship between transactional and transformational leadership attributes and organizational performance in the Caribbean. International Journal of Education and Management Studies, 8(4), pp.446-451.

Cho, Y., Shin, M., Billing, T.K. and Bhagat, R.S., 2019. Transformational leadership, transactional leadership, and affective organizational commitment: a closer look at their relationships in two distinct national contexts. Asian Business & Management, 18(3), pp.187-210.

Griffin, G. W., Phillips, J. M., Gully, S. M. 2020. Organizational behavior: Managing people and organizations (13th ed.). Cengage. ISBN: 9780357042502.

Nandonde, F.A., 2019. A PESTLE analysis of international retailing in the East African Community. Global Business and Organizational Excellence, 38(4), pp.54-61. Perera, R., 2017. The PESTLE analysis. Nerdynaut.

Purwanto, A., Asbari, M. and budi Santoso, P., 2019. Influence of Transformational and Transactional Leadership Style toward Food Safety Management System ISO 22000: 2018 Performance of Food Industry in Pati Central Java. Inovbiz: Jurnal Inovasi Bisnis, 7(2), pp.180-185.

Rastogi, N.I.T.A.N.K. and Trivedi, M.K., 2016. PESTLE technique–a tool to identify external risks in construction projects. International Research Journal of Engineering and Technology (IRJET), 3(1), pp.384-388.

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