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Transactional leadership is a style of leadership that mainly focuses on the transaction between leaders and their followers (Bass 1990). On the other hand, transformational leadership is a leadership approach that causes change in individuals (Bass 1990)
Transactional leadership
Transactional leadership accomplishes their goals by rewarding their employees who meet their expectations (Bass 1990). The transactional leadership reward can be in many ways like, giving recognitions, increase in pay and advancement in career. In transactional leadership if an employee if failed to achieve the goal then they can be penalized. Such transactions or exchanges – the promise of reward for good performance and discipline for poor performance – characterizes effective transactional leadership (Bass, Avolio, Jung and Berson, 2003). The transactional leadership becomes less appealing and appears mediocre when leader relies heavily on passive management by exception. Management by exception is “when leaders transact with followers by focusing on mistakes, delaying decisions, or avoiding intervening until something has gone wrong or reward focused on recognizing the work accomplished (Howell & Avolio, p.892). This implies that the leader only interacts with his followers when expectations are not met, and standards and procedures not followed (Bass 1990).
 An example of transactional leadership is Tim Parker where he made and effectual use of transactional abilities to turnaround to completely the British motoring company AA. In 2004, Parker took notice of the problems faced by the company and identified the cause behind it. He recognized inefficiency, loss of members, low productivity and tardiness as major issues. He set a path to reconstruct the company from inside out. He punished all those who are inefficient while rewarding the productive ones. There were big changes made and several jobs were dismissed.
Transformational leadership
Transformational leadership is distinguished from transactional leadership in that it aims at innovation, while latter is focused on planning and execution. The characteristics suggest that transformational leadership strives to create new opportunities for employees in an organization, whereas transactional style works off an existing structure (Tucker, Georgia, Russell, College, and Emory, 2004). Another distinguishing feature between the two style is that transformational leadership aims at motivating people while transactional leadership focuses on the use of manipulation of power and authority (Tucker, et al, 2004). Transformational leadership focuses on people (Burke, Stagl, Klein, Goodwin, Salas and Halpin, 2006). Bass (1990) explains that such leadership motivates in followers; it motivates people beyond self interest and allows them to focus on good of the group or society (Stewart, 2006).
An example of transformational leadership, in 1994 Amazon CEO Jeff Bezos was a little-known online company that sold books at discount, hoping to break even. Under Jeff Bezos’s leadership, Amazon has grown up into a titanic corporation that dominates various industries, including books, retails. Food and electronics, which previously had been off limits to an online company. Bezos gambled that he could sell books better than publishers and bookstore owners could by offering discounts, encouraging reader reviews, and celebrated mass readership of best sellers.
In my opinion transactional leadership is the best way in leading an organization. I understand the transactional leadership commitments are bitters or harsh to swallow. But, in initial stages transactional leadership skills will help and individual or an organization to success further. I liked the way Tim Parker completely turn around British motor company AA. He made harsh decisions by punishing inefficient and low productivity members. Having transactional leadership skill would be right way I mean in terms of giving credit to the highly efficient people rather than less productivity members in initial stage. A successful organization can lead with highly efficient people not with less productivity people. If you choose a group of highly effective vs fewer effective members, for sure productivity will be more from highly effective people. Even though the decision made are harsh and unrealistic I would still go with transactional leadership skills

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