Transactional and Transformational Leadership - Assignment Example

Transactional and Transformational Leadership, Exchange Relationships, and Employee Job Performance “Researchers argue that transactional leadership is more effective than transformational leadership in developing high-quality leader-follower exchange relationships to influence employees’ job performance”. Do you agree or disagree with this statement? Provide arguments to justify your position. Introduction, Definitions and Existing Research Transactional and transformational leadership are two leadership styles that are considered to be at diametrically opposed ends, as originally explained by Burns, a leading thinker on leadership theory a few decades ago (2010). Transactional leadership, as the name suggests, is focused on the transactions or exchanges between the leader and his or her followers (Lindgreen et al., 2009). These are at best of a simple nature, grounded in self-interest, and designed to uphold the status quo. The subordinates are motivated towards fulfilling certain tasks, and usually controlled by a system of rewards and punishments (Politis, 2002, p. 188). Improved job satisfaction and performance is achieved by the leader identifying their basic needs, defining appropriate transactions, and meeting their minimal expectations. The transformational leader on the other hand, is an inspirational role model for his or her followers, and has the prime role of shaping the vision for the organisation and the organizational culture, and in managing organizational change. The leader is therefore the key figure for the organization from whom it takes its own identity. Under a transformational leadership style, followers are able “to transcend their own self-interests for collective higher purpose, mission, or vision and to exceed performance expectations” (Howell & Hall-Merenda, 1999). They are intellectually stimulated, and motivated to achieve “extraordinary outcomes” (Bass & Riggio, 2006, p.3). This study considers which of the above two leadership styles is more effective in terms of developing high quality leader-follower exchange relationships for influencing employees’ job performance. The situational influence or context we shall consider is culture, and the outcome as job performance. As we shall see, within the cultural context, qualities such as individualism, as distinguished from collectivism, uncertainty avoidance and power distance invariably affect how well the leadership style can be effective in terms of the performance of worker-followers. Moreover, transactional leadership is more effective in developing high quality exchange relationships, especially when the environment is stable and the workforce is skilled. We shall take an approach that integrates the leader-focused perspective, which links organizational performance outcomes to leadership behaviours, and LMX theory, which focuses on the exchange relationship but will also point out its limitation to only influencing rather than directly affecting job performance. We need therefore to also define the aforementioned three cultural characteristics, which are three out of the original four Hofstede’s cultural dimensions, as well as LMX and point out the importance of employee job performance. Individualism describes how well individuals integrate into primary groups (Hofstede, 2001), and peoples’ expectations for being taken care of by others. Individualists are more interested to serve their own self-interests as distinguished from collectivists who would rather sacrifice their own self-interests for the sake of collective purposes. Thus, the individual is of primary importance over any collective interests. They “tend to value personal time and the freedom to adopt personal approaches to their work” (Kankanhalli et al., 2007). ‘Uncertainty avoidance’ refers to the degree to which people feel threatened by uncertain situations. People with strong uncertainty avoidance characteristics have a greater preference for rules, highly developed structures and organizational stability (Hofstede, 2001). Thus, they are at ease in highly organised situations. People from eastern cultures tend to have higher uncertainty avoidance tendencies whereas those in the west are more willing to take risks and thrive when they have greater control and flexibility over their own lives. Power distance refers to “the extent to which the less powerful members of an organization expect and accept that power is distributed unequally” (nwlink, 2008). Thus, the followers seldom perceive themselves in a decision-making role, and employees prefer to avoid taking responsibilities preferring instead to allow the leader to make the important decisions. LMX (leader-member exchange) defines how leaders develop relationships with their subordinates based on exchange. The theory suggests that different styles are used for each relationship, so these are one-to-one relationships based on reciprocal exchanges. Furthermore, low quality LMX, as with employment contracts, is distinguished from high quality LMX characteristic of mutual trust, a feeling of obligation and loyalty, and in return a more favourable attitude of the leader towards his subordinates. Employee job performance refers to how well employees perform their job, which may be possible to measure quantitatively in terms of their output. It is considered one of the most crucial factors for maintaining and increasing organizational effectiveness (DeWitt, 2010) and is therefore a prime concern of the leaders of organizations. Although plenty has been written on both transactional and transformational leadership as well as the relationship between them, there is neither sufficient research on how the two influence employees’ job performance (Bass et al., 2003), nor on their degree of dependency on organisational culture. The main reason for the latter is that most of the early research on leadership theory was developed in the U.S. and was therefore made to conform with its own single culture (Brain & Lewis, 2004) instead of being made suitable for other cultures or being adapted for a multi-cultural context. Likewise, little research is available on how culture would affect the LMX process and the performance of subordinates, and specifically the effects of transactional leadership on LMX relationships (Hannah & Lester, 2009). There is a need for leadership styles to be in tune with globalization and the multi-cultural context. The Case for Transactional Leadership The success of transformational leadership is more dependent on culture than transactional leadership. However, the former becomes difficult to manage in a multi-cultural organisation or within the context of globalization because there are more likely to be differences in cultural contexts between the leader and followers and among the followers. Each will have his or her own set of preferences and priorities, scope of understanding, loyalties, etc. For example, in cultures with qualities of greater individualism, greater uncertainty avoidance and high power distance, there is too much heterogeneity for transformational leadership, which would require greater cohesion instead. Transactional leadership on the other hand, can cope better under such circumstances because there it can concentrate on developing higher quality, LMX relationships for positively influencing worker performance. Thus, when a more complex cultural dimension exists, this situational variable causes transactional leadership to be more effective than transformational leadership. As far as relationships are concerned, according to leader-member exchange (LMX) theory, there are important elements at stake. LMX works as mediator bridges leadership styles and job performance and culture works as a situational variable significantly affects both leadership styles and LMX process (Wang et al., 2005). Jung & Avolio (1999) showed that under transactional leadership, individualists function better than collectivists do. Although there is greater priority for self-interest rather than the organisation, the organizational goals are still met. Even if the followers work in teams, their self-interests motivate them to develop ideas for the sake of personal rewards (ibid). The leadership style and individualism are mutually compatible. As for uncertainty avoidance, it was shown by Goodwin et al. (2001), that transactional leadership makes people with strong uncertainty avoidance more committed and satisfied, which then leads to improved performance. The scheme of rewards makes them more task oriented and motivated. In a high power distance context, leaders are more inclined to adopt the transactional leadership style (Brazier, 2005) and become autocratic, as is the case in many Asian cultures. According to Francesco & Gold (2005), the expectations and behaviours of the leader and followers would differ significantly if the transformational leadership style were adopted instead. Employees would be uncertain as to their roles and requirements, and this would make job satisfaction and performance difficult to achieve. That culture strongly influences LMX processes and job performance will now be considered. The relationship between organizational culture and employee job performance was studied by Ojo (2009) based on the Nigerian banking industry. It was found that for most people there was a strong effect of culture on their performance. Therefore, the leader’s role in shaping the organizational culture is significant in terms of its impact on employee job performance. The relationship can also be illustrated by comparing typical Eastern and Western cultures. In the former, followers tend to agree with the views and decisions of the majority at least in public even to the extent that if they feel they have better ideas, these are suppressed. In the latter, individualism is more common, and therefore innovation thrives because there is a greater receptivity towards and willingness to allow everyone to fully express themselves so they can explore creative ideas. In a situation in which the culture of the leader and subordinates are similar, the affect on perceptions and attitudes is more positive due to familiarity and the greater propensity for interacting. In contrast, where the two cultures are dissimilar, there is greater likelihood of differing perceptions regarding job expectations, requirements, etc. and this tends to increase the distance between the leader and followers resulting in low quality exchange relationships, as only the formal job requirements are usually met. Thus, only transactional leadership can foster higher quality LMX relationships in order to positively affect job performance whereas transformational leadership usually cannot. The fragility of transformational leadership is due to its focus on the mutual relationship between the leader and followers, and as pointed out by Yuki (1999), there are undefined constraints (i.e. situational variables), which make it blurred. For these reasons, employee job performance is unpredictable. It is possible that LMX is maximized for certain groups of individuals (Jansen et al., 2009), but overall the exchanges will be uneven and lower quality. Transactional leadership also fosters equitable trust and attention from procedural and distributive justice (Lindgreen et al., 2009). In contrast, transformational leadership develops interactional justice. Although this can develop trust too, it is not to the same degree as under transactional leadership in a team environment, as shown in a Turkish study (Mumin, 2009). The explanation could be due to the fact that transactional leaders have to be seen to be fairer towards all their subordinates (Mumin, 2009). High job performance is maintained when the potential rewards match employee expectations. Interestingly, Graen & Uhl-Bien (1995) claim that in the longer term, even if a transactional exchange is established at first, this may evolve into a transformational one. This suggests that transactional leadership could be better suited for consolidating existing organizational structures and processes and ensuring adequate job performance whereas transformational leadership is better suited for bringing about organizational changes that could potentially raise performance to new levels in the long term. However, it is beyond the scope of this work to consider the longer term potential of transformational leadership. As for a stable environment and skilled workforce, this requirement was highlighted by Burpitt (2009) yet this aspect of training is often neglected. Leadership can at best guide the relationship, but for actual job performance, the workers need to have the right technical skills and be proficient in what they do. This may be obvious but it is necessary to point this out because leadership is actually an indirect means to influencing employees’ job performance. Providing the right kind of leadership can increase motivation, improve satisfaction and mutual understanding, respect, and so on, but actually performing better is affected directly by the physical or mental ability of the employee. Thus, under transactional leadership, it is ultimately the high achievers that are better able to achieve the organizational goals (Rich, 1997), assuming also that the objectives are achievable (Menguc, 2000). However, the leadership would only help to extend existing knowledge and sustain exploitative innovation (Jansen et al., 2009). In addition, stability allows the organizational structures and procedures to be improved and the flexibility to satisfy the needs of employees for achieving their goals (Mengue, 2000). On the other hand, Jansen et al. (2009) suggests that under transformational leadership in a stable environment, the opposite could be the case because employees would resist changes despite the potential generative thinking and pursuing of exploratory innovation as its advantages. These organizational conditions would hardly be conducive to improving job performance. The exception however would be if there is already a crisis in the organisation (Osborn et al., 2002), and the transformational leadership is implemented in order to bring about changes, in which case job performance would be improved. Conclusions It was shown that within the cultural context, transactional leadership is more effective than transformational leadership, especially when certain characteristics are present, such as individualism, strong uncertainty avoidance and high power distance. Moreover, that culture also affects LMX processes and thereby job performance. Dissimilar cultures and transformational leadership were shown to engender low quality exchange relationships whereas similarity of cultures and transactional leadership was shown to produce high quality exchange relationships. The lesson for leaders is to recognise the need to adapt their styles according to the cultural context and other situational factors so that the desired outcomes, whether improved job performance or other, can be achieved. Both transactional and transformational leadership styles are suited for specific contexts and objectives. As Lindgreen et al. (2009) and Jansen et al. (2009) point out, both types of leadership can successfully lead to high quality exchanges and high job performance. Thus, transformational leadership has also been associated with high quality exchange relationships (Wang et al., 2005). This paper showed however, that in general transactional leadership operating in the conditions discussed usually fares better. 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