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Transactional and Transformational Leadership
Their Foundations in Power and Influence

Michael J. Lovaglia, Jeffrey W. Lucas, and Amy Baxter

While Burns’s work has focused primarily on political leaders, others—initially and most notably Bernard Bass—have expanded his ideas and applied them to organizational leadership. The first essay in this section, by Michael Lovaglia, Jeffrey Lucas, and Amy Baxter, integrates transformational leadership theory with power theories, reporting findings from contemporary research that tests the efficacy of various philosophies when actually practiced in workplace settings or simulated situations. Although they conclude that transformational leadership is, in fact, more effective than transactional leadership, they also show how other models of leadership can support transformational leadership success. Overall, they provide research data that can build confidence that transformational leadership does work, even in settings where power and status are highly valued.

One of the most influential theoretical developments in the study of leadership has been James MacGregor Burns’s (1978) distinction between transactional and transformational leadership. Transactional leadership motivates through the measured application of promised rewards and threatened punishments, while transformational leadership motivates by transforming the identities and goals of individuals to coincide with those of the group. Burns not only researched the ways that leaders pursued their goals but also envisioned an ideal of leadership that minimized the use of coercive power and brought out the best in followers. Transformed by good leadership, followers would strive to accomplish goals that perhaps even the leader had not fully realized. Followers, then, might both be led by and push leaders to a greatness that had not before been contemplated. Both followers and leaders would be transformed.

A parallel stream of research in social psychology builds on French and Raven’s (1959) theory of the bases of power that leaders can use to influence followers. Recent social psychological research has made progress analyzing not only the ways that leaders can wield influence but also the processes that produce such power and influence. These streams of research now converge to explain the distinction between transactional and transformational leadership and how understanding the processes of power and influence can help leaders to more effectively motivate their followers.

Relating Transactional Leadership to Research on Power

French and Raven (1959) launched a study of how power influences the behaviors of others. They delineated five bases of power useful to leaders:

1. Reward power based on a leader’s ability to reward

2. Coercive power based on the ability to punish

3. Legitimate power based on a leader’s authority to direct followers

4. Referent power based on a follower’s identification with the leader

5. Expert power based on a leader’s access to special knowledge

The bases of power are interrelated in complex ways (Raven & French, 1958), for example when a police officer legitimately uses coercive power to make an arrest or when expert knowledge is made available as a reward contingent on a transfer of resources.

French and Raven’s typology of power bases stems from their broad conception of power as the power to influence others. Parsons (1963) identified a related use of the term as power over, the power that one person has to control another. Power over others is captured by Weber’s (1968) definition of power as the ability to enact one’s will despite others’ resistance. Similarly, in political science, power is conceived as the ability to wrest resources from one person or group and bestow them on another (Lovaglia, Mannix, Samuelson, Sell, & Wilson, 2005). Power over is included in the five bases of power to influence and is related to them in complex ways that have proven useful in understanding transactional and transformational leadership.

Emerson (1962) noted that the power of one person over another is profoundly social in that this power resides not in an individual but rather in the relationship between individuals. The power of Person A over Person B is equal to the dependence of Person B on Person A. Power over another person derives from a person’s ability to reward or punish, bringing together two of French and Raven’s (1959) five bases of power: reward and coercive power. Note that the difference between a promised reward and threatened punishment often rests on expectations. The withdrawal of an expected reward feels punishing, for example, when a stockbroker accustomed to living on substantial year-end bonuses finds the bonus suddenly curtailed.

Emerson’s work shifted research on power from identifying types of power to analysis of power processes, from the bases of power to the transactions of power. Thus we might term a person’s power over another as transactional power to distinguish it from French and Raven’s (1959) broader conception of power as all of the means used to influence others. Recent research has similarly narrowed the definition of influence to indicate changes in attitudes and behavior not brought about directly by the use of transactional power but, for example, by identification with another, or reliance on another’s expertise and expected competence (Rashotte, 2006).

The Limits and Negative Outcomes of Transactional Power

Social psychological research on transactional power confirms the drawbacks of transactional leadership that Burns (1978) noted. Transactional power can produce public compliance without altering private attitudes (Raven & French, 1958), which are key to long-term engagement. An employee might work extra hours on a project to earn a reward without coming to see the project as worthwhile. Perhaps the most robust finding is that the use of transactional power creates resistance (Willer, Lovaglia, & Markovsky, 1997). Those subjected to power seek ways to circumvent it. Workers find ways to get bonuses without accomplishing the goals those bonuses were meant to incentivize. People might prefer rewards to punishments, but even rewards fail to motivate followers to pursue group goals if they lack a sense of ownership of the goals.

Research shows that extrinsic motivators such as rewards and punishments—including praise and criticism—can decrease intrinsic motivation, the desire to accomplish something personally important (Deci & Ryan, 1985). The decrease in self-motivation produced by rewards and punishments is most pronounced in work that requires creativity and initiative, exactly those activities most important for successful organizations today.

The impact of intrinsic versus extrinsic motivation on performance can be seen in research developed by Lovaglia (1995), where participants bargained with a partner, represented by a computer program, that had a power advantage over them and would only accept more than an equal share of available resources. For example, a participant might successfully bargain to earn 45 cents out of a dollar but not more. The computer would insist on receiving 55 cents. Participants were told that it was important to reach an agreement and earn as much as they could in every round. But if no agreement was reached, the participant received nothing. They then bargained with the computer in a number of rounds, which meant they could earn about $5.00 in a few minutes. But few participants would accept less than a 50-50 split with the computer. In postexperiment interviews, participants reported that they felt that taking less than an equal share was unfair and they could not bring themselves to reach such an agreement. That is, they willingly gave up 45 cents in profit to avoid giving their bargaining partner an extra nickel. Their intrinsic motivation to gain a fair outcome overwhelmed the extrinsic rewards offered. Increasing the amount of potential reward had little effect. In one version, participants were offered a bonus that would double their total reward if they would reach a profitable agreement in every round. Not one participant could bring him or herself to comply. Intrinsic motivation trumped extrinsic.

Lucas’s (1999) research illuminates the cause-and-effect relationship between extrinsic and symbolic rewards and motivation. In this experiment, some members working on a group task were given a title indicating that they were at a higher level than other group members. No pay or other benefits came with the title. It could be seen as a purely symbolic reward. When working on the task, group members with titles performed better, contributed more to group success, and felt better about the group and their job than other group members. The group members who were given a title seemed to identify more with the group and its success than did the others. They worked hard because it complemented their view of themselves as valued group members. Such symbolic rewards would appear to be an inexpensive way for managers to motivate productivity. Readers, however, gave examples from their own experience where such symbolic rewards were soon devalued by workers as meaningless, suggesting that rewards, whether symbolic or material, have limited motivational impact over time.

Transactional power can also be problematic because its impact and use can often be unintended and out of a leader’s control. As Emerson (1972) noted, transactional power lies not with the powerful person but in the relationship between two people. When people perceive themselves at a power disadvantage, they respond as if the powerful person had intentionally wielded transactional power. Skvoretz, Willer, and Fararo (1993) designed a bargaining experiment in which some positions had a transactional power advantage over others. When those in power bargained aggressively, they gained substantially more resources than those in low-power positions. But surprisingly, when the high-power position was a computer program that bargained passively—merely accepting the best offer available—the computer gained as much as the people in that position who bargained aggressively.

Leaders can find it difficult to accept the idea that promised rewards and threatened sanctions have limited and often negative effects on performance. But as pointed out in the Economist review (2010) of Daniel Pink’s (2009) book, Drive, “carrots and sticks are not only outdated, but can also be counterproductive—motivation killers and creativity dampeners” (p. 62). There are good reasons to pay high-performing employees well, especially with an ownership stake or share of the profits; people crave appreciation for their accomplishments and bonuses can show that appreciation. The mistake is thinking that the bonuses caused those accomplishments (Deci & Ryan, 1985).

Transactional power is required in most managerial positions. Managers hire, promote, confer bonuses, and fire workers. The goal is not to avoid using transactional power but to use it sparingly while seeking other ways to motivate that do not produce resistance as a negative side effect.

Positive Outcomes of Transformational Influence

Transformational leadership seeks to motivate followers by transforming their conceptions of self and their private goals to coincide with the larger purposes of the group. Rather than working for money, employees work to be part of the success of a larger mission. Recent research shows how leaders can use their influence to produce such transformation in their followers and to engender private acceptance (Rashotte, 2006). We use the term transformational influence to distinguish this idea from French and Raven’s (1959) broader conception of influence that includes public compliance without private acceptance.

Research on the social psychology of work groups begun by Joseph Berger at Stanford University links a person’s relative status in a work group to the respect and honor given to her or him by others (Berger, Fisek, Norman, & Zelditch, 1977). A leader’s high status results in prestige and transformational influence, the ability to get people to do things to help the group whose mission they have adopted as their own. When leaders use their high status, their prestige and honor, to lead, they step beyond transactional leadership toward transformation.

President John Kennedy’s statement “Ask not what your country can do for you—ask what you can do for your country” is an example of transformational influence. Kennedy promised no reward, threatened no punishment. He pulled the American people with him by appealing to their aspirations to become better people and to join a great cause. Burns (1978) called this influence that leaders have on followers, using their prestige and honor to inspire others toward a higher goal, transformational leadership. A brief example shows how effective transformational influence, totally devoid of promises and threats, can be.

In the early 1900s, Charles Schwab took over Bethlehem Steel. Production at one of the steel mills was chronically low. The mill manager had tried threats, encouragement, coaxing, and promises to motivate steelworkers. Nothing seemed to work. At the end of the day shift, Schwab toured the plant with the manager but said little. As night shift workers arrived and day shift workers started to leave, Schwab asked one of them how much steel the day shift had produced. The worker replied that they had produced six heats (units of steel production). Schwab asked for a piece of chalk, wrote a big 6 on the mill floor, and walked away. Workers from both shifts were intrigued. The big boss had chalked 6 on the floor; what could it mean? The next morning when Schwab and the manager returned to the plant, they noticed that the 6 had been replaced by a 7, the number of heats produced by the night shift. The informal competition between shifts continued and soon that mill was one of the high producers in the company (Carnegie, 1981). Schwab had made neither promises nor threats. Workers could expect no reward beyond personal satisfaction for winning the competition. Schwab had used his high status, his prestige as head of the company, to influence workers, dramatically altering their productivity.

From Transactional Power to Transformational Leadership

Effective leadership requires both transactional power and transformative influence. Research has found that those positions with the most transactional power are also those with the most transformational influence. The correlation between the power and the influence of specific occupations is extremely high (Rogalin, Soboroff, & Lovaglia, 2007). Being a judge is a good example of an occupation high in both transformational influence and transactional power. Effective judges, however, restrain their use of power, using only as much as a particular case requires. Rather than surrender transactional power, effective leaders restrain their use of it; they use transformational influence to the extent possible and transactional power when necessary.

Leaders who rely on transactional power assume that they know the specific behaviors employees need to perform for the organization to reach its goals. But in complex, rapidly changing organizations, that assumption lacks validity. In contrast, a leader can use transformational influence to inspire followers to commit to finding ways to help the organization succeed, while refraining from directing their behavior. When leaders use transformational influence, they share control of their organization with their followers. Thus, transformational leadership can harness all of the abilities of followers to innovate and produce in ways that no leader, no matter how competent, could have foreseen.