What Is Transformational Leadership and Why It’s Important in Business

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Leadership — or the lack thereof — can make or break a business. But great leadership can come in many forms. Some people naturally gravitate toward one approach, whereas others thoughtfully and intentionally hone their leadership abilities over time.

For an aspiring business professional, learning about different theories of leadership can provide a framework for interacting with, influencing, and inspiring others whether as a business leader or an enrepreneur of your own startup. One highly regarded theory is that of transformational leadership. But what is transformational leadership, and why does it work so well? Read on to learn more.

A business leader speaks during a team meeting

What Is Transformational Leadership?

The concept of transformational leadership was popularized by James MacGregor Burns after the publication of his 1978 book, Leadership. According to Burns, “transforming” leadership “occurs when one or more persons engage with others in such a way that leaders and followers raise one another to higher levels of motivation and morality.”

The transformational leader cares deeply about their followers — from helping them excel at the task at hand to encouraging them to reach their full potential across all aspects of life. Transformational leaders inspire and empower those around them to be the best they can, from an ethical standpoint as well as a performance perspective.

Transformational leadership is often connected with positive outcomes, including:

  • Meeting or exceeding organizational goals
  • Creating a committed and loyal follower base
  • Fostering creativity and innovation
  • Enabling clear roles and a greater sense of belonging

It can be especially valuable in business contexts, where leaders seek to transform the organization from the inside out.

How Transformational Leadership Fits in the Range of Leadership Model

Transformational leadership is one facet of the Full Range of Leadership Model (FRLM) — a framework developed in the 1990s by Bernard Bass and Bruce Avolio. The FRLM builds on Burns’ earlier work and contrasts “transforming” leadership against other leadership styles, resulting in a more in-depth and comprehensive transformational leadership theory.

The three leadership styles in the FRLM are:

  1. Laissez-faire leadership
  2. Transactional leadership
  3. Transformational leadership

Laissez-Faire Leadership

Laissez-faire leadership can be described as a passive or even absent form of leadership. The individual in charge avoids taking responsibility for the group and leaves the team to govern itself. This approach is not rooted in a shared goal; everyone is left to do as they please.

In a business environment, this leadership style forces employees to make it on their own. Naturally, this lack of structure can lead to dissatisfaction and disengagement, not to mention negative performance outcomes.

Transactional Leadership

Transactional leadership is a more engaged approach. Unlike transformational leadership, transactional leaders rely on the power of rewards and punishments to solicit participation from followers. They may follow either a “contingent reward” approach or a “management by exception” model:

  • Contingent reward: The transactional business leader may extend performance-based benefits that employees can redeem only after producing certain results.
  • Management by exception: The leader may keep an eye out for shortcomings or exceptions to the expected performance levels and discourage these through the administration of punishments.

As Craig E. Johnson explains in Meeting the Ethical Challenges of Leadership, “Transactional leaders appeal to lower-level needs of followers — that is, the needs for food, shelter, and acceptance. They exchange money, benefits, recognition, and other rewards in turn for the obedience and labor of followers; the underlying system remains unchanged. In contrast, transformational leaders speak to higher-level needs, such as esteem, competence, self-fulfillment, and self-actualization. In doing so, they change the very nature of the groups, organizations, or societies they guide.”

Both transforming and transactional leadership can produce positive results in the workplace. However, unlike transformational leaders, transactional leaders do not seek to create positive change.

Now that we’ve covered the other two types of leadership within the FRLM, what is transformational leadership in detail? Let’s take a look at the key characteristics of this approach, the top qualities of a transformational leader, and how this leadership style translates to business settings.

What Are the Characteristics of Transformational Leadership?

Transformational leadership is characterized by four distinct behaviors — sometimes called the four I’s:

  • Idealized influence: A transformational leader exhibits ideal qualities that their followers look up to. They serve as a true role model that others aspire to emulate. This urges followers to live up to their own potential, and it also creates trust in the leader.
  • Inspirational motivation: A transformational leader expresses a stirring vision of the future that helps inspire and motivate those around them. This vision is clear and powerful, causing followers to unite around a shared mission and a strong sense of purpose.
  • Intellectual stimulation: A transformational leader supports creative and innovative approaches to problem-solving. Rather than asking everyone to stick to the status quo, they inspire their teams to question how things are done and find new ways to approach challenges and other situations.
  • Individualized consideration: A transformational leader mentors their followers. They do not simply look for productivity among their subordinates, but they work to facilitate personal growth and development for each individual in the group. Naturally, this drives people to like and commit to the leader even more.

Together, idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration make transformational leadership a unique and widely successful way of getting buy-in from followers. These behaviors also help leaders build a shared belief in a common vision, as well as momentum toward achieving it.

Following Bass’ development of the FRLM, he produced another work called Transformational Leadership with Ronald Riggio. The leadership experts described transformational leaders as “those who stimulate and inspire followers to both achieve extraordinary outcomes and, in the process, develop their own leadership capacity. Transformational leaders help followers grow and develop into leaders by responding to individual followers’ needs by empowering them and by aligning the objectives and goals of the individual followers, the leader, the group, and the larger organization.”

If laissez-faire leadership is a hands-off approach and transactional leadership follows the “carrot and stick” system, transformational leadership exhibits the belief that a rising tide lifts all boats.

What Are the Top Qualities of a Transformational Leader?

A 2000 study by Timothy Judge and Joyce Bono cross-examined the tenets of transformational leadership against the Big 5 personality traits — extroversion, agreeableness, conscientiousness, openness, and neuroticism — to pinpoint the typical qualities of this type of leader. In short, transformational leaders tend to exhibit all but the last of these traits.

  • Extroverted: A transformational leader’s combination of extroversion, paired with behaviors including idealized influence and inspirational motivation, often makes them an extraordinarily charismatic individual.
  • Agreeable: Someone who practices the transformational leadership style naturally cares for others. They are personable, empathetic, and easy to get along with. Plus, they are inclined to act as coaches or mentors for people under their wing.
  • Conscientious: These types of leaders are disciplined and diligent. However, it’s important to note that they are not strictly focused on generating material results; they also put concentrated effort toward producing intangible results such as personal growth among their followers, and widespread change.
  • Open to experience: A transformational leader works to push boundaries and explore new possibilities. They favor creative ideas and approaches to the status quo and are therefore likely to be comfortable with change and uncharted territory.
  • Not neurotic: Transformational leaders generally do not exhibit neurotic tendencies. They are less likely to let anxieties and self-esteem issues get in the way of the pursuit of their grand vision to enact positive change among their followers and the world at large.

Being able to now answer the question, “What is transformational leadership?” and describe its key qualities and characteristics, it’s not difficult to think of some famous transformational leaders. Names like Martin Luther King Jr., Nelson Mandela, and Oprah Winfrey may all come to mind. Whether advancing social justice causes or making waves in the business world, each of these leaders did so through a transformational framework.

What Are the Benefits of Transformational Leadership in Business Settings?

In business environments, transformational leaders encourage not only quantifiable results, but also support meaningful change within the organization. Here are some of the top benefits of having a transformational business leader at the helm:

Improved Performance

Leadership experts and researchers have acknowledged the performance-related results of a transformational approach. Unlike transactional leadership, this tactic doesn’t make subordinates feel pressured to deliver to avoid a punishment or access a reward. Instead, transformational leadership inspires people to reach their full potential and exceed baseline targets.

As Riggio wrote in Psychology Today, “groups led by transformational leaders have higher levels of performance and satisfaction than groups led by other types of leaders. Why? Because transformational leaders hold positive expectations for followers, believing that they can do their best. As a result, they inspire, empower, and stimulate followers to exceed normal levels of performance.”

Improved Well-Being

In a workplace study published in the Journal of Occupational and Environmental Medicine, researchers found that transformational leadership can create a greater sense of well-being among team members. The authors concluded that “a transformational leadership style, which both conveys a sense of trust and meaningfulness and individually challenges and develops employees, also has a positive effect on employee well-being.”

Improved Organizational Unity

A transformational leader’s ability to motivate employees around a common vision can foster a greater sense of unity across a small team or even the entire organization.

Under transactional leaders, workers may feel disconnected from their peers and more motivated by personal risk- and punishment-based goals. However, under the supervision of a transformational leader, employees can clearly see their role in the bigger picture. They are more likely to feel connected and dedicated to their supervisor, and therefore more committed to the company as a whole.

From a human resources perspective, this is valuable in that it helps reduce employee turnover. Loyal, dedicated employees who believe in the organization’s mission and are continually striving to achieve personal growth goals that align with this mission are less likely to seek out opportunities elsewhere.

Become a Transformational Leader at UAB

Not everyone is born with all the hallmarks of a transformational leadership style, but this does not mean it’s impossible to become a transformational leader. Indeed, even those who possess qualities like extraversion and charisma won’t necessarily be great leaders without some practice. Instead, with the right leadership training programs and real-world leadership experiences, any aspiring leader can hone their skills and excel in the workplace.

Knowing what is transformational leadership is certainly a step in the right direction. From there, gaining hands-on leadership and business experience is essential.

If you’re eager to take the next step in your career and sharpen your leadership abilities and business competencies, consider the online Master of Business Administration (MBA) program from the University of Alabama at Birmingham’s Collat School of Business.

Online MBA students at UAB have the option to choose one of several tracks: Finance, Marketing, Management Information Systems, Health Services, or the General Track. Regardless of which focus they select, each online student is presented with rigorous coursework and business case studies that challenge them to think like transformational leaders.

Experiences like the culminating Strategic Management capstone project give online MBA students the chance to apply leadership theories, business best practices, and past expertise to challenging real-world scenarios.

To learn more about UAB’s online MBA program, connect with an enrollment advisor today.

Recommended Readings:

Online MBA Degree Program

5 Benefits of Getting an Online MBA

Top MBA Concentrations and Job Opportunities

Sources:

Craig E. Johnson, Meeting the Ethical Challenges of Leadership

Statistics Solutions, Theoretical Spotlight: Full Range Leadership Model

Research Gate, Full Range of Leadership Model Illustration

Jeanne M. Holm Center, Full-Range Leadership

Verywell Mind, Transformational Leadership

Journal of Applied Psychology, Five-Factor Model of Personality and Transformational Leadership

Psychology Today, Are You a Transformational Leader?

Journal of Occupational and Environmental Medicine, The Influence of Transformational Leadership on Employee Well-Being