Transformational Leadership: The New Way for Management

by Victor Alatorre

Introduction

The purpose of this entry is to evaluate the differences and issues concerning transformational and transactional leadership. The management experts clearly define the steps for the development of transformational leaders in the new world economy. Business Management practices in the US have been going through an evolution from a transactional management style to a transformational leadership approach; the manager’s role should be moving from supervisory roles to advisory and visionary roles.

Originally, Adam Smith stated on his book: “wealth of nations” that in order to improve productivity, employee’s roles would have to be simplified. There was no delegation of authority and the default position was to keep the power in the managers and supervisors. Management took a very bureaucratic approach to mass production and employees lacked autonomy. This management style created many strong transactional leaders. Society and business schools brewed managers with this “alpha male” syndrome. The transactional leadership approach worked for about 50 or 60 years, however the US economy started experiencing quality and innovation problems. GM and US steel among others were no longer the leaders in innovation and quality. Their counterparts in Japan had been doing their homework and listening to Deming during their reconstruction periods. The US economy suffered because of this lack of vision. There was a strong need for change in the US management culture during the late 70’s and early 80’s


What is the difference of Transformational Leadership?

The concepts of transactional and transformational leadership were developed by Burns in 1978 to characterize different types of political leaders. Bass (1985) borrowed them to elaborate a new theory for organizational change. As implies Transactional leaders engage their followers in an exchange relationship; the leader give material rewards in exchange for performance and productivity. In many situations where innovation and change are important core capabilities of an organization; transactional leadership is not very effective. As stated by Bernard Bass, passive management by exception is particularly troublesome when managers only intervene when procedure and standards are not been met. He provided the analogy of guiding a train with the driver in the caboose; No one knows where they are going until they hit something on their way. Transactional leaders encourage a “fear-father-son relationship” that motivates employees to do the bare minimum. (Bass 1990)

Transformational leadership is more complex because it involves more than an exchange of work and rewards; it is a mutual exchange of beliefs, needs and values. (Yusuf 98) The primary difference between transactional and transformational leadership is based on a deeper believe system based on justice and integrity and not on punishments and rewards for creative work and performance. Through integrity and justice, the transformational leadership is able to indoctrinate their organizations to develop a new culture. This culture will foster innovation and quality while enhancing the employee capacity for empowerment and ownership. Transformational leaders will develop trusting relationships with all their employees while improving performance and innovation. Employees do not fear expressing concerns or ideas to their transformational leader, thus improving employee’s job satisfaction.

Transactional and transformational leadership styles are multidimensional concepts consisting of a number of sub constructs. Transactional leaders consist of behaviors such as contingent reward, management by exception and laissez-faire. Transformational leadership is based on charisma, inspiration, individual consideration and intellectual stimulation. (Yusuf 98)

• Previous research and several authors state that transformational leaders exhibit the following five behaviors significantly more often that most other managers: 
• Visioning: The leaders clearly communicate the vision of the future that is shared broadly by the organization’s members. This vision describes the ultimate outcome for people to achieve, and the leader expresses realistic optimism about the future, with strong expressions of personal confidence and enthusiasm. Transformational leaders lead by example, they serve as role models and behave in ways consistent with their vision. 
• Inspiring: The leader generates excitement at work and cranks up the expectations with symbols and images. In expressing their vision for the organization, they express their dream in highly motivational language. They give pep talks with high energy, optimism and passion. This behavior builds the confidence of the employees (followers). 
• Stimulating: The leader arouses interest in new ideas and approaches and enables employees to think about problems in new way (paradigm shifting). Intelligence and clear reasoning are encouraged in order to solve problems. 
• Coaching: The leader coaches, advises and provides hands-on help for others to improve their performance. The leader listens attentively and expresses encouragement, support and confidence in others’ ability to achieve the expectations of his vision. Leaders give positive feedback for strong performance and effort and give opportunities for other challenging activities. Errors are somewhat rewarded with second opportunities. 
• Team Building: The leader builds effective teams by selecting team members with complementary skills. They increase trust and self-confidence in the team by sharing information, giving positive feedback, using individual members’ skills and removing obstacles to team performance. (Behnke, Distefano 97) 

Transformational Leaderships Rewards

Transformational leaders are seen as:

• More effective and more satisfying to work for; 
• They are usually promoted more frequently; 
• Develop followers to higher levels of individual and group performance 
• Produce more innovative products; 
• Receive more patents for work produced by their people 
• Lead units that perform more effectively under stress; and 
• Generate greater risk taking, creativity and tolerance for different perspectives 

Who is a transformational Leader? Maybe Steve Jobs

In the late 80’s and early 90’s Apple had been plagued with ineffectual leadership and poor product lines. The innovation brought by their founders was gone, and their market share was diminishing to one digit numbers. After a series of musical chair CEO appointments and removals, the board of directors from apple made the decision to give Steve Jobs a second chance. Steve was ousted in the 80’s due to incompatibility in management style. He left the company and created PIXAR studios and NEXT Corporation. Both of them had their ups and downs until Steve returned to Apple in 1997 as a consultant and then CEO. NEXT Corp's core capability (Next Step operating system) became the main building block for the development of the next MacOS. PIXAR Studios has been working with Disney Corp on the creation and promotion of high tech computer generated animated films. Both of these projects were part of Steve Jobs’ vision for the future of Apple and PIXAR.

A clear example of transformational leadership behavior and strategy can be seen during the presentations of the Apple’s interim CEO for life. He comes in presenting and introducing new product lines and motivating the crowd and employees. There is however a fear factor against Steve Jobs because many employees still see him as a transactional leader that pouts when things are not done with his vision in mind. There are several books (infinite loop) that speak about his compulsive and sometimes childish behavior in Cupertino during the early 80’s. I feel that his management style has change a lot since he was forced to remove himself from Apple’s headquarters in the mid 80’s.
The Charisma Factor

Charisma is an important element for the development of transformational leadership, however Bass conceptualizes it as purely behavioral phenomenon and an idealized influence. This influence is defined with respect to the follower’s reaction to the leader as well as to the leader’s behavior. The followers identify with and emulate the managers that exercise transformational behaviors. Transformational leaders are seen as having and attainable, trustable mission and vision. (Yusuf 98) Charismatic leaders inspire and excite their employees with the idea that they may be able to accomplish great things with extra effort. Transformational leaders will not stereotype and generalize the demands and needs of their employees. Customization is an important factor for individualized consideration. The third factor is intellectual stimulation by providing the employees paradigm shifts on the way they perform their objectives.


According to the readings and the leadership experts, the concept of Charismatic Leadership is fairly new and can be traced back to the early 70’s. Oberg (1972) proposed divesting charisma of its religious roots and applying to the business management. At the time of political turmoil in the US, Oberg stated that America needed to foster the concept and creation of a new vision in theory of charismatic leadership. Charisma draws its motivational power from the follower’s adoption of the mission and vision of the leaders.

Transformational Behavior Measurement Systems

• The most extensively used measure for transformational leadership is the multifactor leadership questionnaire (MLQ). Bass’s original measurement instrument contains six items for measuring charisma: 
• Transmitting a sense of joint mission and ownership (empowerment) 
• Expressing dedication to followers 
• Appealing to the hopes and desires of followers 
• Addressing crisis head on 
• Easing group tension in critical times 
• Sacrificing self gain for the gain of the group 

Richard Harris develop a survey to gather information on what senior R&D managers do to make the work of teams more effective. Specifically, they investigated three set of variables: Management Practices, Company Characteristics and Result Measures based on innovation, speed, reliability, quality, cost effectiveness, morale and customer satisfaction. He concluded that there were two sets of teams: Low performance and High performance groups. He studied the correlation of leadership behaviors on the high performance groups and found the following patterns ranked in significance level:

Teams

• We view customer’s satisfaction as our number one priority 
• We communicate frequently and informally 
• We expect people at all levels to be capable of process improvement 
• Our formal systems and procedures reward team performance 
• Our informal systems and procedure (culture) reward team performance 
• We reorganize quickly and with minimal stress 

Management Objectives

• Clarify responsibilities among related teams 
• Assessing the effectiveness of team to team coordination 
• Facilitating resolution of conflicts between teams 
• Organizing information flow among teams 
• Ensuring teams have access to the right people at the right time 

Harris concluded that in order to achieve successful organizations and leadership styles, management must assume a longer view as they strive to improve the context and climate for teams and so help to build a team oriented company. Key behaviors associated with this part of their role are: building a shared purpose with all the team’s stakeholders, creating a vision of how the team’s work tie to the organizational strategy and making the best use of a team’s time and energy. (Harris 98) All this concepts are associated with the original idea stated by (Bass 1990) and (Boehnke 1997) for the creation of transformational leadership.


Differences in Culture in transformational leadership

Karen Boehnke and Andrea Distefano among others, evaluated the pattern differences between the US, Northern Europe, Southern Europe, Latin America, The Far East, etc. The main finding was that transformational behavior are universally associated with exceptional performance, with no significant differences in how often the visioning, coaching, and stimulating behaviors were cited. There was a lack of avoidance behaviors that was consistent across cultural groupings. There were some exceptions to rules applied to the concept of transformational leadership. Among them, American groups reported more correcting behaviors associated with exceptional performance than the Far East and Latin America. Americans also included team building more frequently in their explanation of exceptional performance than the Asian counterpart. The Americans also engaged in stimulating behaviors more often than the southern Europeans. Finally, The Far East’s frequency of including recognition was significantly less than the southern Europeans. Managers working on multiple cultural environments should be aware of the limitations of customized leadership styles that may work on the manager’s home office, but may not be appropriate elsewhere. (Boehnke, Distefano 97)

Transformational Leadership in Mexico

Mexico still lives in a Transactional Leadership School of Management. Our workforce is not as educated as their counterparts in the developed world, and the vast majority of Mexican corporations are privately owned. Manager for the most part come from wealthy families, where class status and wealth are more important than empowering employees and giving them ownership of their job objectives. There was a lack of innovation and quality improvement, stemming from government control, strong monopolies, and cultural myopia.

Based on conversations with friends and family currently employed in Mexico, I’m able to determine that management teams do not want their employees to think about empowerment and ownership. Management has a very strict code of conduct and protocol that enables them to cohesive control and monitor the work force at all levels. Only multinational corporations coming from the US and Canada have been able to somewhat implement some level of quality improvement through ISO certifications and such.

Historically speaking Mexico has always been dominated by a strong invisible cast system of haves and have-nots. Mexican people and managers are amazed about the level of innovation in technology coming from the US, yet they do not understand that innovation and quality improvement can be achieved through reforms in the leadership styles and not through ISO certifications. We need to move from supervisory and transactional roles to transformational and empowering roles.

Conclusion
US corporations practicing transformational leadership behaviors are way ahead of their counterparts using transactional supervisory roles. Leadership experts have defined the characteristics of transformational leadership and the steps to achieve a transformational organizational culture. This transformational leadership enables better working environments, and fosters creativity through innovation and quality.



Bibliography

Bernard Bass, From Transactional to Transformational Leadership: Learning to share the vision, Organizational Dynamics Winter 1990 pp 19-32

Karen Boehnke; Andrea Distefano; Joseph Distefano; Nick Bontis Leadership for extraordinary performance, Business Quarterly v61 p56-63 summer 97

Albert Canella Jr.; Martin Monroe, Contrasting Perspectives on Strategic Leaders: Toward a more Realistic View of Top Managers, Journal of Management v23 no3 p213-37 97

Richard Harris; Jan Trescott Lambert Building Effective R&D Teams: The senior Manager’s Role, Research Technology Management 41 no5 28-35 S/0 ‘98

DA Nadler; M.L. Tushman What makes for Magic Leadership; Contemporary Issues in Leadership (Boulder, CO: West View Press 1989): 120-145

W.Oberg Charismatic commitment and Contemporary Organizational theory, MSU Business Topics 20 (1972): 18-32

Philips Podsakoff; Scott B Mackenzie; William Bommer, Transformational Leader Behaviors and substitutes for leadership as determinants of employee satisfaction and commitment, Journal of Management v22 no2 p259-98 96

Francis Yanmarino; William Spangler et al, Transformational and contingent reward leadership: Individual, dyad and group levels of analysis, Leadership Quarterly Spring 98 Vol 9 Issue p27 28 4 charts