Transactional and transformational leadership are two different ways to manage a business organisation and ensure its progress. These are basically two different schools of thought that have one common objective and that is the progress of an organisation.
As far as effectiveness is concerned, both managerial styles have strengths and weaknesses. Transactional leadership believes in keeping the employees under a strict discipline whereas transformational leadership makes it possible for employees to enjoy the maximum authority while shouldering their responsibilities.
There are also other differences that differentiate both styles of management. Transactional leadership tries to get the maximum output from the employees by following a classic reward-and-punishment system. Transformational leadership opts for some unusual plan of action to make the company successful.
Managers/leaders who exhibit transactional leadership go by the book and have a typical angle to look at things while the story is entirely different in the case of transformational leadership. The main objective of transactional leadership is to build a nice work relationship between the manager and employee. It is all about business. However, the primary goal of transformational leadership is to motivate the employees by empowering them and making them responsible at the same time.
Transactional leadership deals with individual targets and everyone will have to answer for his/her performance. In transformational leadership, the complete focus is on teamwork and common objectives.
In transactional leadership, the relationship between employee and supervisor is impersonal and temporary whereas the managers build a personal and long-term bond with employees in other management styles.
Transformational leadership creates an atmosphere of mutual respect and admiration. It gives the employees freedom to think and make decisions. On the other hand, employees have to follow the directions of the manager in transactional leadership. They do not have the freedom to take part in the decision making process.