Transactional and transformational

leadership style impact on small, single-owner

business

Blake Escudier, PhDKaplan University

February 17, 2012

Small Business Institute2012 Annual Conference

San Antonio, Texas

Leader-Follower Paradigm

Within the small, single-owner entity:

• Leader’s (owner) personal goals are dependent on employees to carry out tasks

• Followers (employees) are dependent upon a single decision maker who’s decisions are highly influenced by external situations.

• The work-life balance must be flexible to allow for rapidly changing situations prevalent within small single-owner businesses.

Transactional Leadership

Transactional leadership controls behavior through reward systems.

This concept posits the owner as leader and employee as follower. Owner’s lead based on personal needs, which imply, business objectives.

Employee’s individual situation is not considered.

Transactional Leadership Cont.

Owners display the “carrot stick” so employees will satisfying the owner.

Owners expect workers to have an initiative towards business goals – yet employees have more initiative toward receipt of rewards than consideration for the owner’s goals.

Transactional Leadership Cont.

Transactional leadership restricts employee motivation to the basic task-reward concept.

With changing tasks due to changing needs – conflict is the end result.

Employees with no inducement, other than pay rewards, are not loyal to the owner or the business.

Transactional Leadership Cont.

A business is central to the life of the single-owner.

Employees of transactional led organizations are more concerned with their own utilitarian needs and personal well being.

This issue has become obvious as social government policies are being put forward and instituted to force changes in the social contract between owners and employees – at the expense of the owner.

Transactional Leadership Cont.

Transactional leaders are not usually aware of employee needs beyond the business task.

Conversely

A small, single-owner entity is an extension of the owner’s behavior and the objectives of the business are intricately linked to the owner’s personal and family needs and desires.

Need for more than transactions alone!

Owners and Employees need trust and alignment of self-satisfaction objectives.

Creation of Psychological Agreements based on organizational goals that result in mutual satisfaction.

Employees that perceive owners understand about their lives outside of the business will increase productivity and have increased moral.

Transformational Leadership

Transformational leaders include the attributes of transactional relationships.

Transformational leaders invigorate initiative behavior.

Employees look for inspiration and identification through leader efforts.

Leader (owner) consideration for followers (employees) builds a mutual respect and trust

In small, single-owner businesses, the interests of the owner become the self-interest of the employees.

Transformational Leadership Cont.

Employee perceptions of work/life quality increase through a reduced conflict with owner objectives

And a positive owner-employee relationship allows the owner to better evaluate employee situation.

Transformational Leadership Cont.

Thus, Transformational leadership employed effectively will increase moral, productivity and employee satisfaction.

Leader effectiveness is usually measured in tasks being carried out. Small business stability and growth require more!

Transformational Leadership Cont.

Growth and stability require effective leader (owner)/ follower (employee) relationships.

Follower effectiveness becomes performance based on business goals as part of self-interest goals.

Owners utilizing a transformational leadership style will motivate employees’ by increasing their perception of value in the business and the owner.

Transformational Leadership Cont.

Interpersonal relationships and the psychological contract become stronger.

The proximity of work increases behavior observance making obligations, inherent to psychological contracts, part of daily work life.

Transformational Leadership Cont.

Workers will tend to model their own behavior after those of the owner.

Employees are motivated to place self-interest priority on (or alignment with) business interests

Transformational Leadership Cont.

Future Study

Complete Employee/Owner Survey to compare using similar sized, and similar industry businesses:

• Single-Owner, Owner-Managed• Professionally Managed, Corporate owned

Operations

Evaluate employee motivation based on perception variables of satisfactions within their work-life balance