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The basic difference between transformational and transactional leadership is that transactional leadership is mostly focused on the daily aspects of a company's development. Managers who use transactional leadership are focused on keeping the company running smoothly and consistently, usually using rewards as incentives to get employees to do their best work. This aspect of the leadership style is where the type gets its name. There is a transaction between management and subordinates, because there is an exchange of rewards for performance.
Transformational leadership involves more long-term strategizing. Managers using this method are more likely to challenge the usual boundaries or workings of the company in the attempt to push the company to newer and better heights. Innovation is key, because it creates opportunities to "transform" the company into something better. Employee incentives are still used in this style of leadership, but they are set to push the employees to always try to find a new level of performance for the good of the company rather than coax them into performing in general. There is also an emphasis on team-building and collaboration in order to get everyone working for the improvement and growth of the entire company, so a manager may seem more like a coworker than a superior.
Transactional leadership is best suited for immediate issues, because it is much more concerned with keeping everything running as well as it can within the set rules and strategies of the company. Transformational leadership has a strong forward-thinking quality as it is always centered on new and better strategies for the company.
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