Transactional and transformational leadership culture

Executive Summary

The labor market increasingly demands flexibility and adaptability from employees. Beyond constant change, they are expected to identify with company values and find purpose in their work. Yet, traditional leadership styles often stand in the way—conveying distance rather than belonging.

Companies face new markets, international competition, and rapid transformation. Employees, in turn, experience constant pressure: processes and values change continuously, while leadership becomes increasingly impersonal. The result is declining motivation, higher turnover, and reduced performance. Data reflects this reality: in Switzerland, individual resignations rose from 16% to 28% in 2024 (HR Today), while job satisfaction dropped from 59% to 54% according to Gallup.

Purely transactional leadership—performance for pay, control, and hierarchy—reaches its limits under these conditions. Transformational leadership, on the other hand, emphasizes trust, shared visions, and the leader’s role as mentor. The key lies in a balanced combination: clear structures and orientation remain vital, complemented by participation, development, and authenticity.

This blend creates a leadership culture that strengthens employees, fosters identification, and ensures long-term competitiveness. Especially in dynamic markets, empathy and trust are decisive factors for sustainable success.

Introduction

Today’s labor market demands ever more flexibility from employees. Change is constant, and those who fail to adapt risk being left behind. For employees, this represents both a challenge and a burden. At the same time, they are expected to identify with corporate values at a deeper level—aligning with their growing desire for belonging and meaningful work. The question is: to what extent is this compatible with the leadership styles and cultures we see in practice today?

Challenges

The pressure for organizational change is relentless. New markets are opening, while aggressive competition from Asia puts European companies under constant pressure to adapt. Transformation often reshapes company values—sometimes in confusing ways—making them harder for employees to relate to. Instead of identifying with the company, many focus solely on keeping up with endless process changes.

Adding to this strain is the rise of “big corporate” behavior: top management making decisions in an impersonal, detached manner—once typical of large corporations but now increasingly visible in SMEs. For long-term employees, this shift is unsettling. The consequences are clear: declining performance output and rising turnover.

Insights

According to HR Today, individual resignations in Switzerland rose sharply in 2024—from 16% to 28%. A Gallup study cited by Swiss Radio and Television (SRF) also reports a 5% drop in employee satisfaction, from 59% to 54%. These are clear signals: employees are less tolerant, and they expect more from employers.

From personal experience, the author can attest that true appreciation requires more than monthly fruit baskets or occasional after-work drinks—activities that typically appeal to the same demographic group. Some companies have experimented with initiatives such as employee-themed Panini sticker books or even self-produced songs for internal hit parades. While creative, employees often perceive such efforts as misplaced—especially when business performance is weak.

Leaders try to meet expectations by introducing new initiatives, processes, and leadership styles, but the sheer volume prevents them from communicating authentically. Employees recognize this disconnect, undermining trust and identification.

Solution Approaches

The central question: How can leaders authentically embody company values without falling back into “I command, you obey” patterns?

First, a clarification of the two leadership paradigms:

Transactional leadership is characterized by exchange: pay for performance. Typical features include:

• Clearly defined tasks and frameworks

• A reward system based on monetary motivation

• Short-term commitments from employees

• Self-interest as the primary driver

• Leaders as negotiators and resource allocators

• Constant target/actual comparisons and deviation analyses

• Centralized, hierarchical structures

This approach largely represents the current status quo.

Transformational leadership, by contrast, is built on shared vision and trust. Leaders act as role models and mentors, enabling employees to contribute to collective goals. Key characteristics include:

• Shared interests and a sense of common destiny

• Leaders as role models and mentors

• Focus on hidden potential and growth opportunities

• Decentralized, informal, and less hierarchical structures

One might argue that many leaders already pursue this style. But reflection often reveals a gap between aspiration and everyday reality.

As in most areas of life, balance is key. Authors M. Heidbrink and A. Klöckner suggest a moderately transactional approach supplemented with maximal transformational leadership as the optimal path.

The author, however, proposes a more pragmatic solution: certain transactional elements remain useful—for example, clear frameworks and task definitions ensure transparency and orientation. Target/actual comparisons also help identify growth potential. Decision-making can, at times, remain top-down.

But transformational leadership must complement this foundation: employees should be involved in decisions, openly informed, and empowered to take ownership. Above all, the mentor role is non-negotiable. Leaders must move beyond coordination and delegation to actively develop employee capabilities. Trust, mutual commitment, and support form the core. With trust established, motivation grows—and employees are willing to go the extra mile.

Conclusion

The right balance of transactional and transformational leadership provides a sustainable foundation for guiding and developing employees while ensuring their well-being. Challenges will always arise, but teams that share a common vision and pull together achieve extraordinary results.

As labor market demands for flexibility intensify, leaders must respond with empathy and trust—empowering employees to thrive in the face of change.