Transactional leadership obviously has limits. "You expect me to do that for what you're paying me! Get real!" On the other side of the coin, organisations do not have unlimited funds at their disposal.
Obviously transactional leadership was far more prominent in the pre industrial and industrial age. In mature developed economies, especially in white collar professions, transactional leadership is pretty well defunct. It can work to bring about small scale change. However, if you want to bring about a fundamental shift in where things are heading or how things get done, then transactional leadership will leave you high and dry.
To get people's commitment and to release their energy and passion you have to appeal to their head and heart. It requires identifying a sweet spot where the change you want ignites followers' self interest. Transformational leadership recognises that people are emotionally as well as rationally driven. People not only want to know the rationale for the change but they want to feel inspired and motivated by it.
The basic building blocks required for transformational leadership are purpose, vision and values. People are inspired by a leader who can articulate and appeal to a noble purpose that underpins why things are being done. We recently worked with the Climate Change Team for the New Zealand Ministry for the Environment. They articulate their purpose as "helping avert one of the greatest threats to life on earth". That's noble and inspiring!
Vision refers to an ambitious and highly desirable future you want to create through your efforts. Leaders need to create a vivid and attractive end state that makes all the effort worthwhile. Perhaps the best known articulation of a vision is Martin Luther King's "I have dream."
Values refer to how people will conduct themselves as they fulfill the purpose and deliver the vision.
Leaders who are able to communicate clear and compelling purpose, vision, and values have the DNA for leading change that transactional leadership could only dream of.
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