Transformational Leadership and Innovation: Two Sides Of The Same Coin

Oct 2019

5 mins read

We live in interesting times. The number of businesses that are being started each day is staggering. A decade ago, it was unthinkable for an individual to be able to get a new business started within 24 hours – it would take at least several days, if not months to get something going. Yet, here we are, 10 years on, humming along in an innovation economy, which ironically also has the potential to disrupt anything in its path.

The biggest contributor to what we are currently witnessing in most of the world’s open economies has been technology. By technology, we mean both software and information technology (IT). This is why, today’s corporate leadership, and especially IT leadership, needs to take cognizance of the fast changes that are taking place around them.

The Innovation Economy

What is the innovation economy, and why must every serious individual in corporate leadership take note of it? The innovation economy is not a new concept. It was conceived back in 1942 by Joseph Schumpeter, an Austrian economist. He pushed for an economic theory that would emphasize entrepreneurship and innovation, while riding upon technological changes. It was a concept well ahead of its time. As we have witnessed over the last decade, the era of the innovation economy has well and truly begun and has accelerated in the past several years.

When one talks of innovation and innovators, a few buzzwords immediately come to mind – visionary, inspiring, risk-taker, tech-savvy, to name a few. These very buzzwords overlap with the words that are used to describe something known in leadership parlance as transformational leadership. The similarities aren’t coincidental. A transformational leader is a visionary, is inspiring, is daring, is a risk-taker and is a thoughtful thinker. They have a certain charisma that helps them drive change in their organizations. But charisma alone does not suffice in organizational leadership and change management. We will discuss below the transformational leadership theory, in a bid to understand the traits of a transformational leader.

Transformational Leadership Theory

In the 1960s, a new paradigm of organizational leadership came from the need to create a high-performance workforce that goes above and beyond its assigned tasks. It traces its origins back to James Downton, the person who coined the term “transformational leadership”. James Burns furthered the concept when he added that leaders and followers must “each other advance to a higher level of morality and motivation”. In 1985, Bernard Bass added the concepts of Transformational vs. Transactional Leadership – something which we will explore later in this article.

The Transformational Leadership Theory can be broken down into 4 components, which are often referred to as the 4 I’s.

Inspirational Motivation

Motivation is one of the key factors that make or break employees. A motivated employee looks forward to the challenges each day throws at him; a demotivated employee looks at each day as a challenge he has to get through. It is the responsibility of the organizational leadership to ensure that every employee is kept motivated. Motivation starts with the promotion of a clear vision and mission statement, alongside a set of company values. Transformational leaders are adept at this. They have a compelling vision which they use to provide employees with a sense of meaning and challenge. They promote teamwork and commitment, working enthusiastically and optimistically across the length and breadth of the organization and corporate leadership to effect this.

Intellectual Stimulation 

Unless an employee is mentally stimulated at work, he/she will never be able to put in their 100% towards the organization. Transformational leaders are visionaries who can anticipate the changes taking place in the marketplace. They recognize the need for their organizations to be innovative and creative. New ideas from their followers, as also from their corporate leadership peers, are always encouraged. No idea is a bad idea in their book. These leaders work actively to get employees to focus on problem-solving, rather than arguing over the circumstances for the problems. They have an open-door policy, and are quick to give up old practices for newer efficient ones.

Idealized Influence

“Practice what you preach” is an old English saying. Transformational leaders take this to heart because they know that influencing followers must begin with oneself. They strive to be the role models that their followers would want to emulate. In that, they place their followers’ needs ahead of their own, often sacrificing personal gains for their followers. This helps them win their trust and respect. These leaders always maintain the highest ethical standards and never do anything that could malign their image among their followers. They wield their corporate leadership power to influence their followers to work towards the common goals laid down by the organizational leadership team.

Individualized Consideration

A transformational leader is an exceptional mentor. They empower their followers and organizational leadership peers to make decisions and offer them their full backing, often owning up personally to their failures. These leaders have a good eye to notice followers who stand out above the rest. These special followers are treated differently and rewarded with added corporate responsibilities. Transformational leaders actively groom their followers for future leadership roles in the organization, which remains an important part of the transformational leadership paradigm.

Now that we have seen the 4 I’s of the transformational leadership theory, let us look at the difference between transformational leadership and transactional leadership – two different concepts that could erroneously be interchanged in casual conversation.

Transactional vs Transformational

You would be convinced from the above discussion that transformational leadership is very closely tied to innovation. This paradigm encourages risk-taking and celebrates failures, rather than suppressing them. The outlook for this organizational leadership style is broad. It creates growth and entrepreneurial mindset within the organization, which is critical if an organization has to survive in the innovation economy.

Transactional leadership, on the other hand, has a very narrow focus. It focuses on the here and now and is typical of an operational role, rather than a visionary one. Employees under these leaders are motivated through rewards and punishments. Risk-taking is largely looked down upon. Transactional leaders strive towards maintaining the status quo and focus on building procedural efficiencies as part of corporate leadership.

If you are looking for role-model transformational leadership, you will find many individuals. Steve Jobs (Apple), Jeff Bezos (Amazon) and Satya Nadella (Microsoft) are some of the leaders who completely transformed their respective organizations when the chips were down. Reading up on their biographies would be a good initial exercise in learning more about transformational leadership. Even better, would be signing up for an online course and putting your plan into action.

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