In the 1970s, leadership theorists perceived numerous variables, such as the work environment, organizational value system and situational complexities, as influencing the emergence of leadership. The interactional approach theory in leadership takes these variables into account, asserting that leadership arises due to the interaction between individuals and situations. In small businesses, leadership can be highly personalized because the chief executive may interact with employees on a daily basis. Face-to-face contact enables leaders to infuse employees with the company’s vision and directly relay information on products and services, which can lead to competitive advantage in the marketplace.


The interactional theory of leadership is based on two assumptions. On the one hand, human beings are complex: People can have several motives for taking actions, and these motives can change over time. Their productivity and performance are also affected by innate abilities, the types of tasks and experience. On the other hand, the workplace environment or system is open, promoting the exchange of information, matter and energy. Given these assumptions, an effective leader must assess the situation, formulate relevant strategies and draw from a large skill set.

Dynamic Exchange

In contrast to classic theory of leadership, in which a leader issues a one-way directive to a follower, the interactional theory views the relationship between a leader and follower as a two-way dynamic process. The factors affecting this process include the leader's and follower’s personality, values and capabilities, and the situation in which they interact. In turn, the situation is determined by group size, density and norms. Success in this paradigm hinges on a leader’s abilities to communicate and identify with the group as well as reliability, fairness and creativity. In startups and entrepreneurial firms, leaders who value, reward and are sensitive to individual initiatives and merit tend to be more successful.

Two Types

The two types of leaders recognized in the interactional approach are relationship-oriented and task-oriented. Leaders who focus on relationships tend to maintain a certain amount of social interaction with group members. They strive to cultivate trust and respect within the group, and they value communication. Task-oriented leaders emphasize the plans and actions required to meet goals. They tend to prioritize and assign tasks to group members and are governed by an overarching objective to boost a group’s productivity. Effective leaders in small businesses tend to transit fluidly between different leadership styles and even may assume an autocratic role in emergency situations in which a command requires quick compliance from employees.

Historical Context

In the 19th century, historian Thomas Carlyle put forth his “great man” theory, in which leaders emerge due to superior personality traits and not a quirk of fate. Russian novelist Leo Tolstoy believed leaders only rose to power due to the zeitgeist of the times. For example, Napoleon’s victories and defeats resulted from uncontrollable factors rooted in history and not the man’s character, decisions and skills. Because the interactional theory views emergent leadership as a result of the interaction between a leader’s traits and the situational context, this approach reconciles classic theories of leadership. Small businesses must survive in a globalized world with accelerating technological progress, so leaders must be able to deal with uncertainty. They grow more reliant on employee interaction and input to respond well to constantly changing situations.