Theory Z

Theory Z ( developed by William Ouchi) is the name applied to the so-called "Japanese Management" style popularized during the Asian economic boom of the 1980s. In contrast Theory X, which stated that workers inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs, Theory Z focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. According to Dr. William Ouchi, its leading proponent, Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction.


Ironically, "Japanese Management" and Theory Z itself were based on Dr. W. Edwards Deming's famous "14 points". Deming, an American scholar whose management and motivation theories were rejected in the United States, went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s. Deming's theories are summarized in his two books, Out of the Crisis and The New Economics, in which he spells out his "System of Profound Knowledge". He was a frequent advisor to Japanese business and government leaders, and eventually became a revered counselor. Deming was awarded the Second Order of the Sacred Treasure by the former Emperor Hirohito, and American businesses ultimately tried unsuccessfully to use his "Japanese" approach to improve their competitive position.


Characteristics of the Theory Z

– Long-term employment and job security

– Collective responsibility

– Implicit, informal control with explicit, formalized measures

– Collective decision-making

– Slow evaluation and promotion

– Moderately specialized careers

– Concern for a total person, including their family


Theory Z

Theory Z is a form of management in which workers are involved in the work process on the factory floor. Schedules, division of labor, work assignments, and other aspects of the labor process are given over to workers to do as they see best. Investment policies, wages, fringe benefits and kind of product are not given over to workers to decide; only how best to do that decided by top management.


Theory Z was developed by William Ouchi, in his book 1981 'Theory Z: How American management can Meet the Japanese Challenge'. William Ouchi is professor of management at UCLA, Los Angeles.


Theory Z is often referred to as the 'Japanese' management style. It's interesting that Ouchi chose to name his model 'Theory Z', which tends to give the impression that it's a Mcgregor idea.


Theory Z essentially advocates a combination of all that's best about Mcgregor's XY theory and modern Japanese management, which places a large amount of freedom and trust with workers, and assumes that workers have a strong loyalty and interest in team-working and the organisation.


Theory Z also places more reliance on the attitude and responsibilities of the workers, whereas Mcgregor's XY theory is mainly focused on management and motivation from the manager's and organisation's perspective.


Mcgregor's XY Theory

Douglas McGregor was an American social psychologist. He proposed his famous XY theory in his 1960 book 'The Human Side Of Enterprise'.


Theory X and Theory Y are referred to commonly in the field of management and motivation and Mcgregor's XY Theory remains a valid basic principle from which to develop positive management style and techniques. McGregor's XY Theory also remains central to organizational development, and to improving organizational culture.


McGregor's XY theory is based on the natural rules for managing people.


McGregor maintained that there are two fundamental approaches to managing people. Many managers tend towards theory X, and generally get poor results. Enlightened managers use theory Y, which produces better performance and results, and allows people to grow and develop.


Theory X ('authoritarian management' style)

–     The average person dislikes work and will avoid it he/she can.

–     Therefore most people must be forced with the threat of punishment to work towards organisational objectives.

–     The average person prefers to be directed; to avoid responsibility; is relatively unambitious, and wants security above all else.


Theory Y ('participative management' style)

–      Effort in work is as natural as work and play.

–     People will apply self-control and self-direction in the pursuit of organisational objectives, without external control or the threat of punishment.

–     Commitment to objectives is a function of rewards associated with their achievement.

–     People usually accept and often seek responsibility.

–     The capacity to use a high degree of imagination, ingenuity and creativity in solving organisational problems is widely, not narrowly, distributed in the population.

–     In industry the intellectual potential of the average person is only partly utilised.