Theory Z

What Williams Ouchi's Theory Z Is All About

In 1981, William G. Ouchi, a professor of management at UCLA, Los Angeles, and a board member of several large US organizations developed a concept he called Theory Z, in his 1981 book titled ‘Theory Z: How American management can meet the Japanese Challenge’.

Theory Z is often referred to as the Japanese Management Style, which is essentially what it is, as Professor Ouchi focused primarily on workers’ needs rather than on the work itself.

  • By definition, Theory Z is a combined American and Japanese managing style built solely on Japanese management philosophies which placed emphasis on employees’ needs and characterized by positive work-related outcomes such as long-term employment, collective decision making, slow evaluation and promotion, holistic concern for employees, and individual responsibility within a group context.

Building on Maslow’s and McGregor’s ideas, Professor Ouchi said that workers really want more than just the satisfaction of working productively: workers want to be involved in their own destiny. He also found that workers wanted to be trusted and to be entrusted. He found that many Japanese companies using this approach were realizing higher productivity and often getting better products.

Theory Z essentially advocates a combination of all that’s best about Theory Y 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 work and the organization.

Theory Z places more reliance on the attitude and responsibilities of the workers, whereas Mc Gregor’s X-Y theory Opens in new window is mainly focused on management and motivation from the manager’s and organization’s perspective.

In Theory Z, the relationship goes beyond the worker—family needs are recognized too. The workers reciprocate by being totally involved with the company over a long period of time.

Genesis of Ouchi's Theory Z

In 1981, William Ouchi came up with a method that would combine American and Japanese managing practice together to form Theory Z. In order to accomplish this, he had to learn about the Japanese culture. He had to find out why the Japanese quality and productivity were much higher than that of the Americans.

The people in the US are usually characterized as being soft, lazy people, who feel they are entitled to a good life without earning it. In the 80s, the quality of products from US Companies was so bad, that when a Japanese company ordered an American made car, they had a reassembly plant where the company would disassemble those cars and rebuild them to meet Japanese standards.

Japanese have always had a different style of managing than the US. One thing that the Japanese believe in is lifetime employment. They feel that the company has no right to fire you unless you commit a criminal offence. The only way one is released by the company is when you reach 55, because this is the age where people in Japan are forced to retire.

When the economy starts doing badly in Japan, companies do not start firing people, but rather cut employees’ hours. When a company in the US begins to struggle, they waste no time in laying off people.

Besides job security, Japanese companies also believe in trust. The Japanese feel you should never give people reason to distrust you. They believe you should always be loyal to everyone in the company and to your company’s suppliers, unlike internal/external customers of US companies, who are known to distrust one another. If they feel their supplier is not giving them a good deal, a US company will tend to look for somebody who will.

People in Japan feel that a person should not be evaluated or promoted until he has served ten years with the company. During those ten years, they will be taught everything in the company. They believe that if you work for the company, you should know every aspect involved to run it.

In Japan it is not strange to see managers working side by side with their employees. This explains why managers in Japan are able to understand their employees’ problems, whereas Americans dislike this method because they believe in rapid feedback and fast promotion. When they feel they are not being treated fair, workers have the tendency of leaving the job. Another problem with American managers is that they are not aware of everything in the company.

Another thing that Japan does is that they believe an outsider should not get promoted, that the promotion should come from within the company. US companies are known to give promotions to people who are either from or even outside the company.

Japanese corporations believe that you should not give your employees a set target. They feel that the employee should know what his objective is, and know what the customer wants. Without having management telling them what to do, the employees begin to rely on each other.

Americans on the other hand, believe that in order to operate a business, you must give them what they think is their set objective. Americans feel that in order to get them motivated, management has to set an objective for them to meet. In Japan they feel that a person should not be given an objective, because they feel the employee should know what his objective should be.

An interesting thing about the Japanese companies is the way they make decisions. When the company has to make any decision, they feel the whole company should be involved.

By involving the whole company in the decision, all the employees feel involved. When a solution does emerge, the whole company—wether everyone likes it or not—will support it. Since this process is so long, it takes a longer time for management to come up with a solution.

In America, though, the only people who are allowed to make decision concerning the company are top management executives, and not employees, unlike in Japan, where they believe you should take your time in making a decision. The American view is, ‘the faster the better’.

In Japan, workers do not like the idea that one individual should be rewarded for their performance. They believe it is not right for them to compete with each other. A person who is sixteen should not be making the same money as a person who is twenty. Americans, on the other hand, thrive on praise and believe if you work harder than somebody else, you should make more.

Ouchi realized the difference between both countries and came up with Theory Z. This Type Z person is going to be comprised of Type A and Type J.

Twelve Strategies to Implement Type Z Style of Management

The Type Z style is the way Ouchi would like to see American companies run, but to do this you are required to implement 12 strategies to make it work.

We’ll spend the remainder of this entry exploring these steps that Professor Ouchi recommends companies should take to improve their quality and performance.

Strategy Number One: Create a Bridge of Trust by Involving Skeptics

One important step is to understand Type Z and the organizational role. In order for Theory Z to work, there must have skeptics. These people—who think this would not work—should not be discouraged.

When people are discouraged from voicing different opinions or pushed away, they adopt a negative tendency of thinking that something suggested will never work. People have to realize that skeptics in most companies outnumber the believers.

By involving skeptics, companies begin to create a bridge of trust. Trust will arise when both parties understand each other’s point of view and know that both are doing it for the good of the company.

When a person who feels that something is not being done right, is involved; it has the effect of demonstrating to them that neither side is out to hurt the other. Everyone has to realize that with trust comes openness to say what you feel with impunity.

No one will bear a grudge against an unspoken critic. Another thing people should have is integrity. You should be able to treat people the way you would like to be treated (the ‘Golden Rule’).

Strategy Number Two: Periodically Audit Philosophy

The second strategy and an equally important one is that, the company should be able to audit its philosophy periodically. Here the company will try to figure out a way that best suggests how the company should behave towards its employees and vice versa.

Companies have to find out where they stand, not where they should be. The company first have to understand its culture by studying decisions made in the past. They will then have to organize a big meeting where they will ask themselves, what they think worked, what failed and what they thought was inconsistent or illogical.

It is only when a company begins to answer these questions, that it discovers its philosophy. Management can never be inconsistent in what they feel is desirable. They cannot say one thing one day and not enforce it the next.

Strategy Number Three: Set Desired Structure

The third strategy is: management must be able to define the desired philosophy and be able to involve company leaders. Here, management cannot be intimidated by company leaders, and company leaders, in turn, must be willing to listen to everything the managers have to say.

When both begin to trust each other, they are going to make easy decisions because both will be sharing wanted information.

Strategy Number Four: Create a Structure and Incentive

The fourth strategy is that the company will have to create both a structure and incentive in the company. This strategy proclaims that all organizations want people to recognize a simple structure—teamwork.

Management want to create a place where a faltering or struggling team-mate can feel confident that if he falls, his team will pick him up. When the company faces a person who is hogging all the credit, you begin to have a lot of unhappy people working together.

To stop all this unhappiness, management will have to do something they do not want to do and that is to get involved. Companies believe that managers should be honest to employees and be able to admit their mistakes, and vice versa.

Strategy Number Five: Encourage People to develop Interpersonal Skills

The fifth strategy is that the people in the company will have to develop some interpersonal skills Opens in new window. Here, management want everyone to improve on their communication skills Opens in new window. They want to encourage managers to listen Opens in new window more and know when to (or not to) interrupt.

People have to recognize patterns of interactions while making a decision and solving problems. When somebody tries a quick solution or drifts off, managers should be trained to spot it and gently put a stop to it.

Once everyone is back on track, management should design an answer that everyone should support. To arrive at a consensus, everyone must be willing to share information and plans.

Strategy Number Six: Test the Company and the System

The sixth strategy is that the company must be able to test themselves and the system. While implementing Theory Z, management is going to question their ability to manage. So, what managers have to do is just have confidence in their ability to manage.

Strategy Number Seven: Make Employment Stable

The seventh strategy is that companies have to stabilize employment. To stabilize employment, companies have to challenge every employee and be able to give him variation of job to do within the company.

Here, when a company is not doing well, it is important that managers do not encourage management to lay off people, but rather reduce their hours. This in turn gives companies a low turnover Opens in new window rate, saving time and money in training new people when things improve and business again picks up.

Strategy Number Eight: Design a System of Slow Evaluation and Promotion

The eighth strategy is how to design a system of slow evaluation and promotion. Many young employees are very impatient. If they perceive that they have no chance for a quick promotion, most younger employees will choose to quit.

To end this problem, what companies have to do is give them an incentive to stay. So what the companies does is promote or otherwise encourage these young, impatient people—before somebody else (usually the main competitor) does.

You have to make them think that they are really wanted. This gives them time to learn the business and work with people as a team.

Strategy Number Nine: Broaden Employees Career Path

The ninth strategy is that how companies are going about the task of broadening people’s career paths. Companies are very aware that most people who hop from job to job are usually bright, ambitious and hard workers than their top managers.

The only problem with this is that when they feel they are getting nowhere, they quit. So what the company tries to do is to obviate monotony or boredom Opens in new window and create challenge by rotating these employees over a variety of jobs within the company.

In order to retain bright and promising employees within the organization, management can do worse than letting them experience every aspect and every department in the company.

When everyone knows what every department is doing, it makes it much easier for the company to pass around important information within departments. This results in improved communication, better teamwork and greater efficiency.

Strategy Number Ten: Get Theory Z Working at Lower Levels

The tenth strategy is how to get this Theory Z working at the lower levels. In order to implement Theory Z at the lower levels, it is better to start from the top. This change in mindset must occur with top management and professional employees, before they can try to change attitudes of lower level employees.

People who are lower level employees are not going to follow a method that top management does not follow. Management have to be very patient with lower level employees, because they have installed in their heads a problem that constantly plays the tune that management should never be trusted.

Employees in the company feel that the company’s foremen are sell-outs, who work more with (are in cahoots with) management and do not care a fig about employees. Like management, the foremen have to gain employees’ trust in much the same way as management did.

Strategy Number Eleven: Encourage Participation in Decision Making

The eleventh strategy management have to do is find an area where employee’s participation can be introduced. The way to gain lower level trust is through allowing their participation in company decisions and being able to reward their accomplishments.

The most important thing is to give employees a sense of job security. By encouraging employees to speak up and to participate in decision making, a company can mould its employees to working as a team and not as individuals.

Strategy Number Twelve: Promote Kinship Between Everyone

The final thing is to create a sense of family within the organization, by promoting kinship between everyone.

Success in implementing Theory Z, is easy to see: if employees are willing to go out with each other without the companies involvement, if they support each other and work as a unit, management can presume that Theory Z initiatives have succeeded.

A Table Showing Types of Organizations, Genesis and Characteristics

Organization Type A AmericanOrganization Type J JapaneseOrganization Type Z Modified American
Short-term employmentLifetime employmentLong-term employment
Individual decision makingCollective decision makingCollective decision making
Individual responsibilityCollective responsibilityIndividual responsibility
Rapid evaluation & promotionSlow evaluation & promotionSlow evaluation & promotion
Explicit control mechanismsImplicit control mechanismsImplicit, Informal control with explicit, formalized measures
Specialized career pathNon-specialized career pathModerately specialized career paths
Segmented concern for employeesHolistic concern for employees a personHolistic concern, employee as an including family

With Theory Z, William Ouchi was able to give a new method of managing to American companies, an alternate way perhaps more in tune with contemporary needs. He was able to emphasize American flavor (e.g., individual responsibility), but with a typically Japanese emphasize on collective decision making.