10 MIN READ

Theory Z

Merging Eastern and Western Management Styles

Combining the best elements of East and West.

Back in the '70s and '80s, Japanese organizations were arguably the most productive and efficient in the world, and they were making significant inroads into North American and European markets.

The secret to their success wasn't necessarily what they were producing. Rather, some argued, it was how they were managing their people – Japanese employees were engaged, empowered, and highly productive.

Management professor William Ouchi argued that Western organizations could learn from their Japanese counterparts. He created Theory Z – a model that, he said, blended the best of Eastern and Western management practices.

In this article, we'll explore this model and discuss if it's still relevant today. We'll also look at how you can apply its principles in your own organization.

About Theory Z

Ouchi first wrote about Theory Z in his 1981 book, "Theory Z: How American Management Can Meet the Japanese Challenge." He created the theory after conducting research designed to help American companies compete with Japanese businesses. It takes the best of the Japanese management philosophy, and the best of traditional US management philosophy, and combines the two.

According to Ouchi, the benefits of using Theory Z include reducing employee turnover, increasing commitment, improving morale and job satisfaction, and drastically increasing productivity.

To realize these benefits, he argued that an organization should have the following:

A Strong Company Philosophy and Culture: The company philosophy and culture needs to be understood and embodied by all employees, and employees need to believe in the work they're doing.
Long-Term Staff Development and Employment: The organization and management team has measures and programs in place to develop employees. Employment is usually long-term, and promotion is steady and measured. This leads to loyalty from team members.
Consensus in Decisions: Employees are encouraged and expected to take part in organizational decisions.
Generalist Employees: Because employees have a greater responsibility in making decisions, and understand all aspects of the organization, they should be "generalists." However, employees are still expected to have specialized career responsibilities.
Concern for the Happiness and Well-Being of Workers: The organization shows sincere concern for the health and happiness of its employees, and for their families. It puts measures and programs in place to help foster this happiness and well-being.
Informal Control With Formalized Measures: Employees are empowered to perform tasks the way they see fit, and management is quite "hands off." However, there should be formalized measures in place to assess work quality and performance.
Individual Responsibility: The organization recognizes the contributions of individuals, but always within the context of the team as a whole.

From "Theory Z: How American Business Can Meet the Japanese Challenge" by William G. Ouchi, copyright © 1981. Reprinted by permission of Basic Books, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book Group, Inc.

Note:

Theory Z has fallen out of favor in many organizations, especially since the performance of the Japanese economy flattened off in the 1990s. However, many of its principles are now seen to be "just good business practice."

Comparisons With Other Models

It's natural to try to compare Theory Z with Theory X and Theory Y, two similarly named management models.

Theory X says that all employees inherently dislike working. They must be enticed to produce work, and need supervision at all levels. As you might imagine, Theory X organizations are heavily bureaucratic and top-heavy.

Theory Y offers a more humane look at management. It says that employees view work as part of life. They use their creativity to solve problems, seek out responsibility and new tasks, and do best when left on their own (instead of with constant direction from management).

Theory Z is sometimes considered a blend of these two models, with more of a leaning towards Theory Y, because it focuses on long-term employment and job security, informal control, and a deep concern for the happiness and well-being of employees.

However, it's also possible to argue that Theory Z doesn't belong with Theories X and Y.

Applying the Tool

Applying all the principles of Theory Z may be impractical, and even undesirable, in some situations. However, there are some useful aspects to the theory. We've highlighted these below...