Tuesday 27th September 07:59

Management Assumptions: Theory Z

z_142William Ouchi is an American professor of business management who has worked at the Stanford business school and the Anderson School of Management at the University of California for many years. He first came to prominence in 1981 for his work on bridging the gap between American management, then in decline, and Japanese management, then riding a boom. His belief that American business could learn from the management beliefs of Japanese industry led to his idea of Theory Z and his first book, "Theory Z: How American Management Can Beat the Japanese Challenge". The book became a New York Times best-seller and today ranks as the 7th most widely-read business book in all US libraries. His theory is now regarded as influencing the management style of major organisations such as IBM, Procter and Gamble and Hewlett Packard.

The Different Assumptions Between American and Japanese Management

Just as Douglas MacGregor's theory X and Y were based on management assumptions about people, so too is Ouichi's Theory Z approach. Here are 5 Theory Z principles.

1. Job Security

The Japanese Theory Z approach believes that people are a far too valuable resource to be lost when the economy has a downturn. In a recession, the Japanese don't fire people, they'll reduce their hours until things pick up. By contrast, when a US company is in trouble, they waste no time laying people off and as a result lose all the knowledge, skills, and expertise that go with them.

2. Trust

The Japanese feel that you should never give people a reason to distrust you. Loyalty is expected of all employees. In American companies, distrust and suspicion are endemic. If a person or supplier is not delivering, the company will go elsewhere for a better deal.

3. Decision-Taking

There are two differences between the Japanese and American approaches to decision-making. In Japanese companies, everyone gets involved in the decision-taking process as part of their commitment to the organisation. As a result, the process is slow. In the US, decision-taking is the responsibility of the few and so is quick.

4. Teamwork

In Japan, organisational success is viewed as the result of team effort, so it is illogical to reward invididuals. In the US, there is still a belief that, if you do the work and claim the results, you should get the reward.

5. Motivation and Target-Setting

The Japanese corporation rarely sets invididuals targets as a way of motivating them. They believe that individual motivation comes from others in the team. As a result, it often takes years before a Japanese employee receives their first performance evaluation and even longer before they are promoted. By contrast, the American corporation believes that the role of management is to set their subordinates targets and ensure that these are met, using evaluation and promotion as incentives and rewards.

How Successful Has Theory Z Been?

Research shows that, since the boom years of Japanese industry in the 1980's and 90's, the effect of Ouichi's theory Z has been fairly mixed. Some suggest that its impact has been limited. Others suggest that organisations that adopt Theory Z-type practices reap big rewards in terms of employee satisfaction, motivation and performance. Either way, there is no doubt that William Ouichi left his mark on the development of management thinking.

More on Theory Z Management

Read a full review of Theory Z on enotes here.

Here 's a downloadable pdf comparing theories X, Y and Z.

An original article on Theory Z in Time magazine on 2nd March 1981.