Management Theories # 5 - Theory Z

Theory Z is the name applied to the "Japanese Management" style popularized during the Asian economic boom of the 1980s. In contrast Theory X and Theory Y, this 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

In essence, 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 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.