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.

Management Theories # 1 - X Theory Y Theory

This month of August - we are now back to Management methods, models and theories. Let us spend some time in understanding few of the very interesting management theories. This is one of my favorite subjects, and I might continue this run another month soon :)

To start with, let us study the X Theory and Y Theory - proposed by Douglas McGregor, an American social psychologist, in his 1960 book 'The Human Side Of Enterprise'.

McGregor's XY Theory remains central to organizational development, and to improving organizational culture. It is a salutary and simple reminder of the natural rules for managing people, which under the pressure of day-to-day business are all too easily forgotten.

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 manager thinks like this)

• 
  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 - the manager thinks like this)

• 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.

In conclusion, McGregor sees Theory Y as the preferable model and management method, however he felt Theory Y might prove difficult to use in large-scale operations.