Theory Z is a name applied to three distinctly different psychological theories. One was developed by Abraham H. Maslow in his paper Theory Z and the other is Dr. William Ouchi's so-called "Japanese Management" style popularized during the Asian economic boom of the 1980s. The third was developed by W. J. Reddin in Managerial Effectiveness (19 Situation guides) man:
"Objective" best and succinctly describes man's concept of man.
McGregor's Theory Y in contrast to Theory X, which stated that workers inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs.
For Ouchi, 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 Ouchi, 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 Treasures by the former Emperor Hirohito, and American businesses ultimately tried unsuccessfully to use his "Japanese" approach to improve their competitive position.
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Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based upon human needs produced a theory that had three assumptions. First, human needs are never completely satisfied. Second, human behavior is purposeful and is motivated by need for satisfaction. Third, these needs can be classified according to a hierarchical structure of importance from the lowest to highest (Maslow, 1970).
Maslow's hierarchy of needs theory helps the manager to understand what motivates an employee. By understanding what needs must be met in order for an employee to achieve the highest-level of motivation, managers are then able to get the most out of production. Theory X, Y and Z all play a role in how a company should manage successfully. Theory X and Theory Y were both written by Douglas McGregor, a social psychologist who is believed to be a key element in the area of management theory. In McGregor’s book The Human Side of Enterprise (1960), McGregor describes Theory X and Theory Y based upon Maslow’s hierarchy of needs, where McGregor grouped the hierarchy into a lower order (Theory X) needs and a higher order (Theory Y) needs. McGregor suggested that management could use either set of needs to motivate employees, but better results could be gained by the use of Theory Y, rather than Theory X (Heil, Bennis, & Stephens, 2000).
Professor Ouchi spent years researching Japanese companies and examining American companies using the Theory Z management styles. By the 1980’s, Japan was known for the highest productivity anywhere in the world, while America had fallen drastically. The word "Wa" in Japanese can be applied to Theory Z because they both deal with promoting partnerships and group work. The word "Wa" means a perfect circle or harmony, which influences Japanese society to always be in teams and to come to a solution together. Promoting Theory Z and the Japanese word "Wa" is how the Japanese economy became so powerful. And also because the Japanese show a high level enthusiasm to work,some of the researchers claim that 'Z' in the theory Z stands for 'Zeal'.
Ouchi wrote a book called Theory Z How American Business Can Meet the Japanese Challenge (1981), in this book; Ouchi shows how American corporations can meet the Japanese challenges with a highly effective management style that promises to transform business in the 1980’s. The secret to Japanese success, according to Ouchi, is not technology, but a special way of managing people. “This is a managing style that focuses on a strong company philosophy, a distinct corporate culture, long-range staff development, and consensus decision-making”(Ouchi, 1981). Ouchi shows that the results show lower turn-over, increased job commitment, and dramatically higher productivity.
William Ouchi doesn’t say that the Japanese culture for business is necessarily the best strategy for the American companies but he takes Japanese business techniques and adapts them to the American corporate environment. Much like McGregor's theories, Ouchi's Theory Z makes certain assumptions about workers. Some of the assumptions about workers under this theory include the idea that workers tend to want to build happy and intimate working relationships with those that they work for and with, as well as the people that work for them. Also, Theory Z workers have a high need to be supported by the company, and highly value a working environment in which such things as family, cultures and traditions, and social institutions are regarded as equally important as the work itself. These types of workers have a very well developed sense of order, discipline, a moral obligation to work hard, and a sense of cohesion with their fellow workers. Finally, Theory Z workers, it is assumed, can be trusted to do their jobs to their utmost ability, so long as management can be trusted to support them and look out for their well being (Massie & Douglas, 1992).
One of the most important pieces of this theory is that management must have a high degree of confidence in its workers in order for this type of participative management to work. This theory assumes that workers will be participating in the decisions of the company to a great degree. Ouchi explains that the employees must be very knowledgeable about the various issues of the company, as well as possessing the competence to make those decisions. He also points out; however, that management sometimes has a tendency to underestimate the ability of the workers to effectively contribute to the decision making process (Bittel, 1989). But for this reason, Theory Z stresses the need for the workers to become generalists, rather than specialists, and to increase their knowledge of the company and its processes through job rotations and constant training. Actually, promotions tend to be slower in this type of setting, as workers are given a much longer opportunity to receive training and more time to learn the ins and outs of the company's operations. The desire, under this theory, is to develop a work force, which has more of a loyalty towards staying with the company for an entire career, and be more permanent than in other types of settings. It is expected that once an employee does rise to a position of high level management, they will know a great deal more about the company and how it operates, and will be able to use Theory Z management theories effectively on the newer employees (Luthans, 1989, p. 36).
As theorist through the past many years worked towards the Human Relations Movement, many other fields of expertise joined in to create a stronger force of knowledge and growth. From Psychology that helps to explain changes in human behavior, to Sociology, where we actually study people in their relationships with other human beings. Social Psychology was created when the two concepts were blended so that we can focus on actual influences of people on one another to Anthropology and Political Science. All of these pieces are a part of the growth and success of human development in not only the success of work force development but in human relationships in general.
With Theories X, Y, and Z implications for the modern organization include new challenges and opportunities. As we learn from these theories and work to implement the ideas in them we must be aware of the modern issues of working with people from different cultures and overseeing movements of jobs to countries with low-cost labor. Also, we must embrace diversity as the U.S. demographics change and understand that our new managers must recognize and respond to the different culture changes that will surely ensue with their growing diverse working population.
These theories have proven with many fortune 500 companies and others that when applied, do improve quality and productivity and also help to strengthen company labor issues. In addition to the changing work demographic, new problems and issues have risen since the X, Y and Z theories were formed. Some issues include fewer skilled laborers, early retirements, and older workers. Other opportunities that have been implied while companies use Theory Y and Z include, an improvement of people skills, empowering their employees, stimulating change, helping employees balance work with life conflicts, and improving ethical behavior.
Modern implications for companies using these theories have shown improvements in turnover rates, productivity, effectiveness, efficiency, organizational behavior, and job satisfaction.
Many assumptions are made in the work place, based on observations of the workers, and their relationship with management. “The types of tasks being performed, as well as the types of employees which make up a particular organization can set the stage for the types of leadership roles which will be assumed by managers” (McGregor, 1960). Douglas McGregor’s Theory X and Y, and William Ouchi’s Theory Z have all proven to be useful in the management field. Many companies have successfully integrated similar economic and human principles in a management style from Theory’s Y and Z. Theory’s Y and Z have both shown to be quite successful framework for American companies. Theory X is not obsolete. Actually, Theory X is still very prominent in the business world. Most managers however do not see themselves as using this type of management style until given the opportunity to see how their employees actually feel about the management style that is being used. Then will an effort be made to look further into a different, possibly more successful style of managing.