Theory z - William

ouchi

Introduction
William G. Ouchi is the Sanford & Betty Sigoloff
Professor in Corporate Renewal at The Anderson
Graduate School of Management at UCLA. He
previously served as Vice Dean of the school and as
Chair of the Strategy and Organization Area of the school. He is the author of four books
and of scholarly articles on organization and management. His first book was Theory Z:
How American Management Can Meet the Japanese Challenge (Addison-Wesley,
1981). Theory Z was on the best seller list for five months, has been published in 14
foreign editions, and ranks as the seventh most widely held book of the twelve million
titles held in 4,000 U.S. libraries. His second book, The M-Form Society: How
American Teamwork Can Recapture the Competitive Edge (Addison-Wesley, 1984),
reports on a three year effort by a team of 16 researchers led by Professor Ouchi. The M-
Form Society has appeared in four foreign editions to date. His third book,
Organizational Economics (Jossey-Bass, 1986), was co-edited with Jay B. Barney. His
fourth book, Making Schools Work, will be published in September of 2003 by Simon &
Schuster.

Dr. Ouchi was born and raised in Honolulu, Hawaii, where he graduated from the
Punahou School in 1961. He received his B.A. at Williams College (1965), his M.B.A. at
Stanford (1967), and his Ph.D. in business administration at the University of Chicago
(1972). He has been a member of the faculties at the University of Chicago, Stanford
University, and UCLA from 1979 to the present. During 1993-95 he served as advisor
and then as Chief of Staff to Mayor Richard Riordan in Los Angeles. From 1996-1999 he
served as Vice Dean for Executive Education of the Anderson School.

At UCLA, Professor Ouchi teaches courses in management and in organization design.

He was Co-Chair of the UCLA School Management Program. He continues as Chairman
of the Riordan Programs, which serve minority high school and college students in
Southern California and also is the founder of the Nissan-HBCU Summer Institute, which
serves the professoriate of the Historically Black Colleges and Universities of the U.S.
He is Chair of the George and Kimiko Nozawa Endowment, which grants scholarships to
students from Japan. Professor Ouchi also serves on several other committees and boards
of the Graduate School of Management, supervises doctoral candidates, and carries on his
own research on the management of K-12 schools.
In 1981, William Ouchi came up with a method that would combine American and
Japanese managing practice together to form Theory Z. In order for him to accomplish
this, he had to learn about the Japanese culture. He had to find out why the Japanese
quality and productivity were much higher than the American. The people in the US are
usually characterize as being soft, lazy people, who feel they are in title to a good life,
without earning it. In the 80's US company's quality was so bad, that when a Japanese
company ordered in American made car, they had a reassembly plant. Here the company
would disassemble those cars and rebuilt them to meet Japanese standards. People in
America see business management as a career. The US as a nation has people taking
classes to earn a degree in management.

Theory Z
Theory Z is an approach to management based upon a combination of American and
Japanese management philosophies and characterized by, among other things, long-term
job security, consensual decision making, slow evaluation and promotion procedures, and
individual responsibility within a group context. Proponents of Theory Z suggest that it
leads to improvements in organizational performance. The following sections highlight
the development of Theory Z, Theory Z as an approach to management including each of
the characteristics noted above, and an evaluation of Theory Z. Realizing the historical
context in which Theory Z emerged is helpful in understanding its underlying principles.
The following section provides this context.

Development of Theory Z
Theory Z has been called a sociological description of the humanistic organizations
advocated by management pioneers such as Elton Mayo, Chris Argyris, Rensis Likert,
and Douglas McGregor. In fact, the descriptive phrase, "Theory Z." can be traced to the
work of Douglas McGregor in the 1950s and 1960s. McGregor, a psychologist and
college president, identified a negative set of assumptions about human nature, which he
called Theory X. He asserted that these assumptions limited the potential for growth of
many employees.

McGregor presented an alternative set of assumptions that he called Theory Y and were
more positive about human nature as it relates to employees. In McGregor's view,
managers who adopted Theory Y beliefs would exhibit different, more humanistic, and
ultimately more effective management styles. McGregor's work was read widely, and
Theory Y became a well-known prescription for improving management practices.

But in the 1970s and 1980s, many United States industries lost market share to
international competitors, particularly Japanese companies. Concerns about the
competitiveness of U. S. companies led some to examine Japanese management practices
for clues to the success enjoyed by many of their industries. This led to many articles and
books purporting to explain the success of Japanese companies. It was in this atmosphere
that Theory Z was introduced into the management lexicon.

2
Theory Z was first identified as a unique management approach by William Ouchi. Ouchi
contrasted American types of organizations (Type A) that were rooted in the United
States' tradition of individualism with Japanese organizations (Type J) that drew upon the
Japanese heritage of collectivism. He argued that an emerging management philosophy,
which came to be called Theory Z, would allow organizations to enjoy many of the
advantages of both systems. Ouchi presented his ideas fully in the 1981 book, Theory Z:
How American Companies Can Meet the Japanese Challenge. This book was among the
best-selling management books of the 1980s.

Professor Ouchi advocated a modified American approach to management that would

capitalize on the best characteristics of Japanese organizations while retaining aspects of
management that are deeply rooted in U.S. traditions of individualism. Ouchi cited
several companies as examples of Type Z organizations and proposed that a Theory Z
management approach could lead to greater employee job satisfaction, lower rates of
absenteeism and turnover, higher quality products, and better overall financial
performance for U.S. firms adapting Theory Z management practices. The next section
discusses Ouchi's suggestions for forging Theory Z within traditional American
organizations.

Theory Z as An Approach To Management

Theory Z represents a humanistic approach to management. Although it is based on
Japanese management principles, it is not a pure form of Japanese management. Instead,
Theory Z is a hybrid management approach combining Japanese management
philosophies with U.S. culture. In addition, a Theory Z break away from McGregor’s
Theory Y. Theory Y is a largely psychological perspective focusing on individual dyads
of employer-employee relationships while Theory Z changes the level of analysis to the
entire organization.

According to Professor Ouchi, Theory Z organizations exhibit a strong, homogeneous set

of cultural values that are similar to clan cultures. The clan culture is characterized by
homogeneity of values, beliefs, and objectives. Clan cultures emphasize complete
socialization of members to achieve congruence of individual and group goals. Although
Theory Z organizations exhibit characteristics of clan cultures, they retain some elements
of bureaucratic hierarchies, such as formal authority relationships, performance
evaluation, and some work specialization. Proponents of Theory Z suggest that the
common cultural values should promote greater organizational commitment among
employees. The primary features of Theory Z are summarized in the paragraphs that
follow.

A. Reason for a more flexible managerial style is to meet competition from

foreign firms.
B. In the 1980s WILLIAM OUCHI researched how corporations in Japan
are run differently from U.S. companies.
1. The Japanese management approach, called TYPE J, involved:

3
 a. Lifetime employment.
b. Consensual decision making.
c. Collective responsibility for the outcomes of decisions.
d. Slow evaluation and promotion.
e. Implied control mechanisms.
f. No specialized career paths.
g. Holistic concern for employees.
2. The American management approach, called TYPE A, involved:
a. Short-term employment.
b. Individual decision making.
c. Individual responsibility for the outcomes of decisions.
d. Rapid evaluation and promotion.
e. Explicit control mechanism.
f. Specialized career paths.
g. Segmented concern for employees.
3. Type J firms are based on the culture of Japan; Type A firms are
based on the culture of America.
4. Ouchi realized that American managers could not be expected to
accept a concept based on another culture.
5. Ouchi recommended a hybrid of the two approaches, THEORY Z.
a. Long-term employment.
b. Collective decision making.
c. Individual responsibility for the outcome of decisions.
d. Slow evaluation and promotion.
e. Moderately specialized career path.
f. Holistic concern for employees.
C. Today economic changes are forcing Japanese managers to reevaluate
their management styles.
1. Today there is a realization that Japanese firms need to become
more efficient.
2. Some Japanese managers are changing the way they do business.
3. Many managers think that conformity has hurt Japanese business.

Many managers think that conformity has hurt Japanese business

Long-Term Employment

Traditional U.S. organizations are plagued with short-term commitments by employees,

but employers using more traditional management perspective may inadvertently
encourage this by treating employees simply as replaceable cogs in the profit-making
machinery. In the United States, employment at will, which essentially means the
employer or the employee can terminate the employment relationship at any time, has

4
been among the dominant forms of employment relationships. Conversely, Type J
organizations generally make life-long commitments to their employees and expect
loyalty in return, but Type J organizations set the conditions to encourage this. This
promotes stability in the organization and job security among employees.

Consensual Decision Making

The Type Z organization emphasizes communication, collaboration, and consensus in

decision making. This marks a contrast from the traditional Type An organization that
emphasizes individual decision-making.

Individual Responsibility

Type An organizations emphasize individual accountability and performance appraisal.

Traditionally, performance measures in Type J companies have been oriented to the
group. Thus, Type Z organizations retain the emphasis on individual contributions that
are characteristic of most American firms by recognizing individual achievements, albeit
within the context of the wider group.

Slow Evaluation And Promotion

The Type An organization has generally been characterized by short-term evaluations of

performance and rapid promotion of high achievers. The Type J organization, conversely,
adopts the Japanese model of slow evaluation and promotion.

Informal Control With Formalized Measures

The Type Z organization relies on informal methods of control, but does measure
performance through formal mechanisms. This is an attempt to combine elements of both
the Type A and Type J organizations.

Moderately Specialized Career Path

Type An organizations have generally had quite specialized career paths, with employees
avoiding jumps from functional area to another. Conversely, the Type J organization has
generally had quite non-specialized career paths. The Type Z organization adopts a
middle-of-the-road posture, with career paths that are less specialized than the traditional
U.S. model but more specialized than the traditional Japanese model.

Holistic Concern

The Type Z organization is characterized by concern for employees that goes beyond the
workplace. This philosophy is more consistent with the Japanese model than the U.S.
model.

5
Evaluation Of Theory Z
Research into whether Theory Z organizations outperform others has yielded mixed
results. Some studies suggest that Type Z organizations achieve benefits both in terms of
employee satisfaction, motivation, and commitment as well as in terms of financial
performance. Other studies conclude that Type Z organizations do not outperform other
organizations.

Difficulties in the Japanese economy in the 1990s led some researchers to suggest that the
widespread admiration of Japanese management practices in the 1970s and 1980s might
have been misplaced. As a result, Theory Z has also received considerable criticism. It is
unclear whether Theory Z will have a lasting impact on management practices in the U.
S. and around the world into the twenty-first century, but by positioning target research at
the organizational level rather then the individual level, Ouchi will surely leave his mark
on management practice for years to come

In his book Theory Z, William Ouchi (1981) described the characteristics of the Japanese
companies that produce high employee commitment, motivation, and productivity. Many
Japanese employees are guaranteed a position for life, increasing their loyalty to the
company. Careful evaluation occurs over a period of time, and the responsibility for
success or failure is shared among employees and management. Most employees do not
specialize in one skill area, but work at several different tasks, learning more about the
company as they develop. And Japanese companies are often concerned about all aspects
of their employees' lives, on and off the job. According to Ouchi, Type Z organizations
tend to have stable employment, high productivity, and high employee morale and
satisfaction. Many of these outcomes are similar to Theory Y, and research will continue
to evaluate the feasibility of implementing some of them in American companies (Landy,
1989).

Strategies to Transform the Organization

Ouchi realized the difference between both countries and decided to make up Type Z.
This type Z is going to be comprised of Type A and Type J. The Type Z is a way Ouchi
would like to see American companies ran, but to do this you are going to have to do 12
strategies to make it work. This is the steps companies should take to improve their
quality and performance One is try to understand Type Z and your role. In order for
Theory Z to work, you must have skeptics. These people who think this would not work,
should not be discourage. When a person is discourage or pushed away, they have a
tendency of thinking this will never work. People are going to have to realize that most
companies skeptics out number true believer. By involving these skeptics companies
begin to form a space of trust. Trust will occur when both parties understands each others
view, and know that both are doing it for the good of the company. When a person feels
something is not right, by involving them it shows them that neither side is out to hurt the
other. Everyone has to realize that with trust comes openness to say what you feel.
Another thing people should have is integrity. You should be able to treat people the way
you would like to be treated.

6
The second strategy, the company should be able to audit its philosophy. Here the
company will try to figure out a way that suggests how the company should behave to its
employee and vice virsa. Companies are going to have to find out were the company "is",
not were it should be. First the company is going to have to understand its culture by
studying decisions made in the past. They will than have to organize a big meeting were
they will asked themselves, what they think worked, failed, and what they thought was
inconsistence. When you answer these questions the company begins their philosophy.
Management can never be inconsistence in what they feel is desirable. They can not say
one thing one day and not in force it the next.

The third strategy is management must be able to define desired philosophy and be
able to involve company leaders. Here management can not be intimidated by company
leaders and the company leader must be willing to hear everything the manager has to
say. Company leaders should not discourage his manager from speaking, because when
he is intimidated the manager tends to hold back more information. Company leaders
must be willing to go into a discussion with an open mind and be able to trust his
managers. When both begin to trust each other they are going to make easy decisions
because both will be sharing wanted information.

The fourth strategy is the company will have to create both a structure and incentive
in the company. In this, one strategy, he believes in no organization but wants people to
recognize a his simple structure, teamwork. You as management want to create a place
that whenever somebody is struggling, they can feel assure that his team will pick him
up. When the company faces a person who is hogging up the credit you begin to have a
lot of unhappy people working together. To stop all this unhappiness management will
have to do something they do not want to do, and that is get involved. Companies believe
that manager should be honest to its employee and be able to admit their mistakes, and
vice virsa.

The fifth strategy is the company will have to develop some interpersonal skills.
Here management is going to want everyone to improve on their communication skills.
They want to encourage manager to listen more and know when to interrupt. First people
are going to have to recognize patterns of interactions when making a decision and
solving problems. When somebody try's a quick solution, or drifts off, you should be
trained to spot it and stop it. Once you get everyone back on track, management should
design in answer that everyone should support. To reach in agreement everyone must be
willing to share information, and plans.

The sixth strategy is the company must be able to test themselves and the system.
While implementing Theory Z management is going to begin to question their ability to
manage. So what managers are going to have to do is to just have confidence in their
ability to manage.

7
The seventh strategy is companies are going to have to stabilize employment. To
stabilize employment companies are going to have to challenge every employee, and be
able to give him variation of job to do within the company. Here, when a company is
doing bad they do not encourage management to lay off people, but rather reduce their
hours. This in return gives companies a low turnover rate. Making them waste less time
and money in training new people.

The eighth strategy is how to design a system of slow evaluation and promotion.
Many young employees are very impatient. If they feel they have no chance for a quick
promotion, most employees quit. To end this problem what companies have to do is give
them an incentive to stay. So what the companies do is promote these young impatient
people before somebody else does. You have to make them think that they are really
wanted. This gives them time to learn the business and work with people as a team.

The ninth strategy is how the companies are going to broaden the people’s career
paths. Companies are very aware that people who move from job to job are usually
harder workers than their top managers. The only problem with this is that when they feel
they are going nowhere, they quit. So what the company try's to do is give these
employees a variation of jobs within the company. In order to entertain your employee
within the organization, you are going to have to let them experience every aspect and
every department in the company. When everyone knows what every department is
doing, it makes it much easier for the company to pass important information within
departments.

The tenth strategy is how to get this theory Z working into the lower level. In order
for you to implement Theory Z at the lower level you have to start from the top. The
change must occur with top management and professional employee, before you try to
change lower level employees. People who are lower level employee are not going to
follow a method that top management does not follow. With lower level employees you
are

going to have to be very patient with them, because they have installed in their heads that
management should never be trusted. Employees in the company feel that the companies
foreman are sell outs, who work more with management and do not care about
employees. Like management, the foreman is going to have to gain its employees trust
the same way management did.

The eleventh strategy you have to do is find an area where you can implement
employee’s participation. The way you gain lower level trust is through participation in
company’s decision, and being able to give them rewards for their accomplishments. The
most important thing is give your employees a sense of job security. You also want to
encourage your employees to speak. Let them know that the company wants the
employees to work as a team and not as an individual.

8
The Twelfth strategy thing is to create a sense of family between everyone. Once
you succeed with Theory Z, the way you know if it works is by studying your employees.
If your employees are willing to go out with each other, without the companies
involvement, than you know that you have succeeded.

conclusion
Ouchi's Theory Z makes certain assumptions about workers. These include the
assumption that workers tend to want to build cooperative 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, and 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.

One of the most important tenets 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. For this to work, employees must be very knowledgeable about the various issues
of the company, as well as possessing the competence to make informed decisions.

Theory Z stresses the need for enabling workers to become generalists, rather than
specialists, and to increase their knowledge of the company and its processes through job
rotations and continual training. In fact, 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 intricacies of the company's operations. The desire, under this theory, is
to develop a work force that 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.

While several similarities and differences surround the ideas of McGregor and Ouchi, the
most obvious comparison is that they both deal with perceptions and assumptions about
people. These perceptions tend to take the form of how management views employees,
while Ouchi's Theory Z takes this notion of perceptions a bit farther and talks about how
the workers might perceive management.

9
Bibliography

1). Fred luthans organizational behavior

Forth edition – McGraw- hill book company

2). Robins organizational behavior

Eleventh edition

3). Internet:

10