What Is Theory Z?

Theory Z is a type of management technique that grew out of a hybrid of American and Japanese approaches to business. Its main characteristics are a communal type of atmosphere that is fostered among employees and a devotion to social betterment and values that is just as important as the quest for profits. While the communal aspects of Theory Z spring from Japanese management styles, a dedication to stimulating individual achievement within the group atmosphere comes from American business philosophy. Other distinguishing features of this theory include slow upward advancement within the company and long-term employment spans for workers, and high support from management in the form of skill development and training.

The genesis of Theory Z came from an American professor named Douglas McGregor, whose work became popular in the 1950s and 1960s. McGregor posited that most ineffective management procedures came from the fact that managers had an ingrained negative attitude toward their employees. He termed this approach "Theory X," and noted that it failed to do justice to workers' capabilities and motivations. By contrast, a much more benevolent relationship between worker and employer, known as "Theory Y," was McGregor's solution.

Another theorist named William Ouchi, in a 1981 book, responded to Theory Y by saying that the individualism fostered by American companies could indeed lead to short bursts of excessive productivity. Ouchi, however, felt that the competitive nature of the American system would ultimately be counterproductive. As a result, he came up with Theory Z, which took some of those American principles and tied them to the more community-oriented approach taken by Japanese firms.

A company operating under the principle of Theory Z has all of its employees working harmoniously toward a common goal, even as individual workers within the company still have the opportunity to stand out. The positive relationship between managers and workers posited by Theory Y remains, but it goes a step further by turning the entire company into a single, unified group. It even allows for all decisions involving for the firm to be made on a consensus basis.

Many of the competitive aspects of the American system are discouraged by Theory Z and its insistence on a slow promotion schedule for its employees. Still, the employees benefit from the fact that a company operating under this theory is less likely to hire and fire rapidly, preferring instead to keep employees for as long as possible. Excellent support is provided for employees in this system, and the whole company operates not only for profits but also for the benefit of the society it serves.