8 Theory Z

Niti Goyal

Learning Outcome:

After completing this module the students will be able to:

• Understand the Theory Z management style.
• Know about the assumptions & features of Theory Z
• Expected result of Theory Z management style
• Limitations of Theory Z

INTRODUCTION:

Effective management & leadership require a good understanding of human psychology and behaviour and the factors underlying these. This provides an understanding of how to direct and motivate the employees so that the desired objectives could be achieved effectively.

Performance of an employee depends not only on his ability but also on the level of his motivation. Even the most efficient employ cannot perform in absence of motivation.

Theory Z was developed by Prof. William Ouchi after making a comparative study of Japanese and American management practices. Theory Z is an integrated model of motivation which combines the best features of Japanese and American management styles. Theory Z suggests a kind of give and take relationship between the organization and the employees. It suggests that an employee will feel motivated and give his best to the organisation if his human needs & social, personal & professional needs are realized and fulfilled by the organisation. Theory Z is a participative management style, for it to be a success, it is important that management must have a high degree of confidence in its workers.

DEVELOPMENT OF THEORY Z

Theory Z was introduced into the management jargon by Prof. Ouchi. In the 1970s and 1980s, many United States companies were underperforming and losing market share while Japanese companies were outperforming the world.

This led to the concerns about the productivity & competitiveness of U. S. companies which led may researchers to examine the reasons for success enjoyed by the Japanese.

Ouchi in his book called Theory Z: How American Business Can Meet the Japanese Challenge (1981) discussed how American corporations can meet the Japanese challenges with a highly effective management style.

Ouchi found the Japanese work culture and management style to be different. Japanese work in groups rather than as individuals & always come to a solution via teamwork. Japanese work culture is characterized by job security, social cohesion and holistic concern for employees. Japanese show a high level enthusiasm to work. American management style and work culture is characterized by individualism, , risk taking, quick decision-making. Difference between the Japanese and American organisation management style has been shown in the table below:

Table 1: Difference between the Japanese and American management style

According to Ouchi, The secret to Japanese success is not technology, but the way they manage people and organisation.  “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).

William Ouchi didn’t advocate the use of Japanese culture for American business as such. Instead, he came up with hybrid management approach combining Japanese management philosophies with U.S. culture.

This hybrid management style that evolved out of the best practices of the US and the Japanese culture is Theory Z. Theory Z capitalize on the best characteristics of Japanese organizations while retaining aspects of management that are deeply rooted in U.S. traditions of individualism. Ouchi proposed that a Theory Z management approach could lead to:

• High employee morale.

• Greater employee commitment & job satisfaction.

• Lower rates of absenteeism and turnover.

• Higher quality products & high productivity.

• Better overall financial performance.

• Strong work force.

ASSUMPTIONS of THEORY Z.

Theory Z is based on certain assumptions. These assumptions actually form the basis of the theory. The assumptions on which Theory Z is based are:

1. Employees tend to want to build cooperative & intimate relationships with their employers, and also with other employees in the organization.

2. Employees expect the organisation to support them.

3. Employees prefer a secure employment.

4. Employees want to be facilitated by  the organisation for their development through training and job rotation,

5. Highly value a working environment in which social institutions & family are regarded equally important as work .

6. Workers have a very well developed sense of order, discipline and a moral obligation to work hard.

7. If management supports the workers, and care for their well being, workers also do their jobs with their utmost ability.

8. They can make collective decisions through consensus.

An essential pre- requisite of theory Z is that the management must have a high degree of confidence in its workers.

The primary features of Theory Z are discussed below:

i. Mutual Trust

Theory Z presupposes trust, integrity and openness between the members of the organisation. When trust and openness exist between the members, conflict is reduced to the minimum and employees cooperate fully to achieve the organization’s objectives.

ii. Long-Term Employment

Theory Z emphasizes long term employment. This promotes stability in the organization and job security among employees. It also promotes loyalty towards the enterprise and hence a stable and conducive work environment. However in Traditional U.S. organizations, employer employee relationship was short term only. But Japanese organizations make life-long employment commitments with their employees with some conditions and expect loyalty in return.

iii. Slow Evaluation And Promotion

Under Theory Z, potential of every person is recognized and attempts are made to develop and utilize it through job enlargement, career planning, training, job rotation etc. Promotions are slow under this management style. As against vertical movement of employees, emphasis is placed on horizontal movement. This way, employees develop a good knowledge about the various issues of the company and become competent to take the various decisions and contribute to decision making.

iv. Integrated Organisation

Theory Z organizations are integrated organizations which focus on sharing of information and resources rather than any formal structure. It stresses on job rotation which improves understanding about interdependence of tasks which leads to group spirit.

v. Moderately Specialized Career Path

Theory Z management style doesn’t stress too much on extreme specialization as was the case with American style organisation where employees were restricted to one functional career path. Theory Z advocates workers to become generalists, rather than specialists, and to increase their knowledge about the various issues of the company and its processes through job rotations and constant training. It stresses employees to be very knowledgeable about the various issues of the company, as well as possess the competence to make those decisions and work for the overall development of the company .Workers are given slow promotions since spending more time on the same job makes him trained in his operations and the worker gets more chance to increase his overall knowledge about the company’s operations.

vi. Employee Involvement

Theory Z emphasizes collective decision making which is contrasting to the American corporate culture which favored individualism. Theory Z suggests that the involvement of employees in decision making, particularly in matters directly affecting them improves their commitment and performance. It also generates a sense of responsibility and motivates them in the implementation of decisions. Top management facilitates in decision making rather than taking decision themselves.

vi. Individual Responsibility Within A Group Context

This feature combines the characteristic of both the Japanese and the American organizations. Type Z organizations emphasize on the individual performance but within the group. Thus, not only the group but also an employee individually is responsible for the achievement of goals.

vii. Informal Control With Formalized Measures

Theory Z emphasizes mutual trust and cooperation rather than on superior-subordinate relationships. Theory Z organizations are basically social organizations but still there is a formal structure that binds the employees such as formal authority responsibility relationships, performance evaluation, and some work specialization. This is an attempt to combine elements of both American and Japanese organizations.

viii. Holistic Concern

Theory Z organizations show holistic concern for the employee. This philosophy is more consistent with the Japanese model than the U.S. model. Theory Z stresses on the overall development of the employee. Social needs, personal needs, professional needs and human needs of a employee are taken care of by the organisation. Social life and customs are given equal importance as work.

According to Professor Ouchi, Theory Z organizations are completely social and share common values, beliefs, and objectives. This help in achieving a rapport between the individual and group goals. Common cultural values should promote greater organizational commitment among employees. Although Theory Z organizations are social but still there is a formal structure that binds them such as formal authority relationships, performance evaluation, and some work specialization. Under Theory Z holistic development & well being of an employee is taken care of both on and off the job. Proponents of Theory Z suggest that it leads to improvements in  organizational  performance. Theory  Z  incorporates  long  term  investment  in employees training , the ability to make collective decisions and ability to handle the higher position in the future by overall knowledge of the organisational tasks. Theory Z is applicable to skilled workers who intend to remain with the company for long time. A worker who is hired for some time is not a theory Z worker. Unskilled workers also do not fall under Theory Z .

Limitations of Theory Z:

As nothing is absolute, theory Z also suffers from some limitations which have been discussed below. The following are the limitations of theory Z:

i. Less motivating for employees with higher level needs: Theory Z organizations stress on providing lifetime employment to employees to develop a strong bond between organisation and employees . But this may fail to motivate employees with higher level needs. It merely provides job security and may fail to develop loyalty among employees. An employee may leave the organisation when better employments are offered to him by some other enterprise.

ii. Lethargic: Proving complete job security may create lethargy among some employees. They may feel satisfied with the thought of job security and thus may become reluctant to take responsibilities. Employers also do not like to retain inefficient employees permanently.

iii. Lack of authority of higher level employees: Participation of employees in the decision-making process is very difficult. Employees may not like to participate in decision making due to fear of criticism. To make the employees take initiative, key issues should be made clear to them. Involvement of all employees may also slow down the decision-making process.

iv. Chaos: Theory Z suggests organisation without any structure. But without structure there may be chaos in the organisation as nobody will know who is responsible to whom.

v. Difficult to create common culture: It may not be possible to develop a common culture in the organisation because people differ in their attitudes, habits, languages, religions, customs, etc.

vi. Not practical: Theory Z is based on Japanese management practices. These practices have been evolved from Japan’s unique culture. Therefore, the theory may not be applicable in different cultures.

Thus, Theory Z does not provide complete solution to motivational problems of all organizations operating under different types of environment. However, it is not merely a theory of motivation but a philosophy of managing.

Some of the American firms following Theory Z : IBM, Proctor And Gamble, Hewlett

Packard, Eastman Kodak and he US Military. (source: nraombakc.blogspot.in)

Theory Analysis, Comparisons & Contrasts:

Theory Z as at a first instance reminds us of the two other similarly named theories; Theory X and Theory Y. It’s natural to compare Theory Z with Theory X and Theory Y, two similarly named management models. The three theories look at the attitudes of managers and workers with different views. They both deal with perceptions and assumptions about employees.

Theory X & Theory Y both were propounded by Douglas McGregor. Both are contrasting theories making different set of assumptions about the behaviour and attitude of employees and thus their motivation. These theories see human behaviour and motivation as the main priority in maximizing output at the workplace. Theory Z developed by Dr. William Ouchi. is sometimes considered a blend of these two models, with more inclination towards Theory Y.

A brief snapshot of the two theorieshas been presented below.

Theory X was the earliest theory and takes a pessimistic view of workers. It uses the carrot and the stick approach to motivate workers. Theory X basically holds the belief that

• Workers dislike work.

• They are inherently lazy & do not like to take responsibilities.

• Money is the only motivation to work

• Strick supervison is required to get the work done.

Theory Y contrasts theory X. This theory makes positive assumptions about the human behaviour. These are:

• Employees do not dislike work. They are ambitious.

• Workers like to assume responsibilities.

• Employees are Self directed and self motivated

• They have strong desire to participate in the decision making process.

• Money is not the sole motivator. Monetary incentives motivate employees with lower level of needs, but non monetary incentives play a major role in motivating employees with higher level of needs.

Theory Z is sometimes considered a blend of these two models, with more inclination towards Theory Y. However, it’s also possible to argue that Theory Z doesn’t belong with Theories X and Y.

Theory Z also makes positive assumptions about the behaviour of employees towards work. Theory Z focuses on long-term employment and job security, informal control, and a deep concern for the happiness and well-being of employees both on and off the job. Theory Y is a largely psychological perspective focusing on individual relationships in the organisation while Theory Z changes the level of analysis to the entire organization. A comparison of the three theories has been made in table 2 below.

Table 2 : Comparison of Theory X, Theory Y and Theory Z.

	Theory X	Theory Y	Theory Z
Self motivation	Employees are not self motivatied	Employees are Self motivated	Employees are Self motivated
Initiative	Employees don’t like to take initiative	Employees like to Take initiative	Employees like to Take initiative
Leadership style of managers	Authoritative	Participative	More participative
Formal structure of organisation	Exists	Exists	Doesn’t exist.
Specialisation	Employees are supposed to be specialists in their functional career path	Employees are supposed to be specialists in their functional career path	Employees are supposed to be generalists rather than specialists so that they can take better decisions for the organisation as they would be more aware of the various aspects.
Job security	Theory X is silent about job security	Theory Y silent about job security	Employees are provided security of their jobs
Promotions	Theory X silent about promotion	Theory Y is silent about promotion	Slow promotions
Decision making	Individual	Individual/participative as the case may be	Participative
Motivating factor	Money only	Money ,for workers with lower level needs non monetary factor for employees higher level needs	Taking care of social, personal, professional and human needs
Motivating style	Carrot and stick approach/ negative motivation	Positive motivation	Positive motivation

Several similarities and differences can be seen in the ideas of these two theorists, with Theory Y and Theory Z making some similar assumptions. Theory Y make assumptions about what managers perceive employees to be, Theory Z in addition talks about how the workers might perceive management to be.

Summary & Conclusions:

Theory Z incorporates the strengths of American management and Japanese management systems. Theoty Z was developed by prof. Ouchi. He argued that such a hybrid management philosophy, would allow organizations to enjoy many of the advantages of both systems. It is a humanistic approach to management. It provocates that the success of an organisation depends on the quality of humanism used. Although it is based on Japanese management principles, it is not a pure form of Japanese management. Theory Z emphasises things such as job rotation, broadening of skills, generalisation versus specialisation, and the need for continuous training of workers .

References:

• William G. Ouchi, Theory Z: How American Business Can Meet the Japanese Challenge Avon books

• Kootnz & O’Donnell, Principles of Management.

• Harold Koontz, Essentials of Management , TMH

• J.S. Chandan, Management Concepts and Strategies

• Smallbusiness.chron.com

• nraombakc.blogspot.in

• http://www.abrahan-maslow.com/m_motivation/Theory_Z.asp

• http://petervenn.tripod.com/brochure/complete/xyz.htm