Theory Z

William Ouchi, after making a comparative study of American and Japanese management practices proposed Theory Z in early 80s. It is an integrative model, containing the best of both worlds. It takes into account the strengths of Japanese management (social cohesion, job security, concern of employees) as well as American management (speedy decision making, risk taking skills, individual autonomy, innovation and creativity) and proposes mixed US – Japanese management systems for modern organizations. The mixed hybrid system has the following characteristics.


Trust and openness are the building blocks of Theory Z. The organizations must work towards trust, integrity and openness. In such an atmosphere the chances of conflict are reduced to the minimum. Trust, according to Ouchi, means trust between employees, supervisors work group’s management, with management icons and government.

Organization employee relationships:

Theory Z makes a passionate plea for strong linkages between employees and the organization. It argues for lifetime employment for people in the organizations. To ensure stability of employment managers must make certain conscious decisions. Then there is a situation of lay off, it should not be followed and instead the owners /shareholders may be asked to bear with the losses for a short while. To prevent employees from reaching a plateau, promotions may be slowed down. Instead of vertical progression, horizontal progressions may be encouraged at various levels. Career paths from employees must be laid down clearly so that employees are aware of what they can achieve and to what extent they can grow within the organization over a period of time

Employee participation:

Participation here does not mean that employees must participate in all organization decisions. There can be a situation where management may arrive at a decision without consulting employees (but informed later on) a decision where employees are invited to suggest but the final green signal is given by the management. But all decisions where employees are affected must be subjected to a participative exercise; where employees and management sit together, exchange views, take down notes and arrive at a decision jointly. The basic objective of employees’ involvement must be to give recognition to their suggestions, problems and ideas in a genuine manner.

Structure less organization: Ouchi proposed a structure less organization run not on the basis of formal relationships specialization of positions and tasks but on the basis of teamwork and understanding. He has given the example of a basketball team which plays together, solves all problems and gets results without a formal structure. Likewise in an organization the emphasis must be on teamwork and cooperation on sharing of information, resources and plans at various levels without any friction. To promote system thinking among employees they must be asked to take turns in various departments at various levels; how their work affects others or is affected by others. It also makes the employees realize the meaning of words such as reconciliation adjustment, give and take in an organization.

Holistic concern for employees:

To obtain commitment from employees leaders must be prepared to invest their times and energies in developing employee skills in sharing their ideas openly and frankly, in breaking the class barriers, in creating opportunities for employment to realize their potential. The basic objective must be to work cooperatively, willingly and enthusiastically. The attempt must be to create a healthy work climate where employees do not see any conflict between their personal goals and organizational goals.

Indian companies have started experimenting with these ideas in recent times, notably in companies like Maruti Udyog Limited, BHEL, by designing the work place on the Japanese pattern by having a common canteen, a common uniform both for officers and workers etc.
Source: HRM Book

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