Theory Z was developed by Dr. William Ouchi’s so-called “Japanese Management” style popularized during the Asian economic boom of the 1980s.
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.
Professor Ouchi spent years researching Japanese companies and examining American companies using Theory Z management styles. By the 1980s, 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 of 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 1980s.
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 strong company philosophy, a distinct corporate culture, Jong-range staff development, and consensus decision-making”.
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.
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.
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.
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.