Theory Z Is a Paradigm

Theory Z is a paradigm of management theory based on a combination of American and Japanese management styles. Its focus is the ability to apply the best parts of Japanese management -- long-term employment and job security, consensual decision making; and the best from American management -- promotion and marketing, individual responsibility, and group leadership. Using the best of two worlds, proponents say, allows for vast and measurable performance improvements within any organization. Theory Z takes into account that within these organizations there will be a number of individuals who excel at one style or another, and if allowed the opportunity to blend styles, will actualize better, thus creating a better working environment and win-win situation for all.

The combining of these paradigms were heavily influenced by sociological and psychological data and can be traced to the work of Douglas McGregor in the late 1950s and early 1960s. McGregor developed a theory on the negative assumptions regarding human nature and motivation, calling that Theory X McGregor believed that these attributes were strong demotivators and limiters for many American workers. Alternatively, McGregor posited his Theory Y, which adopted opposite behaviors and would improve managerial and working style. Theory Z took McGregor's work and added information from American (Type a) and Japanese (Type J) traits and argued that all in combination would provide a greater synthesis and improvement in style. This was presented in a 1981 book by William Ouchi (Barney, 2004).

As an approach to management, the key elements of Theory Z, which have difference in importance and interpretation within different cultures, are designed to merge together to form a more cohesive organization. This new organizational type, according to Ouchi, will allow workers the opportunity to not only participate in their organization, but take personal ownership and therefore, have a vested interest in profitability (Ouchi, 1981).

Long-Term Employment -- Japanese organizations tend to have longer employee cycles than U.S. companies. Many U.S. companies treat employees as replaceable parts. It is far more cost-effective and efficient to retain expertise than continually retrain. This keeps the knowledge base inside the company. Providing incentives for long-term employment, then, is an essential component of Theory Z

Consensual Decision Making -- When employees feel that they have input into decisions that affect them, their jobs, and their daily processes, they are more likely to buy into those decisions and support change management.

Individual responsibility -- Moving away from 'the union mentality' and accepting measurement based on individual performance is tough for many Americans, but the balance between the group and the individual's participation actually empowers both.