Theory Z

Merging Eastern and Western Management Styles

Theory Z - Merging Eastern and Western Management Styles

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Combining the best elements of East and West.

Back in the '70s and '80s, Japanese organizations were arguably the most productive and efficient in the world, and they were making significant inroads into North American and European markets.

The secret to their success wasn't necessarily what they were producing. Rather, some argued, it was how they were managing their people – Japanese employees were engaged, empowered, and highly productive.

Management professor William Ouchi argued that Western organizations could learn from their Japanese counterparts. He created Theory Z – a model that, he said, blended the best of Eastern and Western management practices.

In this article, we'll explore this model and discuss if it's still relevant today. We'll also look at how you can apply its principles in your own organization.

About Theory Z

Ouchi first wrote about Theory Z in his 1981 book, "Theory Z: How American Management Can Meet the Japanese Challenge." He created the theory after conducting research designed to help American companies compete with Japanese businesses. It takes the best of the Japanese management philosophy, and the best of traditional US management philosophy, and combines the two.

According to Ouchi, the benefits of using Theory Z include reducing employee turnover, increasing commitment, improving morale and job satisfaction, and drastically increasing productivity.

To realize these benefits, he argued that an organization should have the following:

  • A Strong Company Philosophy and Culture: The company philosophy and culture needs to be understood and embodied by all employees, and employees need to believe in the work they're doing.
  • Long-Term Staff Development and Employment: The organization and management team has measures and programs in place to develop employees. Employment is usually long-term, and promotion is steady and measured. This leads to loyalty from team members.
  • Consensus in Decisions: Employees are encouraged and expected to take part in organizational decisions.
  • Generalist Employees: Because employees have a greater responsibility in making decisions, and understand all aspects of the organization, they should be "generalists." However, employees are still expected to have specialized career responsibilities.
  • Concern for the Happiness and Well-Being of Workers: The organization shows sincere concern for the health and happiness of its employees, and for their families. It puts measures and programs in place to help foster this happiness and well-being.
  • Informal Control With Formalized Measures: Employees are empowered to perform tasks the way they see fit, and management is quite "hands off." However, there should be formalized measures in place to assess work quality and performance.
  • Individual Responsibility: The organization recognizes the contributions of individuals, but always within the context of the team as a whole.


Theory Z has fallen out of favor in many organizations, especially since the performance of the Japanese economy flattened off in the 1990s. However, many of its principles are now seen to be "just good business practice."

Comparisons With Other Models

It's natural to try to compare Theory Z with Theory X and Theory Y, two similarly named management models.

Theory X says that all employees inherently dislike working. They must be enticed to produce work, and need supervision at all levels. As you might imagine, Theory X organizations are heavily bureaucratic and top-heavy.

Theory Y offers a more humane look at management. It says that employees view work as part of life. They use their creativity to solve problems, seek out responsibility and new tasks, and do best when left on their own (instead of with constant direction from management).

Theory Z is sometimes considered a blend of these two models, with more of a leaning towards Theory Y, because it focuses on long-term employment and job security, informal control, and a deep concern for the happiness and well-being of employees.

However, it's also possible to argue that Theory Z doesn't belong with Theories X and Y.

Applying the Tool

Applying all the principles of Theory Z may be impractical, and even undesirable, in some situations. However, there are some useful aspects to the theory. We've highlighted these below.

Corporate Culture

Theory Z organizations have a strong corporate culture, which helps create loyalty and a sense of identity in team members.

This raises the question of what your corporate culture is. Do you even know? Use tools like Deal and Kennedy's Cultural Model, The Cultural Web, and the Competing Values Framework to understand your organization's culture and the risks and rewards associated with it.

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Make sure that your team knows about, and understands, your organization's culture. Spend time discussing this culture with your team. If the organizational culture is not where your team wants it to be, and if the organization's leaders agree, then begin taking steps to change it.

Long-Term Staff Development and Employment

It's unrealistic to expect members of your team to stay with the organization for their entire career. However, it's important to have developmental programs in place to help your people learn and grow professionally.

Begin by taking our quiz, How Well Do You Develop Your People? to discover how well you're developing your team.

Help your people develop by putting them in coaching or mentoring relationships. These can provide invaluable insights and advice to help everyone develop. A Talent Management plan is also important for identifying, developing, and keeping your most talented people.


Make sure that your team is aware of the development opportunities that your organization already has in place. For instance, your organization might provide weekend training or tuition reimbursement.

Concern for the Happiness and Well-Being of Workers

Are your people happy? Are they in roles that are best suited to their particular talents? As a leader, it's up to you to make sure that members of your team are happy and healthy.

Use Herzberg's Motivator/Hygiene Theory and McClelland's Human Motivation Theory to discover what motivates and drives members of your team, and use this to allocate tasks effectively.

Sometimes, morale can drop because people feel that they're not getting compensated fairly. See our article on Understanding Strategic Compensation to learn how to judge your team's pay structure fairly.

Make sure that your team members know how to manage stress, and that they know how to recognize burnout. Pressure can be a good thing, but too much negatively impacts our physical and mental health, as well as our productivity. If you suspect that any members of your team are feeling burned out, talk to them one-on-one. Ask them what you can do to reengage them with their work or lighten their workload.

There are many ways to keep your team motivated without monetary rewards. Offer flexible working, home-working, or extra vacation time as a reward for good performance.

It's also important to create a happy and healthy workplace for your people.


Our article on the Inverted-U Model has more information on how you can help your people manage pressure and stress.

Control and Consensus in Decisions

It isn't always practical to give everyone a share in decision making. You can, however, make sure that your encourage people to solve their own problems and make their own decisions. Just be available to guide them in the right direction if they need help.

You should also avoid micromanagement where possible, and be open with everyone on your team about the decisions that you, and your organization, make.

Individual Responsibility

You want your team to take advantage of their words and actions. This must begin with you! Make sure that you lead by example; take responsibility for what you do, especially when you make a mistake. (Humility is incredibly important here.)

Create an atmosphere of openness and acceptance within your team, and, encourage people to own up to their actions, mistakes, and successes. This openness and trust will create a sense of loyalty and responsibility.

Tip 1:

While Theory Z argues that management made the key difference between Japanese and Western businesses in the '70s and '80s, other people believe that the key difference was that the Japanese companies understood consumers' needs better, produced better quality products, and produced goods more efficiently.

You can learn about some of the principles underpinning these in our articles on Deming's 14 Point Philosophy and Lean Manufacturing, and you can find out more about current approaches to quality in our article on Six Sigma.

Tip 2:

Ouchi talked about Japanese companies valuing "generalist employees."

That's fine, but don't try to become a generalist employee (also known as a "replaceable employee") yourself. Focus on building expertise in an area that really matters to your company.

Key Points

Theory Z was originally created by Professor William Ouchi in the early 1980s. It's a blend of Eastern and Western management philosophies.

The theory suggests that organizations incorporate the following elements in order to create a happy, productive, and loyal workforce:

  • Strong company philosophy and culture.
  • Long-term staff development and employment.
  • Consensus in decisions.
  • "Generalist" employees.
  • Concern for the happiness and well-being of workers.
  • Informal control with formalized measures.
  • Individual responsibility.

It can be impractical to use all elements of the theory. However, it still has many useful strategies, which you can use to boost your team's performance and productivity.