Ouchi’s Theory Z

William G. Ouchi
*American professor and author in the field of business management.
*B.A.- Williams College.
MBA- Stanford University.
Ph.D. in Business Administration- The University of Chicago.
*Stanford business school professor for 8 years.
*His first book- Theory Z:How American Management Can Meet the Japanese
Challenge
*Ouchi also came up with his three approaches to control in an organization's
management:
1. Market control.
2.Bureaucratic control.
3. Clan control.
 History
"Theory Z." can be traced to the work of Douglas McGregor in
the 1950s and 1960s.
Theory X ('authoritarian management' style)
Features:
The average person dislikes work and will avoid it he/she can.
Therefore most people must be forced with the threat of punishment to
work towards organizational objectives.
The average person prefers to be directed; to avoid responsibility; is
relatively unambitious, and wants security above all else.
.
Theory Y ('participative management' style)
Features:
 Effort in work is as natural as work and play.
 People will apply self-control and self-direction in the pursuit of
organizational objectives, without external control or the threat of
punishment.
 Commitment to objectives is a function of rewards associated with their
achievement.
 People usually accept and often seek responsibility.
 The capacity to use a high degree of imagination, ingenuity and creativity
in solving organizational problems is widely, not narrowly, distributed in the
population.
 In industry the intellectual potential of the average person is only partly
utilized.
 What Is Theory Z ?
• Japanese management style
• Introduced in 1980s
• This theory was based on some assumption:-
1. promote: - stable employment, high productivity, and high
employee morale and satisfaction.
2. Employees want to build cooperative relationships with other
employees in the firm.
3. It also talked about sense of dedication, self-discipline, collective
decisions within the firm.
4. To secure employment and development of multiple skills.
DISTINGUISHING FEATURES
OF THEORY Z
Mutual Trust:
According of Ouchi, trust, integrity
and openness are essential
ingredients of an effective
organisation.
2. Strong Bond between
Organisation and Employees:
Several methods can be used to
establish a strong bond between the
enterprise and its employees.
Employees may be granted lifetime
employment which leads to loyalty
towards the enterprise.
3. Employee Involvement:
Theory Z suggests that involvement of
employees in related matters improves
their commitment and performance.
Involvement implies meaningful
participation of employees in the
decision-making process, particularly
in matters directly affecting them.
4. Integrated Organisation:
Under Theory Z, focus is on sharing of
information and ‘ resources rather
than on chart, divisions or any formal
structure.
5. Coordination:
The leader’s role should be to coordinate the efforts of human beings. In
order to develop common culture and class feeling in the organisation,
the leader must use the processes of communication, debate and
analysis.
 Limitations of Theory Z:
(i) Provision of lifetime employment to employees to develop a
strong bond between organisation and employees may fail to
motivate employees with higher level needs. It merely provides
job security and may fail to develop loyalty among employees.

(ii) Participation of employees in the decision-making process is very

difficult.

(iii) Theory Z suggests organisation without any structure

(iv) It may not be possible to develop a common culture in the
organization.

(v) Theory Z is based on Japanese management practices.