Theory Z – Features and Limitations

Large group of people in letter Z form


Around 1970s and ‘80s, Japan had emerged as one of the most successful countries in the world. In fact, the productivity of Japan had risen above the productivity of America. The news of Japan’s success was slowly spreading across the more developed nations in Europe and in North America. In this article, we will discuss about the features of a mixed management system that includes Japanese and American styles and see how far it is effective. Our article is about Theory Z which is going to render a detailed insight into rewarding people and ensuring team management.

An Idea

According to Ouchi, Theory Z gives emphasis to increased loyalty of an employee by providing him or her job that lasts throughout the lifetime. The theory is focused on the wellbeing of the employee, whether he or she is still working or not. He described that the theory promotes productivity, employee satisfaction plus confidence and stable employment.


Theory Z was postulated by Dr. William Ouchi during the economic boom in Asia in the 1980s. It is also well known as the "Japanese Management" style.

The secret to the success of Japan was not the products they came up with, but the way they managed their human resource. The people, at Japan were empowered, engaged and productive.

In 1981, Ouchi wrote a book, ‘Theory Z How American Business Can Meet the Japanese Challenge’ in which he talks about how American business establishments can stand up to the challenge thrown by their Japanese counterparts. He postulated the use of an effective style of management. Theory Z is an amalgamation of Japanese business techniques and corporate environment of America.

Features of Theory Z

The theory states that large organizations are based on human resource and their success depends on the harmony between the employees and the employers. It further explains that a company has three major features. They are trust, intimacy and subtlety. While trust helps in decreasing discord, intimacy denotes support and concern. Subtlety on the other hand contributes in the productivity of the organization besides denoting sensitive handling of issues.

Elaborate Features of Theory Z

Strong tie between employees and organization

There are various means to establish strong tie between employees and an organization. Some of them include forsaking of dividends by shareholders so that employees do not have to bear the brunt of adverse conditions in business, lifetime employment, career planning for every employee, etc. In order to maintain morale of all employees during economic downturn, organizations should give stress on horizontal movement of employees rather than vertical movement. As a result, companies nurture a stable work atmosphere.


Ouchi stated that openness, integrity and mutual trust are essential in ensuring successful team management. When there is trust among the factions of an organization such as work groups, employees and management, there is less strife and employees try to meet the objectives of the company.


Managers and team leaders coordinate the roles of the other employees. They help in creating a common culture in the organization by applying the techniques of debate and analysis.

Involvement of employee

According to Ouchi, if all employees are involved in similar matters, they perform with a lot of commitment. Here, involvement means employee participation in matters that affect them, such as the process of decision making. As a result, employees who are among the internal stakeholders of a company are more enthusiastic about the application of the decisions. In such instances, managers are facilitators, not decision-makers.

Developing skills of employees

Managers and team leaders should take up the responsibility to develop the capability of employees and enhance their performance. The contribution of each and every employee is identified and their skills are developed through training and coaching.

Control system

The system by which an organization is controlled should be made more informal, so that there emerges intimacy and mutual trust among the different factions of the organization.

Hence, it can be reiterated that theory Z is a combination of Japanese and American business management styles. While Japanese management system comprises group decision-making, security in job, employee welfare, etc, American system of management includes taking risks and quick decision-making.

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Disadvantages of the theory

  • Employee participation in decision-making process is not always supported by managers as it can hurt their ego. Employees may also not want to be a part of the decision-making process due to fear of criticism. Employees often do not understand the larger issues at hand, so even if they sit at the decision-making meeting, they can’t take the initiative to say something useful. Moreover, if all employees tend to take interest in the decision making process, it can become slow and lengthy.
  • The concept of lifetime employment may not be lucrative for employees who have high ambitions. Though it is meant to provide strong relationship and loyalty, it only serves the purpose of job security. Moreover, a better job offer may entice the employee to leave that company and join another company. Job security makes employees lazy and employers also do not prefer retaining inefficient and lazy human resources.
  • Creating a common culture in the company may not always be possible given the presence of employees from different religious, regional and linguistic backgrounds. People also differ in habits, practices and behaviors.
  • The concept of Theory Z hypothesizes that an organization should not be structured. However, Ouchi fails to realize that an unorganized structure leads to chaos and no one will take responsibility of any action.
  • Since, the idea of Theory Z emerged from Japanese management principles; it may not be fruitful for the rest of the world. Since, all economies are different in culture, form and structure, the theory may not work for all of them.

To Wrap Up

From this article, it can be concluded that though employee welfare and partnership with management should be the essence of every organization, what worked in Japan may not be applicable in all economic structures. Therefore, every country should have a specific management style which it should utilize appropriately for both company and employee wellbeing.

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