Wednesday, February 15, 2012

Theory Z - Type Z Organizations


Differences between American and Japanese Management Practices

William Ouchi proposed the concept of theory Z organizations. The concept was developed in his efforts to understand the best practices of Japanese management which can be used in companies of USA. He identified the differences between American and Japanese organizations in some aspects.

American Organizations Japanese Organizations
Short-term employment Lifetime employment
Individual decision making Collective decision making
Individual responsibility Collective responsibility
Rapid evaluation & promotion Slow evaluation & promotion
Explicit control mechanisms Implicit control mechanisms
Specialized career paths Nonspecialized career paths
Segmented concern for employee as an employee Holistic concern for employee as a person

Then he went around interviewing managers of various companies asking them to identify American Companies which are practicing the characteristics identified by Ouchi as Japanese organization practices. But Ouchi had not told the managers that they were Japanese practices. Many managers identified some American companies as following those practices. The companies identified were IBM, Procter and Gamble, Hewlett Packard, Eastman Kodak, and the US Military. These companies are named Theory Z companies by Ouchi. They are companies in USA but follow practices similar to Japanese companies.

Like Japanese companies, type Z companies tend to encourage long-term employment. They rotate employees around functions. Even though they have modern information and accounting systems, they do not dominate decision making. Explicit and implicit information and issues seem to exist in a state of equilibrium. There is a central set of objectives to which all employees have agreed. The corporation’s philosophy or central set of values preserves the freedom of employees to pursue projects they felt would be fruitful. Organizational life is treated as a life of interdependence. It is team work and individual performance measure in a period has some ambiguity.

The decision making is collective but the responsibility for decision still resides in the individual. In type Z companies, superiors show broad concern for the welfare of subordinates. At peer level also, there is concern for co-workers. Egalitarianism is a central feature of type Z organizations. In egalitarianism in organizational contexts means that it is believed that each person can apply discretion and can work autonomously without close supervision. The belief is that every person can be trusted. 
Ouchi proposes that American companies adopt type Z company practices. In stead of trying to imitate Japanese companies which are very far in a different culture, American companies can learn from some other American companies only, to follow some of the Japanese best practices.

 Strategies to Transform the Organization

Ouchi proposed 12 strategies or steps to transform a typical American company, named as type A company to type Z company.  In order for Theory Z to work, skeptics have to be allowed to exist. These people, who think this would not work, should not be discouraged. By involving these skeptics companies begin to form a space of trust. Trust will occur when both parties understands each others view, and know that both are doing it for the good of the company. When a person feels something is not right, by involving them it shows them that neither side is out to hurt the other. Everyone has to realize that with trust comes openness to say what you feel. Another thing people should have is integrity. You should be able to treat people the way you would like to be treated.

The second strategy, the company should audit its philosophy. Here the company will try to figure out a way that suggests how the company is behaving with its employee and vice versa. Companies are going to have to find out were the company "is", not were it should be. First the company is going to have to understand its culture by studying decisions made in the past. They will than have to organize a big meeting and ask themselves, what they think worked, failed, and what they thought was inconsistent. The answers to these questions bring out philosophy of the company.  

The third strategy is management must be able to define desired philosophy and be able to involve company leaders. Here management can not be intimidated by company leaders and the company leader must be willing to hear everything the manager has to say. Company leaders should not discourage his manager from speaking, because when he is intimidated the manager tends to hold back more information. Company leaders must be willing to go into a discussion with an open mind and be able to trust his managers. When both begin to trust each other they are going to make easy decisions because both will be sharing wanted information.

The fourth strategy is the company will have to create both a structure and incentive in the company. Create a place that whenever somebody is struggling, they can feel assured that his team will pick him up.

The fifth strategy is the company will have to develop some interpersonal skills. Here management is going to want everyone to improve on their communication skills. They need to encourage managers to listen more and know when to interrupt. First people are have to recognize patterns of interactions when making a decision and solving problems.

The sixth strategy is the company must be able to test themselves and the system. While implementing Theory Z management is going to begin to question their ability to manage.

The seventh strategy is to stabilize employment. To stabilize employment companies are going to have to challenge every employee, and be able to give him variation of job to do within the company. Here, when a company is doing badly they do not encourage management to lay off people, but rather reduce their hours. This in return gives companies a low turnover rate that results in less waste in training new people.

The eighth strategy is how to design a system of slow evaluation and promotion.

The ninth strategy is to broaden the people’s career paths. In order to retain employees within the organization, let them experience every aspect and every department in the company. When everyone knows what every department is doing, it makes it much easier for the company to pass important information within departments.

The tenth strategy is how to get this theory Z working into the lower level. In order for you to implement Theory Z at the lower level you have to start from the top. The change must occur with top management and professional employees, before you try to change lower level employees. People who are lower level employee are not going to follow a method that top management does not follow. With lower level employees you have to be very patient with them, because they have installed in their heads that management should never be trusted. Employees in the company feel that the company foremen are sell outs, who work more with management and do not care about employees. Like management, the foreman has to gain his employees’ trust.
The eleventh strategy is to find areas where employee participation is allowed in decision making. The way you gain lower level trust is through participation in company’s decision making, and give them rewards for their accomplishments. You need to encourage employees to speak and let them know that the company wants the employees to work as a team and not as individuals.
 The final thing is to create a sense of family between everyone.

 

Theory Z of Maslow

Maslow is a well known psychologist. He is known for his hierarchy of needs model.
Maslow's Theory Z , presented in Maslow on Management, presupposes that people, once having reached a level of economic security, strive for a life steeped in values, a work life where the person would be able to create and produce. Maslow's Theory Z and Ouchi's Theory Z are different.

References

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Originally posted by me in Knol (Knol 47 of Narayana Rao)


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