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Theory Z is a name for various theories of human motivation built on Douglas McGregor's Theory X and Theory Y. Theories X, Y and various versions of Z have been used in human resource management, organizational behavior, organizational communication and organizational development.
One Theory Z was developed by Abraham H. Maslow in his paper Theory Z and the other is Dr. William Ouchi's so-called "Japanese Management" style popularized during the Asian economic boom of the 1980s. The third was developed by W. J. Reddin in Managerial Effectiveness.
McGregor's Theory Y in contrast to Theory X, which stated that workers inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs.
For Ouchi, Theory Z focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. According to Ouchi, Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction.
Ironically, "Japanese Management" and Theory Z itself were based on Dr. W. Edwards Deming's famous "14 points". Deming, an American scholar whose management and motivation theories were more popular outside the United States, went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s. Deming's theories are summarized in his two books, Out of the Crisis and The New Economics, in which he spells out his "System of Profound Knowledge". He was a frequent advisor to Japanese business and government leaders, and eventually became a revered counselor. Deming was awarded the Second Order of the Sacred Treasures by the former Emperor Hirohito, and American businesses tried to use his "Japanese" approach to improve their competitive position.
Pre Theory Z 
Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based upon human needs produced a theory that had three assumptions. First, human needs are never completely satisfied. Second, human behavior is purposeful and is motivated by need for satisfaction. Third, these needs can be classified according to a hierarchical structure of importance from the lowest to highest (Maslow, 1970).
- Physiological need
- Safety needs
- Belongingness and love needs
- The esteem needs – self-confidence
- The need for self-actualization – the need to reach your full potential
Maslow's hierarchy of needs theory helps the manager to understand what motivates an employee. By understanding what needs must be met in order for an employee to achieve the highest-level of motivation, managers are then able to get the most out of production. Theory X, Y and Z all play a role in how a company should manage successfully. Theory X and Theory Y were both written by Douglas McGregor, a social psychologist who is believed to be a key element in the area of management theory. In McGregor's book The Human Side of Enterprise (1960), McGregor describes Theory X and Theory Y based upon Maslow's hierarchy of needs, where McGregor grouped the hierarchy into a lower order (Theory X) needs and a higher order (Theory Y) needs. McGregor suggested that management could use either set of needs to motivate employees, but better results could be gained by the use of Theory Y, rather than Theory X (Heil, Bennis, & Stephens, 2000).
Implications of these types of theories for leaders in modern organizations 
As theorist through the past many years worked towards the Human Relations Movement, many other fields of expertise joined in to create a stronger force of knowledge and growth. From Psychology that helps to explain changes in human behavior, to Sociology, where we actually study people in their relationships with other human beings. Social Psychology was created when the two concepts were blended so that we can focus on actual influences of people on one another to Anthropology and Political Science. All of these pieces are a part of the growth and success of human development in not only the success of work development but in human relationships in general.
With Theories X, Y, and Z implications for the modern organization include new challenges and opportunities. As we learn from these theories and work to implement the ideas in them we must be aware of the modern issues of working with people from different cultures and overseeing movements of jobs to countries with low-cost labor. Also, we must embrace diversity as the U.S. demographics change and understand that our new managers must recognize and respond to the different culture changes that will surely ensue with their growing diverse working population.
These theories have proven with many fortune 500 companies and others that when applied, do improve quality and productivity and also help to strengthen company labor issues. In addition to the changing work demographic, new problems and issues have risen since the X, Y and Z theories were formed. Some issues include fewer skilled laborers, early retirements, and older workers. Other opportunities that have been implied while companies use Theory Y and Z include, an improvement of people skills, empowering their employees, stimulating change, helping employees balance work with life conflicts, and improving ethical behavior.
Modern implications for companies using these theories have shown improvements in turnover rates, productivity, effectiveness, efficiency, organizational behavior, and job satisfaction.
Further reading 
- McGregor, Douglas. (1960). The Human Side of the Enterprise. New York: McGraw-Hill, Inc.
- Likert R. (1967). Human Organization: Its Management and Value (p. 139). New York, McGraw-Hill.
- Bacarr, Jina. How to Succeed in a Japanese Company. New York. Carol Publishing Group, 1994.
- Maslow, Abraham H. (1970). Motivation and Personality (p. 28). New York: Harper & Row
- Ouchi, William G. (1981). Theory Z. New York: Avon Books.
- Bittel, Lester R. (1989). The McGraw-Hill 36-Hour Management Course (p. 11). New York: McGraw- Hill.
- Luthans, Fred. (1989). Organizational Behavior (p. 36). New York: McGraw-Hill.
- DuBrin, Andrew J. (1990). Essentials of Management (p. 34). Cincinnati: South-Western.
- Massie, Joseph L. and John Douglas. (1992). Managing: A Contemporary Introduction (p. 48). Englewood Cliffs: Simon & Schuster Company.
- Heil G., Bennis W., and Stephens D. (2000). Douglas McGregor, Revisited: Managing the Human Side of the Enterprise (p. 236). New York: John Wiley & Sons, Inc.
- Wortheim E.G. (2002) Historical background of organizational behavior (p. 17). Boston, MA: College of Business Administration.
- Reddin, W. J. Managerial Effectiveness. (1970). (pp. 189–190). (New York: McGraw-Hill Book Company).
- Whisenand, Paul M. and R. Fred Ferguson. (1978). (p. 37). The Managing of Police Organizations, Second Edition.