William Ouchi developed Theory Z after making a comparative study at Japanese and American management practices. Theory Z is an integrated model of motivation, it suggests that large complex organizations are human systems and their effectiveness depends on the quality of humanism used.

A type Z organization has three major features- trust, subtlety and intimacy. Mutual trust between members of an organization reduces conflict and leads to team work. Subtlety requires sensitivity towards others and yields higher productivity. Intimacy implies concern, support and disciplined unselfishness.

The features of Theory Z are as follows:

Mutual trust: According to Ouchi, trust, integrity and openness are essential ingredients of an effective organization. When trust and openness exist between employees, work groups, union and management, conflict is reduced to the minimum and employees cooperate fully to achieve the organization’s objectives.

Strong bond between organization 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.

Employee Involvement: Theory Z suggests that involvement of employees in related matters improve their communication and performance. Involvement implies meaningful participation of employees in the decision-making process, particularly in matters directly affecting them. Such participation generates a sense of responsibility and increases enthusiasm in the implementation of decision. Top managers serve as facilitators rather than decision-makers.

Integrated Organization: Under theory Z, focus is on sharing of information and resources rather than on chart, divisions or any formal structure. An integrated organization puts emphasis on job rotation which improves understanding about interdependence of tasks.

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 organization, the leader must use the processes of communication, debate and analysis.
Informal Control System: Organizational control system should be made informal. For this purpose, emphasis should be on mutual trust and cooperation rather than on superior-subordinate relationships.

Thus, Theory Z is a hybrid system which incorporates the strengths of American management (individual freedom, risk taking, quick decision-making, etc.) and Japanese management (job security, group decision-making, social cohesion, holistic concern for employees, etc.) systems.