The most known perspective addressing the problems facing organizations in the seventies was developed by William Ouchi and is labeled Theory Z. Theory Z presents solutions to problems of human resource management. During this decade, many U.S. firms were losing their competitive advantage to foreign companies. For instance, with the oil embargo came a demand among consumers for more-fuel-efficient automobiles, resulting in an influx of Japanese and German car imports and a decline in market share among U.S. automobile manufacturers. To understand methods of increasing quality and efficiency in the production process to make U.S. goods more competitive with foreign products, Ouchi compared managerial practices in Japan, which he referred to as Theory J, with those in this country, Theory A. From these two theories, Ouchi formed Theory Z, which he believes combines the best of both Japanese and American management practices.
Theory Z attempts to incorporate and integrate the best of American and Japanese styles of management. It advocates that workers should be guaranteed employment for longer periods of time, have a greater role in decision making by participating in group decision-making councils, and be personally responsible for their task activities. In addition, evaluation and promotion should proceed at a slower rate; there should be informal and implicit control mechanisms with formal and explicit measures; moderately specialized career paths; and more emphasis on integrating the workers' roles and responsibilities away from the workplace into the organization (such as family and civic roles).
Ouchi contends that Theory Z retains the American cultural value of individualism by combining it with opportunities to become more a part of the organization's direction and activities through collective decision making. As a result, it is believed that employees will feel a greater sense of belonging to the organization; productivity and product quality will increase as employees take more pride in their work; and absenteeism and turnover, which are costly to most organizations, will decrease. Numerous corporations have studied the Theory Z approach and have integrated part or all of the theory into their managerial philosophy. Perhaps the most common example of the application of the Theory Z approach is the use of quality circles.