An Attractive Japanese Export

By Christopher Byron

The XYZs of management theory challenge American bosses

Their prices are cheap because they pay their workers subsistence-level wages. Their products are top quality because their plants are all brand new and automated. They get billions annually in government handouts and subsidies and, what is more, they do not abide by the rules of fair trade.

This view of Japanese corporations has long been the familiar refrain of U.S. businessmen seeking to explain the economic success of Japan. Now, however, a much less recognized proposition is being advanced: the real secret of Japan's success is better management, especially in personnel policy. That is the thesis of an inscrutably titled book, Theory Z, by U.C.L.A. Management Professor William Ouchi that will be published in April by Addison-Wesley.

Ouchi uses the terminology of Douglas McGregor, the late professor at M.I.T. who distinguished between two basic types of management attitudes in U.S. business: so-called Theory X bosses, who believe that workers are basically lazy and untrustworthy, and Theory Y managers, who hold the opposite view. Ouchi takes the alphabet one step further with the "Theory Z" corporation. This is a company that emphasizes long-range planning, consensus decision making and strong, mutual worker-employer loyalty. Ouchi argues that such corporations can be models for many American firms struggling with problems of high employee turnover, declining productivity and generalized worker alienation.

Theory Z-style corporations are not simply a business-school ideal. They already exist widely in Japan, where American business practices and production methods have long since been adopted. There are also a few American corporations that have these characteristics. Among those spotlighted by Ouchi are IBM, Intel, Procter & Gamble and Hewlett-Packard.

In developing his case for Theory Z, Ouchi wisely skips over the sour-grapes complaints by many U.S. businessmen about unfair Japanese competition and zeros in on the style and substance of Japanese management. Using a mixture of business-school scholarship and pop sociology, he concludes that Japanese managers get more out of their employees than American bosses do because the whole structure of Japanese society encourages mutual trust and cooperation. This allows collective enterprises like large corporations to flourish. Japanese companies are structured around a powerful, bonding attachment between workers and their firms, and Ouchi focuses on the ways that managers help to reinforce and strengthen the bond. Among them:

Lifetime Employment. Upwards of 35% of Japan's work force is covered by this paternalistic employment practice, which requires sacrifice on the part of all company employees when recession or other problems threaten a firm with layoffs. Instead of jettisoning workers, company managers will pare down paychecks for everyone, including themselves, normally by either withholding or deferring payment of the large, twice-yearly bonuses that both bosses and employees receive. Such actions foster a sense of shared experience by everyone.

Evaluation and Promotion. In many Japanese companies, promotions may come as infrequently as once every ten years, a glacial pace that would drive fast-tracking U.S. managers crazy. Yet since no one else in the firm is being promoted any faster, no one has a feeling of falling behind. More important, the slow pace reinforces an employee's sense of making a lifetime commitment to his firm.

Nonspecialized Careers. In U.S. companies, managers usually pick out one area of company business (sales, finance or production) and concentrate on that. By contrast, Japanese executives do not specialize and regularly move from one corporate department to the next. In the process, they become expert in the structure and internal workings of the company.

Collective Decision Making. Traditional American corporations encourage executives to be decisive, to act forcefully and to accept the consequences. Japanese corporate decisions are reached by a tedious process of collective compromise that can sometimes involve as many as 60 to 80 individuals, each of whom holds a potential veto. The process of consensus building is slow, but once agreement is reached, no one attempts to sabotage or slow down the project.

Ouchi admits that not all Japanese management techniques can be easily transplanted into an American setting. Unless everyone in the decision-making process is willing to cooperate, for example, consensus building as practiced by the Japanese might all too easily tie an American corporation in knots. And, Ouchi concedes, the absence of a specialized career path often leads to a lower level of professional skill.

On the other hand, the Theory Z companies in the U.S. already use at least some of the management practices that are so commonplace among Japanese firms. Ouchi notes that Intel Corp., a technological leader in the microelectronic field, has fostered a collective work eth ic by dividing employees into project teams. At Hewlett-Packard, worker turn over has been kept to a minimum during economic slumps by reducing the work hours for all employees and by cutting back on perquisites. In many of its plants, consumer products giant Procter & Gamble uses semiautonomous work groups that allow employees to govern their own jobs and achieve gains in productivity. The Buick assembly plant in Flint, Mich., which once had very low quality workmanship, used the Theory Z approach in 1978 to gain the co operation of workers and their union. Within two years, the plant had be come the most efficient General Motors facility.

As Ouchi points out, Japan's sense of the collective is rooted in the nation's experience as a densely populated, resource-poor country in which teamwork and compromise are absolutely essential. Without those characteristics, Japanese society could never function as success fully as it does. The U.S., in many ways, now faces problems similar to those Japan has known for many centuries. The world has become much more competitive, and resources like energy are increasingly scarce or expensive. Although individualism and self-reliance have been the very basis of U.S. culture since the nation's founding, companies may have no choice but to nurture a Japanese-style spirit of corporate teamwork. The Theory Z companies have shown that such firms can not only survive but also thrive.

--By Christopher Byron

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