The Relevant Theories in the West—From X to Z Theory

Since management is ultimately about managing people, different assumptions about the nature of man, or humanity, will lead to managerial theories that vary greatly from each other. There are now three mainstream theories: Theory X, Theory Y and Theory Z. Among them, theory X was developed by Douglas McGregor on the basis of a summary of previous assumptions about humanity in the field of management. He believed that the organizational design in his times were based on wrong assumptions: People hate to work; people are passive by nature; people object, again by nature, to reforms; people treat organizations with indifference; people need to be managed, etc. The main contents of Theory X can be summarized into:

(1) Most people are lazy and work as little as they can;

(2) Most people are not ambitious and prefer being led to assuming any responsibility;

(3) Most people have a personal goal that conflicts with the one of the organization; external forces are required to realize the goal of the organization;

(4) Most people are irrational, unable to restrain themselves and prone to be affected;

(5) Most people will opt to do what brings the highest economic benefits so as to satisfy basic physical and safety needs;

(6) People can be grouped roughly into categories. Most people satisfy the aforementioned assumptions while only a small number of people can restrain themselves. The latter ones should assume managerial responsibility. Under Theory X, management focuses on directing and controlling employees. The Carrot and Stick Approach must be used to drive employees to work: Lure them with salaries, bonuses and benefits on the one hand and deter them with institutions and punishments on the other.

McGregor (McGregor, 1960) also argued that Theory X has wrong assumptions on humanity in that people are not born to hate work but can be self-motivated. And he then developed Theory

Y. People can come to like working as long as they feel satisfaction and achievements at work, according to this theory. The main contents of Theory Y can also be summarized into:

(1) Most people are not born to dislike work, because work is as natural as games and rest. Work can be a type of satisfaction or punishment depending upon the context;

(2) External control and punishment are not the only method for urging people to work for the goal of the organization. They are even threats and obstacles to human beings and make them become mature at a slower pace. People are willing to carry out self-management and self-control to achieve the desirable objectives;

(3) There is no conflict between people's need for self-realization and the behavior required by the organization. With proper opportunities, they are able to make their individual goals consistent with that of the organization;

(4) Most people, under proper conditions, have learned not only to accept responsibility, but also to seek responsibility. Evading responsibility, lack of ambition and emphasis on the feeling of being safe usually result from experience rather than humanity;

(5) Most people, instead of the minority, are able to fully use their imagination, wisdom and creativity to solve challenging problems facing the organization;

(6) Most people, under conditions in the modern industry, can only use part of their potential wisdom.

It is based on these assumptions that Theory Y emphasizes that employees should be motivated in such a way that they can feel greater happiness and satisfaction at work. The main task for managers is creating a work environment that allows employees to unleash all their potential capabilities.

Japanese-American scholar William Ouchi criticized both theories mentioned above. Theories X and Y are both based upon the individualistic American society and apply to American-style organizations (Type A) rather than collective Japanese organizations (Type J), according to Ouchi. In the 1980s, American organizations were faced with a several challenge from Japanese ones – the former ones were far behind the latter ones in terms of productivity. Ouchi compared the two types of organizations through empirical research and found out that: American companies were individualistic, so particular individuals made decisions and were responsible for the result; they had control and management methods that relied on written processes, institutions and regulations; the decision process was often characterized by the decision maker making a decision; the employment system was based largely upon short-term employment contracts; and performance assessment and promotion were mainly determined by superiors in a very fast way. By comparison, in collective Japanese organizations, decisions were made in a process of extensive participation with the need to seek consensus; the collective responsibility system was employed; control and management were carried out by means of hint-based control, that is, both jobs relied on governance under rituals characteristic of collectivism; instead of written regulations, people had a set of norms on which they had reached tacit agreement; and at the core was the lifetime employment system.

With the aforementioned research, Ouchi put forward the concept of Type J organization – a Japanese-style organizational model – on the basis of the managerial characteristics of Japanese organizations. With the addition of the managerial characteristics of American organizations, this led to Theory Z. This theory emphasizes employees' sense of belonging as the motive for work, and highlights how trust and the close inter-employee relations affect the productivity of an organization. Since the lifetime employment system is employed in Japanese organizations, employees feel, once they join the company, that they have entered a family and will never leave it. The employees therefore have a very strong sense of identification and belonging. Since the employees are very loyal to it, the company should provide them with a sense of belonging so that they feel like being at home. The lifetime employment system, slow assessment and promotion mechanisms, and specialty-irrelevant careers – all these make the employees bundle their lives tightly with that of the company once they join it, so they can do whatever is assigned to them and stay industrious to assure extremely high productivity. Seeking a sense of belonging and long-term employment is at the core of Theory Z.

It is interesting that a growing number of American companies seem to have begun practicing Theory Z after the 1980s. This includes long-term employment, emphasis on providing employees with a sense of belonging, 360° assessment on employees, etc. Nonetheless, all these companies denied, in a survey, that they did it because they were affected by Japanese companies. Instead, they believed that they gradually began these practices because they needed them. We can see, therefore, that the so-called managerial differences between cultures are actually not that obvious. It is not that only Theories X and Y apply to America, but that Theory Z may also apply to it, only to a lower extent.

If Theories X and Y were developed on the basis of managerial practices in the United States and Theory Z on those in Japan, what theory, then, should be developed on the basis of those in China? I refer to it as Theory of Circle, or Theory of Guanxi Circle. My statement that the guanxi circle theory applies to Chinese organizations does not suggest, of course, that Theories X, Y and Z are unimportant. Wages/salaries, bonuses, benefits and punishments are always important physical incentives, while a sense of belonging and identification absolutely is also a non-physical incentive needed by Chinese employees. The only difference lies in that there are things special important to incentives within Chinese organizations. Just like the contents of Theory Z can also been seen in American organizations, the phenomena of favor exchanges and guanxi circles also occur in organizations in America, Japan and many other countries, only that these characteristics are especially obvious in China.

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