THE HUMAN SIDE OF ENTERPRISE

THEORY X AND THEORY Y

Douglas McGregor was one of the great advocates of Human Relations approach with his Theory X
and Theory Y. Douglas McGregor advanced Theory X and Theory Y in connection with organizational
behavior. He claims that most management actions flow directly from whatever theory of human
behavior managers hold. Personnel practices, decision making, operation practices and even
organizational design flow from management's assumptions about human behavior.
Theory X implies the exercise of an autocractic form of management. His assumptions about
employees under Theory X and Theory Y are as follows:
Theory X
1. The typical person dislikes work and will avoid it if possible.
2. The typical person lacks responsibility, has little ambition, and seeks security above all.
3. Most people must be coerced, controlled, and threatened with punishment to get them to work.
With these assumptions, management's role is to coerce and control employees.
Theory Y
1. Work is as natural as play or rest.
2. People are not inherently lazy. They have become that way as a result of experience.
3. People will exercise self-direction and self-control in the service of objectives to which they are
committed.
4. People have potentials. Under proper conditions, they learn to accept and seek responsibility. They
have imagination, ingenuity, and creativity that can be applied to work.
With these above assumptions, management's role is to develop the potential in employees and help
them release that potential toward common objectives. The attitude assumed by Theory X is
negative, manifesting immaturity and distrust, while that of Theory Y is positive, manifesting one of
trust and maturity. Assumptions contained in Theory Y open up a wide range of possibilities for the
formulation of new managerial policies and practices. Theory X does not recognize the existence of
potentialities in employees. Assumptions of Theory Y will, on the other hand, challenge management
to innovate, to discover new ways of organizing and directing human effort.
McGregor states, "People deprived of opportunities to satisfy at work the needs which are now
important to them behave exactly as we might predict- with indolence, passivity, unwillingness to
follow the demagogue, and unreasonable demands for economic benefits. It would seem that we may
be caught in a web of our own weaving".
If employees are pressured and watched and controlled in a distrustful environment, where low
performance is expected, that is what will happen and the result will be low performance.
The coaching guidelines formulated by Paul Mali are useful in eliminating Theory X and in increasing
individual potential to attain maximum performance:
1. A supervisor must have daily face-to-face, two-way interaction with his subordinates on work
progress and individual growth.

2. A supervisor must use good timing in offering correction and suggesting improvement in
performance.
3. A supervisor must not excessively criticize or discipline so that a subordinate is fearful of moving
ahead.
4. A supervisor must recognize the expenditure of effort that yields good results for the firm.
5. A supervisor must set up and control the situation to allow a subordinate to perform.
6. A supervisor will limit his coaching aims to a specific few, but important areas needing change or
improvements.
7. A supervisor must confine his coaching to the work and the subordinate's ability to accomplish it.
8. A supervisor must make subordinates feel respobsible and accountable for bringing work to a
successful end.
9. A supervisor must show a keen and sincere personal interest in a subordinate to help him with his
difficulties.
10. A supervisor must allow a subordinate to express his individuality in his work by letting him work
on his own.
There has, however, evolved a new approach beyond the percepts and constraints of those two time
proven theories(Theory X and Theory Y). This is Theory Z by William G. Ouchi. Theory Z is based on
the following hypothesis: "innovation and motivation are inseparable. One cannot exist without the
other. However, it is entirely possible that the direction taken by these can be detrimental to the
overall good of the firm- unless channeled properly toward coordinate company and employee goal".
THE OPERATIONAL ENVIRONMENT REQUIRED FOR THEORY Z
Motivation and innovation hinges on the existence of a certain organizational climate, which consists
of the following key concepts:
1. There must be a stress on high productive norms.
2. Careful selection is paramount for success. This calls for a continous follow-up of every move of
the individual within the organization as would expose him to all aspects of firm life which will benefit
and enhance the employee's development and contribution.
3. Specialization opportunities- After a careful selection has placed the individual in his proper place
and status, placement should not preclude the possibility or desirability of moving people into other
areas as they rise within the corporate structure.
4. Maslow's eight level of needs must be satisfied, i.e.,physiological, safety/security, belongingness
and love, estee, cognitive and aesthetic, self-actualization and self-transcendence.
5. Mutual trust must exist throughout the firm. Back-biting and "politicking" must be eliminated or
minimized.
6. Identification with the job, project and the firm must be possible for the individual.
7. Interaction of ideas and concepts with his peers and supervisors must make it possible for the
individual to fully explore and develop his potentials.
8. The opportunity for the individual to undertake "tough" assignments that "stretch and challenge"
should present the potential for success or failure and the corresponding rewards.

9. Recognition is essential to fulfill both the ego satisfaction and self-actualization principles put forth
by Maslow.
10. Opportunity to develop- opportunities for the employee to develop his talents and potentials.
11. Success- There must be security for the individual to stretch and "reach for the star", with security
from failure, meaning without elimination from the firm. Failure in this instance is the pursuit of
excellence rather than the result of incompetence.
THE THEORY Z ORGANIZATION
The Theory Z organization will have as its foundation the following:
1. The spirit of inquiry
2. Achievement
3. Inner direction
4. Motivational drives of a new form:
a. the desire for autonomy by the individual
b. the desire for creative tasks for the individual to perform
c. real motivation is the product of self-direction
Principles that would evolve or develop through Theory Z Approaches by W. Ouchi:
1. Growth of Professionalism. Loyalty to the scientific method rather than to the firm will be
emphasized. 2. Higher level of education. The more knowledgeable the individual becomes, the less
constrained he will make the employee "smarter" and less easily influenced or controlled by restricted
information or propaganda.
3. Full communication will be absolutely necessary as a result of higher levels of education.
4. Project organization will become the rule rather than the exception for the organizational structure.
The project management will be fluid. The project leader will come from the discipline that is most
critical to the fulfillment of the project goal.
5. The matrix organization structure will be found to best fit the conditions and situations, the
company being project-oriented rather than task-oriented.
6. Tasks will become increasingly complex. In the context of current management thought, tasks will
be unprogrammable. Planned approaches to determining the objectives and strategies for the firm will
become absolutely primary if the firm is to survive.
There will be a need for more democratic organization to exist which can be achieved through
increased education. Cooperation will definitely be required if the revolving leadership is to produce
maximum result for the firm. Of the "foundation" previously referred to, the "spirit of inquiry" is
considered the important point. The employees should be imbued with the desire to explore the
unknown. For the firm to fully succeed, it will have to solve value problems and value levels and
merge them into a cohesive structure.