Theory Z is a management theory in Western behavioral science that differs from Theory X and Theory Y. It was proposed by William Ouchi, a Japanese-American, in his 1981 book "Theory Z: How American Business Can Meet the Japanese Challenge."

Ouchi selected several typical companies from Japan and the United States (these companies had subsidiaries or factories in both their home countries and the other country) for study. He found that Japanese companies generally had higher productivity than American companies, and American companies operating in Japan performed poorly when managed in the American style. Based on this observation, Ouchi suggested that American companies should integrate the characteristics of their own country with Japanese management practices to develop their own unique management approach.

Thus, he summarized this management approach as the "Z-type management" and theoretically generalized it as "Theory Z." The book gained widespread attention immediately after its publication and became one of the most notable works on management studies in the early 1980s (along with "In Search of Excellence," "The Art of Japanese Management," and "Corporate Cultures," Theory Z was considered part of the American management "quartet." Richard Pascale, one of the authors of "The Art of Japanese Management," had collaborated with Ouchi on studying Japanese management practices).

The main components of Theory Z include:

(1) Long-term employment policies for employees;

(2) Collaborative decision-making between management and employees, encouraging employee participation in management;

(3) Implementation of individual accountability and creative management;

(4) Managers should care for employees holistically and build harmonious relationships;

(5) Comprehensive knowledge and technical training for employees;

(6) Long-term and comprehensive evaluation of employees, with a steady promotion system;

(7) Formal measurement tools and informal control mechanisms. These practices help establish trusting interpersonal relationships within the company and align the goals and interests of managers and employees.