Valve

Governance

Michael Abrash:

"Valve has no formal management or hierarchy at all.

Now, I can tell you that, deep down, you don’t really believe that last sentence. I certainly didn’t when I first heard it. How could a 300-person company not have any formal management? My observation is that it takes new hires about six months before they fully accept that no one is going to tell them what to do, that no manager is going to give them a review, that there is no such thing as a promotion or a job title or even a fixed role (although there are generous raises and bonuses based on value to the company, as assessed by peers). That it is their responsibility, and theirs alone, to allocate the most valuable resource in the company – their time – by figuring out what it is that they can do that is most valuable for the company, and then to go do it. That if they decide that they should be doing something different, there’s no manager to convince to let them go; they just move their desk to the new group (the desks are on wheels, with computers attached) and start in on the new thing. (Obviously they should choose a good point at which to do this, and coordinate with both groups, but that’s common sense, not a rule, and isn’t enforced in any way.) That everyone on a project team is an individual contributor, doing coding, artwork, level design, music, and so on, including the leads; there is no such thing as a pure management or architect or designer role. That any part of the company can change direction instantly at any time, because there are no managers to cling to their people and their territory, no reorgs to plan, no budgets to work around. That there are things that Gabe badly wants the company to do that aren’t happening, because no one has signed up to do them.

Hardest of all to believe is the level of trust. Trust is pervasive. All of Valve’s source code is available to anyone in Perforce, and anyone at Valve can sync up and modify anything. Anyone can just up and work on whatever they think is worth doing; Steam Workshop is a recent instance of someone doing exactly that. Any employee can know almost anything about how the company works and what it’s doing; the company is transparent to its employees. Unlike many organizations, Valve doesn’t build organizational barriers to its employees by default; it just trusts them and gets out of their way so they can create value.

To be clear, Valve hasn’t magically repealed the realities of developing and shipping products. We’re all human, so teams sometimes argue (and sometimes passionately) about what to do and how to do it, but people are respectful of each other, and eventually get to a consensus that works. There are stresses and more rigid processes when products are close to shipping, especially when there are hard deadlines for console certification (although shipping for the PC is much more flexible, thanks to Steam). Sometimes people or teams wander down paths that are clearly not working, and then it’s up to their peers to point that out and get them back on track.

Also, don’t think that people randomly come in every day and do whatever they feel like doing. It certainly wouldn’t be okay if a programmer decided to move to an empty room and start weaving straw hats (although if they wanted to write a tool to let people weave and sell virtual straw hats, that would be fine). People commit to projects, and projects are self-organizing; there are leads, but they’re chosen by informal consensus, there’s no prestige or money attached to the label, and it’s only temporary – a lead is likely to be an individual contributor on their next project. Leads have no authority other than that everyone agrees it will help the project to have them doing coordination. Each project decides for itself about testing, check-in rules, how often to meet (not very), and what the goal is and when and how to get there. And each project is different.

It’s hard to believe it works, but it does. I think of it as being a lot like evolution – messy, with lots of inefficiencies that normal companies don’t have – but producing remarkable results, things that would never have seen the light of day under normal hierarchical management. The games speak for themselves – and then there’s Steam (and no, Steam doesn’t have formal management either). Valve’s long string of successes, many of them genuinely groundbreaking, is strong evidence that the hypothesis that creative people are the key to success is in fact correct, and that the structuring of Valve around those people has been successful."

The rationale:

"When he looked into the history of the organization, he found that hierarchical management had been invented for military purposes, where it was perfectly suited to getting 1,000 men to march over a hill to get shot at. When the Industrial Revolution came along, hierarchical management was again a good fit, since the objective was to treat each person as a component, doing exactly the same thing over and over.

If most of the value is now in the initial creative act, there’s little benefit to traditional hierarchical organization that’s designed to deliver the same thing over and over, making only incremental changes over time. What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation. Hierarchical management doesn’t help with that, because it bottlenecks innovation through the people at the top of the hierarchy, and there’s no reason to expect that those people would be particularly creative about coming up with new products that are dramatically different from existing ones – quite the opposite, in fact. So Valve was designed as a company that would attract the sort of people capable of taking the initial creative step, leave them free to do creative work, and make them want to stay. Consequently, Valve has no formal management or hierarchy at all." (http://blogs.valvesoftware.com/abrash/valve-how-i-got-here-what-its-like-and-what-im-doing-2/)

Discussion

A new type of bossless firm

Yanis Varoufakis:

"There are two kinds of non-capitalist firms: (a) Mutual, co-op like, firms whose ownership is formally dispersed among members (who may be customers, employees or both); and (b) Valve (or similar companies) where management is completely horizontal (i.e. the company is boss-less) even if ownership is held in the hands of a selected few.

Valve is, at least in one way, more radical than a traditional co-operative firm. Co-ops are companies whose ownership is shared equally among its members. Nonetheless, co-ops are usually hierarchical organisations. Democratic perhaps, but hierarchical nonetheless. Managers may be selected through some democratic or consultative process involving members but, once selected, they delegate and command their ‘underlings’ in a manner not at all dissimilar to a standard corporation. At Valve, by contrast, each person manages herself while teams operate on the basis of voluntarism, with collective activities regulated and coordinated spontaneously via the operations of the time allocation-based spontaneous order mechanism described above.

Regarding remuneration, both the co-op model and the Valve model differ substantially from conventional capitalist corporations. Capitalist firms is organised along the principle that the owner is the residual claimant once factors of production are paid their market-determined prices. E.g. shareholders are assumed to retain dividends that equal total revenue minus fixed costs, minus labour costs, minus interest on capital borrowed, minus planned investment, minus all other variable costs. Employees thus receive income that is determined by the conditions of the labour market at large and which is a reward for their labour time (estimated at the market determined price of it). Bonuses blur the distinction between profit and wage income but, to the extent that they constitute a stable proportion of one’s wages (and are incapable, courtesy of imperfect monitoring, of being properly tied to individual marginal or average productivity), they can be thought of as part of wage income (except for CEOs and the like whose position of power over the shareholders creates the well known tensions resulting from the ‘managerial revolution’, which saw ownership separate from hierarchical control). In contrast, co-ops and Valve feature peer-based systems for determining the distribution of a firm’s surplus among employees.

...

Having spent a few months working at Valve, I can testify to the truth of its own self-image as a boss-less corporation. As a political economist who spent a great deal of time debating alternatives to capitalist corporations, working at Valve is affording me a valuable opportunity to watch one such alternative corporation in action. In this post, I attempted to place Valve’s quirky management structure in the context of time-honoured debates and perspectives. Central to my narrative of ‘Valve’s way’ was the notion of an ‘alternative spontaneous order’: one that emerges within a corporation (as opposed to within a market-society) on the basis of individual time allocations (as opposed to price signals). The tantalising thought arose, during my musings, that this organisational structure may be as scalable as a market mechanism (assuming that the right technologies are in hand, ensuring transparency and low communications’ costs within the company).

There is one important aspect of Valve that I did not focus on: the link between its horizontal management structure and its ‘vertical’ ownership structure. Valve is a private company owned mostly by few individuals. In that sense, it is an enlightened oligarchy: an oligarchy in that it is owned by a few and enlightened in that those few are not using their property rights to boss people around. The question arises: what happens to the alternative spontaneous order within Valve if some or all of the owners decide to sell up? Granted that Valve’s owners do not intend to do this, the question remains, at least at the theoretical level.

One possibility is that Valve will divide and multiply into a number of different Valve-like companies, as its talented employees leave for greener pastures and, possibly, with the intend of re-creating the horizontal management structure that they grew happily familiar with. Another possibility is that the owners may actually sell their stake to Valve employees, thus combining the features of a co-op with the Valve management system.

Whatever the future of Valve turns out like, one thing is for certain – and it so happens that it constitutes the reason why I am personally excited to be part of Valve: The current system of corporate governance is bunk. Capitalist corporations are on the way to certain extinction. Replete with hierarchies that are exceedingly wasteful of human talent and energies, intertwined with toxic finance, co-dependent with political structures that are losing democratic legitimacy fast, a form of post-capitalist, decentralised corporation will, sooner or later, emerge. The eradication of distribution and marginal costs, the capacity of producers to have direct access to billions of customers instantaneously, the advances of open source communities and mentalities, all these fascinating developments are bound to turn the autocratic Soviet-like megaliths of today into curiosities that students of political economy, business studies et al will marvel at in the future, just like school children marvel at dinosaur skeletons at the Natural History museum. I trust that Valve’s organisation will become, if not a central chapter, at the very least an important footnote in this historical turn." (http://blogs.valvesoftware.com/economics/why-valve-or-what-do-we-need-corporations-for-and-how-does-valves-management-structure-fit-into-todays-corporate-world/)

The Distribution of Tasks or self-allocation of labor at Valve

by Yanis Varoufakis:

"If I were asked my opinion of what Valve’s symbol should be, I would recommend a depiction of a wheel, like those which every desk at Valve comes equipped with so as to enable us to move about the company at will, to join whichever working group we want, to form new ones spontaneously and without seeking anyone’s permission. The said wheel, at least in my eyes, symbolises Valve’s attempt to create, within the company, a successful ‘spontaneous order’ based not on price signals but, rather, on decentralised, individuated, time allocations.

Many enlightened corporations do a song and dance about their readiness to let employees allocate 10% or even 20% of their working time on projects of their choosing. Valve differs in that it insists that its employees allocate 100% of their time on projects of their choosing. 100% is a radical number! It means that Valve operates without a system of command. In other words, it seeks to achieve order not via fiat, command or hierarchy but, instead, spontaneously.

...

A corporation that tries to function as a type of ‘spontaneous order’ (i.e. without an internal system of command/hierarchy) seems like a contradiction in terms. Smith’s and Hayek’s spontaneous orders turn on price signals. As Coase et al explained in the previous section, the whole point about a corporation is that its internal organisation cannot turn on price signals (for if it could, it would not exist as a corporation but would, instead, contract out all the goods and services internally produced). So, if Valve’s own spontaneous order does not turn on price signals, what does it turn on?

The answer is: on time and team allocations. Each employee chooses (a) her partners (or team with which she wants to work) and (b) how much time she wants to devote to various competing projects. In making this decision, each Valve employee takes into account not only the attractiveness of projects and teams competing for their time but, also, the decisions of others. The reason is that, especially when insufficiently informed about projects and teams (e.g. when an employee has recently joined Valve), an employee can gather much useful information about projects and teams simple by observing how popular different projects and teams are (a) with others in general, (b) with others whose interests/talents are closer to their own.

Just like in a marketplace, everything in Valve is in flux. People move about (making use of their desk’s wheels), new teams are formed, new projects are concocted. All this information is observable by the naked eye (one notices an empty spot where David’s desk used to be, and then finds out that David moved to the 4th floor to work with Tom, Dick and Harriet), on the company’s intranet, in cross-team meetings where teams inform each other on what they are working on). People learn constantly, both by observing and by doing, the value to them of different projects and teams. These subjective values keep changing, as the time and team formation signals that are emitted by everyone else are updated.

The idea here is that, through this ever-evolving process, people’s capacities, talents and ideas are given the best chance possible to develop and produce synergies that promote the Common Good. It is as if an invisible hand guides Valve’s individual members to decisions that both unleash each person’s potential and serve the company’s collective interest (which does not necessarily coincide with profit maximisation)." (http://blogs.valvesoftware.com/economics/why-valve-or-what-do-we-need-corporations-for-and-how-does-valves-management-structure-fit-into-todays-corporate-world/)

More Information

1. Spontaneous Order