Getting rid of the boss

7th August 2012

Valve, a US company, is the creator of Steam, an online platform that distributes and manages over 1,800 games directly to a community of more than 40 million players around the world. It is also the developer of the successful Half Life games series.  

But unless you are a games player, the likelihood is that you have never heard of it. Its stock is not listed so it is outside the investor scope. And it has no future plans to join the likes of Facebook on the stock market – despite rumours .

That does not mean, however, that investors should or can afford to ignore it. For while "uniquely" is an overworked word, Valve's management structure has few, if any, peers in the industrial world.

Put succinctly, it has abolished management without shredding the concept of investor ownership. And that could have lessons for many other organisations both within the online world and in the wider economy. 

Valve is far from a start-up. It has been around for over 15 years. It employs over 400 people, and it claims to have abolished both hierarchy and fixed job titles  – employees famously have desks with wheels so they can move through the organisation as they see fit.

The company itself says of its employment policy:

"When you give smart talented people the freedom to create without fear of failure, amazing things happen. We see it every day at Valve. In fact, some of our best insights have come from our biggest mistakes. And we're ok with that! Since 1996, this approach has produced award-winning games, leading-edge technologies, and a ground-breaking social entertainment platform. We're always looking for creative risk-takers who can keep that streak alive."

Looking beyond the gameshow

This Valve blog shows some of Valve's thinking – and how it might apply to world outside gaming.

It starts with decrying the rigidity of management, a group that preaches the merits of the free market but behaves as though it was living at the top end of the feudalism that the market economy was supposed to have surplanted.

It states: "There is one last bastion of economic activity that proved remarkably resistant to the triumph of the market: firms, companies and, later, corporations……Effectively, firms can be seen as oases of planning and command within the vast expanse of the market. In another sense, they are the last remaining vestiges of pre-capitalist organisation within… capitalism."

Investors have to weigh up the advantages and drawbacks of a command structure. It produces work to an acceptable level but not beyond. The Valve model insists employees allocate 100% of their time on projects of their choosing so it operates without a system of command.

Self-directed workforce

The Valve workforce's self-direction enables it to work on projects which it feels best are effective rather than managers. Teams and tasks can vary without overhead control. Instead of price signals or management allocation, it is based "on the signals Valve employees emit to one another by selecting how to allocate their labour time, a decision bound up with where to wheel their tables to (i.e. whom to work with and on what)."

Corporations have to calculate the value of managers against their cost. Many newspapers, in some ways the precursors of software publishers and distributors, have moved from co-operative structures to giving greater power to costly managers without any evidence of bottom line gain. And no one ever calculates whether the plethora of management and legal mechanisms in privatised rail companies more than offsets the problems of nationalised industry or not.

Utilities are a good case as well. When gas and electricity were privatised in the UK, there were many companies competing on price to deliver power via monopolistic pipes and wires. But gradually, the supply companies became more monopolies themselves as they merged or bought out smaller competitors. Only one group really did well out of the "freedom to choose" market – the switching companies which charge £50 or so a time for each consumer change. And no one talks of where that money comes from.

Creativity comes from creators, not managers

Valve's workforce is intended to bring creativity to the company rather than take on the creativity that those at the top dictate. The company blog says: "Everything in Valve is in flux. People move about (making use of their desk's wheels), new teams are formed, new projects are concocted. 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."

Too good to be true?

It all sounds wonderful. Can there be a downside? It is unlikely that any existing company could move easily to a Valve model. This is because:

And no one knows just how well it works. It has survived and grown – whether it would have grown faster or slower or not at all as a more conventional company can only be conjecture. For investors know little about Valve – it has shareholders but is not traded. So unlike rivals in the gaming industry such as Activision Blizzard or Electronic Arts whose share price and other financials are openly available, Valve's numbers are closed to public scrutiny.

But if corporations could squeeze out the unnecessary layers of management costs, that could provide a boost to investors.


More on Mindful Money:

Keep the faith: finance and religion

Beyond ideology – What is the right approach to fixing the economy?

What can business learn from the Olympics?

To receive our free daily newsletter sign up here

The Financialist   

Leave a Reply

Your email address will not be published. Required fields are marked *