A COMMENT ON VALVE'S WAY
Carliss Y. Baldwin · 2015
There are many ways to exercise authority. Perrow (1986), in his review of March and Simon’s Organizations (1958), offers a threefold classification of the ways authority can be exercised in organizations: (1) direct, “fully obtrusive” controls such as giving orders and direct monitoring; (2) bureaucratic controls such as defined specializations, roles, and hierarchy; and (3) “control of the cognitive premises underlying action.” Valve ostentatiously makes little use of direct authority. It downplays bureaucracy, although in fact many bureaucratic controls are in place. Instead, the legal authority vested in the owners of the company (especially the majority shareholder, Gabe Newell) is used quite extensively to set the premises of action and thus unobtrusively channel employees’ efforts and communication patterns into a highly productive configuration. The sustained high profits of the company, and its ability to attract and retain talented software developers, are testimony to the success of this organizational model. At the same time, contextual variables – in particular Valve’s identity as a video game creator and the fact of a single majority shareholder – are also critical factors contributing to its success. As a result, even within the software industry, the range of companies for which this organizational model is appropriate is quite limited. Puranam and Hakonsson (2105) have provided a succinct overview of Valve’s public face as presented in corporate publications such as the Handbook for New Employees (Valve Corporation, 2012) and employee blogs. The most obvious anomaly at Valve is the absence of direct, obtrusive authority over the effort of employees. The authority to direct the work of employees is the legal right of any employer (ALI, 2007). It is also the foundation of two influential theories of the firm (Simon, 1951; Williamson, 1975). Yet Valve publicly and emphatically disavows this right. VALVE IS DIFFERENT I would like to look more closely at Valve’s special position in the software world. Valve makes and distributes video games. Games are a leisure time activity, an entertainment, a form of art, and for some people, an addiction. Large numbers of people “pay to play”, and Valve is in direct contact with many of them. (Valve claims the ability to reach 25 million gamers through the Steam distribution platform.) Video games have considerable intrinsic value to gamers, and the subset of the gaming population that is capable of creating or modifying games obtains both use value and prestige from their creations. Although I am not aware of any formal study, it is rumored that, just as scientists accept lower pay to work at universities (Stern, 2004), many software developers will accept lower pay to work at game studios. For a significant subset of people with coding skills, it is more interesting and personally satisfying to be able to say “Yeah, I programmed the explosions for Real Action Game X,” than “Yeah, I programmed the payments system for Bank Y.” What this means is that the human capital available to Valve outside the employment relationship is much larger than that of a typical company, including most software companies. Great numbers of people are willing and able to work on Valve’s projects without contract, for free. In this respect, Valve resembles an open source software community – with the