Jon Clark. Valve Corporation and the Flat Organizational Structure in Game Development

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1 Valve Corporation and the Flat Organizational Structure in Game Development Southern Methodist University October 10 th, 2014

2 Introduction According to a survey of 2200 game developers by the International Game Developers Association, developers listed Valve as the number one company for which they most desire to work listing owning their own company as number two [7]. Much of this interest in working for Valve stems from the company s horizontal, or flat, organizational structure, which utilizes an environment of open communication and increased personal autonomy [7]. Using Valve as a case study, this paper describes the flat methodology and cultural structure, explores its benefits including increased team member motivation and innovation, and suggests solutions for organizational difficulties in disseminating information and preventing malfeasance. Flat Methodology Spontaneous Order Flat organizations result in greater innovation and motivation among team members by relying on the emergence of spontaneous order and the self-organization of teams. Economics Professor and Valve employee Yanis Varoufakis describes spontaneous order as the emergence of conventions that minimize conflict in the absence of centralized authority [6]. While traditional hierarchical companies make decisions and implement strategies in a top-down fashion, flat organizations draw action from the bottom upward [10]. 2

3 Figure 1: Traditional Hierarchical Corporate Structure For example, at Valve employees decide the direction of projects and the allocation of labor by personally choosing where to commit their time [1]. Because the most interesting projects garner the most attention and resources from individual actors, the company organizes itself and allows innovative ideas to emerge from any team member [4]. Figure 2: Valve's Flat Structure (as depicted by Valve employees) 3

4 Self-Organization of Teams Valve s increased innovation hinges on employees abilities to observe, communicate their observations, and make rational decisions concerning the team s needs [6]. To preserve the open lines of communication, Valve encourages team members to physically move about the office and observe projects with the naked eye [6]. Employees then make meaningful choices as to where their efforts should go based on not only personal interest, but also product valuecreation and current market conditions [6]. Valve as a Hyper-Developmental Culture Structure Flat organizations like Valve expand on traditional developmental culture by decentralizing management as much as possible. Cultural structure theory categorizes a company s organizational culture by how much it differentiates its processes, and the degree to which it integrates its separate departments, units, and teams [10]. Game developers have highly differentiated processes because they must constantly react to changes in the game market and advances in technology [5]. Furthermore, game developers must integrate heavily because their product relies heavily on the coordination of disparate disciplines, such as art creation and software design [4]. For these reasons, most game production companies fall into the category of a developmental culture, also known as a networked or entrepreneurial cultural structure [10]. 4

5 Figure 3: Organizational Culture Structures. Most video game companies have developmental cultures. While leaders of developmental culture companies usually take on the role of a visionary and an integrator, at Valve leaders are elected by team consensus and retain authority only during the lifetime of a given project [1]. As a result, Valve and similar flat organizations reduces the scope of their managers control over subordinates more than other developmental cultures [1]. This results in a kind of hyper-developmental culture that enhances the benefits of traditional developmental cultures such as increased motivation and innovation among teams. Benefits of Flat Organizations Increased Motivation Flat organizational structures increase intrinsic motivation among team members by reinforcing personal autonomy. Many game development companies rely on external factors to motivate employees such as better benefits or salary [4]. While these extrinsic motivators 5

6 increase employee performance in jobs that lack inherent meaning or need for creativity, they are not ideal for creative pursuits [8]. Particularly in a creative discipline such as game development, employees become more motivated through intrinsic factors [8]. In his book Drive: The Surprising Turth About What Motivates Us, author Dan Pink describes three core tenants of intrinsic motivation as personal autonomy, skill mastery, and a sense of purpose [8]. Figure 4: Dan Pink's Tenants of Motivation Steve McConnell builds on this notion in Rapid Development, stating that motivation is the single most determinate factor in productivity and increases with a sense of personal autonomy [5]. Because Valve s organization relies on the full autonomy of its individual developers, the motivation of its developers increases in turn [4, 5]. By trusting team members to exercise personal autonomy in organizing projects according to individual skill masteries and a user-centric purpose, flat organizations reap the benefits of increased motivation among their employees. 6

7 Increased Innovation By creating an environment of open communication and freedom from arbitrary procedures, flat organizations increase innovation among individuals, resulting in a competitive edge over other developers. In his book Conscious Capitalism, CEO of Whole Foods John Mackey argues that corporate structures often stand in opposition to individual creativity and team-wide innovation [8]. In an environment heavily structured by abstract operating procedures, team members become uncertain of trying new things for fear of punishment if they fail [8]. By ending creative pursuits before they even begin, this fear directly inhibits creativity and innovation [9]. By contrast, flat organizations encourage individuals to explore alternative methods and creative endeavors, rather than enforcing adherence to a rigid process. Furthermore, the flat organization s reliance on the self-organization of projects and teams increases a company s ambidexterity, or product value-creation and market adaptability [9]. Most game developers increase their adaptability in the market through structural changes: they create an R&D department to increase innovation, or fund marketing teams that aim to predict future economic trends [9]. However, this change in structure usually comes at the expense of the company s product or service value, because the company commits more resources to actively changing itself rather than keeping product-value consistent [9]. By contrast, flat organizations like Valve rely on individuals to determine whether to expend resources on product value-creation or market adaptability [1]. Business Professors Joseph Birkinshaw and Cristina Gibson describes this phenomenon as contextual ambidexterity in which the company calls for team members to make decisions concerning both product value-creation and market adaptability in their day-to-day work [9]. By freeing their 7

8 employees from arbitrary rules and engaging in contextual ambidexterity, flat organizations gain an innovative edge over competing developers. Common Challenges and Potential Solutions Difficulty Disseminating Information While Valve s flat organizational structure increases the intrinsic motivation and innovation of its developers, it also results in an inability to disseminate large amounts of information. According to Valve s own employee handbook, while team members can immediately know the status of their current project by simple observation, they lack the means to know the status of other teams and projects [1]. Because of this in ability to gather large amounts of information, and because Valve s employees determine the creative direction of the company, predicting major project milestones more than a few months out becomes an impossible task [1]. While the immediate reaction to a company without bosses is that employees will slack off without a manager to inspect their progress, Valve employees generally do not lack in motivation because they choose their projects based on personal interest [1]. Instead, Valve employees lack information about the company s status as a whole, because they have no means to spread information reliably over the multiple creative teams. Potential Solution Information Technology Flat organizations like Valve can better disseminate information through advances in information technology. While flat organizations encounter difficulty spreading information between teams, some successfully rely on information technology to increased inter-team communication [8]. 8

9 Figure 5: An example of visualizing large amounts of specific data For example, the semi-flat company Whole Foods networks individual teams across the country by visually representing both team and project status to everyone [8]. While each team is somewhat independent and autonomous, they also make their decisions available to every other team, increasing transparency and inter-team collaboration [8]. Valve could easily augment their team members direct observations with visual representations of other projects through such information technology. Malfeasance Another criticism of flat organizations is that they are prone to acts of malfeasance through reduced accountability and a desire to fit in with the group [2]. The real threat of malfeasance for Valve comes from individual actors using the flat structure as a smokescreen for gaining authority over others [3]. Feminist Scholar Jo Freeman describes this phenomenon as the tyranny of structurelessness in her observations of the women s liberation movement of the 1960s and 1970s [3]. In a large group without a formal hierarchy, individuals tend to form cliques that act to maintain themselves [3]. Because members outside of the clique are unaware 9

10 of the decisions the clique makes or the rules by which it exists, the clique undermines its own accountability to the rest of the group in favor of its own survival [3]. Former Valve employee Jeri Elswort described Valve s reliance on direct observation as incentivizing the appearance of productivity and the formation of self-serving alliances among employees [2]. Because Valve and similar companies hire new people through employee-created search committees, they run the risk of reducing employee diversity as existing employees hire people that fit in with the group [2]. Both this desire to fit in with the group, and reduced accountability to the company as a whole, threaten acts of corporate malfeasance. Potential Solution Centralization of Problem Decision Processes Flat organizations can better protect their employees from acts of malfeasance by centralizing decision-making for known problem decision processes of the flat model. While flat organizations normally focus on decentralizing decisions as much as possible, this does not mean they must decentralize entirely [8]. In his approach with Whole Foods, CEO John Mackey argues that some centralization is necessary, but each decision to centralize must be justified by the given circumstances [8]. This approach effectively puts the burden of proof on centralizing decisions, and ensures that teams centralize only necessary decision processes. Once a flat organization centralizes a decision-making process, team members can rely on the consistency of that process, but must still be careful to make sure it does not become arbitrary [8]. In the case of Valve, the company might institute a mandatory rotation of leads, or a term limit on how many times an individual can run a project within a year. This would ensure the constant exchange of power roles, and prevent individuals from consolidating authority and forming cliques within the company. 10

11 Conclusion While the flat organizational structure solves many of the problems found with traditional hierarchies, it also comes with its own challenges. Flat organizations like Valve are hyperdevelopmental in their cultural approach. They increase the potential for innovation and motivation among employees through increased personal autonomy and open communication, but suffer from the inability to disseminate large amounts of information and potential malfeasance. By acknowledging these challenges, addressing them openly, and implementing potential technological and structural solutions, flat organizations have the potential to alter game development practices for the better. 11

12 References [1] Unknown Author, Valve Handbook for New Employees, 1 st ed., Valve Corporation, Bellevue, WA, Available: Accessed: October 1st, [2] K. Finley. (2014, March 20). Why workers can suffer in bossless companies like GitHub. Wired Mag. [Online]. Available: Accessed: September 15 th, [3] J. Freeman. (1972, Mar.). The tyranny of structurelessness. The Second Wave [Online]. 2(1). Available: Accessed: October 1st, [4] C. Keith, Agile Game Development with Scrum. Upper Saddle River: NJ, Addison- Wesely, [5] S. McConnell, Rapid Development: Taming Wild Software Schedules. Redmond: WA, Microsoft Press, [6] Y. Varoufakis. (2012, August 3). Why Valve? Valve Economics [Online]. Available: Accessed: September 14 th, [7] W. Yin-Poole. Game developers would most like to work for Valve, survey finds. EuroGamer. [Online]. Available:

13 game-developers-would-most-like-to-work-for-valve-survey-finds Accessed: October 1st, [8] J. Birkinshaw & C. Gibson. Building ambidexterity into an organization. MIT Sloan Management Review. [Online]. Available: Accessed: October 5th, [9] J. Mackey & R. Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business. Boston: MA, Harvard Business Review Press, [10] D. Hellreigel & J. Slocum, Organizational Behavior. Mason: OH, South-Western Cengage Learning, Visual Aid Sources Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: 13

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