Valve: A flat organization with no managers

For this week’s submission, I wanted to focus on supply chain management of people, ideas and talent at organizations.  When discussing the Toyota production system, we learned that they have a very wide based managerial framework, where each manager is in charge of many people across the line, and there isn’t much vertical hierarchy.  This enables workers to focus on their tasks at hand, while having an open line of communication with upper level management in case they notice a problem or have an idea on how to improve production.  By not having many of levels of management, decisions can be made quickly, communication between different areas can be done efficiently, and new techniques can be tried and implemented on the fly and monitored by key personnel to make sure everything runs smoothly. 

What if we were able to take things a step further, and developed an entirely flat organization that doesn’t have any managers at all?  Where there are no bosses, people are free to work on whatever they choose, and you can decide on each other’s pay.  Where you can approach anyone to discuss project ideas and not need to obtain prior approval.  Although this seems implausible, Valve Software, have successfully implemented this managerial framework. 

Valve is an incredibly successful video game developer and distributor, famous for titles such as Half-Life, Counterstrike and Portal; and their software distribution platform, Steam, which is a digital marketplace that was available years before the advent of Apple’s app store.  Valve was founded in 1996 by former Microsoft employees Gabe Newell and Mike Harrington, who, fed up with the organizational structure at MS, wanted to create a company without bosses.  In 2011 Forbes magazine estimated worth of the private company to be between $2-4 billion, and since then their annual game sales have more than doubled each year.  So how does it work?  How can a multi-billion dollar corporation run without any managers?

Valve’s key to success is hiring elite performers who are highly motivated and passionate about their work.  If someone has an idea for a project, they discuss freely it with people at the company, and if enough people like the idea they then collaborate on the project together.  If there is no support for the idea, then someone is free to work on it alone, although technical requirements make this unlikely.  This sort of framework encourages dialogue and idea collaboration.  Additionally, people who are working on projects together, rank each other based on productivity, team-playing abilities and contributions, which is then used to create a leaderboard to determine how much everyone is paid.  The more you contribute, the more you get paid, and everyone decides together to your levels of contribution. 

Having such an open framework in idea generation and collaboration, requires an adaptable office setting, so that people can rearrange themselves into different locations; similar to the U-shaped production line.  Therefore, all of the desks at valve are on wheels, so that workers can quickly move their workplace to a new area, so that they are closer to the people they are collaborating with on a project.  This helps to streamline productivity. 

Additionally, although not directly related to supply chain management, Valve allows people who leave the company to keep the IP rights to the ideas they created while working there.  This is done in an effort to foster an environment where people are free to formulate their own ideas, and work on them as though they were in a startup environment.  If they cannot find the resources to develop the project at Valve, they are free to pursue the ventures on their own. 

Implementing a flat organization has proven to be incredibly successful at Valve Software, but this type of organizational structure may not be applicable in all industries.  Software development may be an exception to the rule, as employees all have to be skilled and knowledgeable, and the product is digital.  Can you think of any other industries where this type of structure could be applicable?  What are some challenges and risks that this framework faces?  Can you think of a scenario where a flat organization would be unable to cope with a specific challenge or situation they are faced with? 

http://www.bbc.co.uk/news/technology-24205497

http://www.forbes.com/sites/oliverchiang/2011/02/15/valve-and-steam-worth-billions/