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After discovering Valve Inc. earlier this year, I wrote several posts (here and here and here) praising their flat organizational structure and unique management practices. Well, as the saying goes, “nothing ever is as it seems“.
In February, Valve laid off a group of hardware designers and one of them has spoken out against the company. Jeri Ellsworth, the former head of Valve’s hardware division, is that person:
In a podcast interview, Jeri said the following unflattering things about the company:
There is actually a hidden layer of powerful management structure in the company, and it felt a lot like High School. There are popular kids that have acquired power, then there’s the trouble makers, and then everyone in between. Everyone in between is ok, but the trouble makers are the ones trying to make a difference.
Now we’ve all seen the Valve handbook, which offers a very idealized view. A lot of that is true. It is a pseudo-flat structure, where in small groups at least in small groups you are all peers and make decisions together.
Their structure probably works really well with about 20 people, but breaks down terribly when you get to a company of 300 people. Communication was a problem. I don’t think it works.
They have a bonus structure in there where you can get bonuses – if you work on very prestigious projects – that are more than what you earn. So everyone is trying to work on projects that are really visible. And it’s impossible to pull those people away for something risky like augmented reality because they only want to work on the sure thing. So that was a frustration, we were starved for resources. And I probably was [abrasive] but I just couldn’t find a way to make a process to actually deliver any hardware inside that company.
If I sound bitter, it’s because I am. I am really, really bitter. They promised me the world and then stabbed me in the back.
Despite my naivete and gullibility, I originally thought that Valve was an exemplar case. With over 300 employees, they seemingly proved that flatness and egalitarianism can scale. It seemed magical. But sigh, according to Jeri, who admittedly is only one data point, it doesn’t.
In light of this sad, new information, I no longer think flatness scales. At a certain (but unknown) size, hierarchy is required for sustained economic viability in for-profit enterprises. When you arrive at the (unknown) size where you need a hierarchy, tis better to have a visible, transparent pyramid than a hidden, privileged one.
The trouble with unwritten rules is that you don’t know where to go to erase them. – Unknown
I’m glad to be part of an org with a visible hierarchy instead of an invisible one. At least I know who to suck up to (which I do well) and who not to piss off (which I don’t do well).
Hierarchy will never go away, never. – Tom Peters
Spoken But Unwritten
Because they may be called to account for their hypocritical behavior, you may find people in authority saying things like these, but you most likely won’t find them written into the Employee Handbook:
“Providing the freedom to fail is an important trait of the company— we couldn’t expect so much of individuals if we also penalized people for errors. Even expensive mistakes, or ones which result in a very public failure, are genuinely looked at as opportunities to learn. We can always repair the mistake or make up for it.”
“But problems show up when hierarchy or codified divisions of labor either haven’t been created by the group’s members or when those structures persist for long periods of time. We believe those structures inevitably begin to serve their own needs rather than those of Valve’s customers. The hierarchy will begin to reinforce its own structure by hiring people who fit its shape, adding people to fill subordinate support roles. Its members are also incented to engage in rent-seeking behaviors that take advantage of the power structure rather than focusing on simply delivering value to customers.”
“…for the most part working overtime for extended periods indicates a fundamental failure in planning or communication. If this happens at Valve, it’s a sign that something needs to be reevaluated and corrected. If you’re looking around wondering why people aren’t in “crunch mode,” the answer’s pretty simple. The thing we work hardest at is hiring good people, so we want them to stick around and have a good balance between work and family and the rest of the important stuff in life.”
“Our profitability per employee is higher than that of Google or Amazon or Microsoft, and we believe strongly that the right thing to do in that case is to put a maximum amount of money back into each employee’s pocket. Valve does not win if you’re paid less than the value you create. Over time, compensation gets adjusted to fit an employee’s internal peer-driven valuation.
Stacked Ranking
The title of this post sounds like the stodgy name of some inhumane, BS, corpo process under which “supervisors” evaluate their children, I mean, induhvidual contributors. But wait! It’s the Valve way.
You don’t know who Valve is? Valve is a company that creates massive, multi-player, online games. According to “economist-in-residence“, Yanis Varoufakis, Valve rakes in $1B in revenue even though they have a measly 300 employees. Also, according to Yanis (and their employee handbook), they are totally flat chested. There’s not a single boob, oops, I mean “boss“, in the entire community. D’oh!
The employee handbook spells out the details of the “Stacked Ranking” process, but in summary, peers rate each other once a year according to these four, equally-weighted metrics:
Skill Level/Technical Ability
Productivity/Output
Group Contribution
Product Contribution
Notice that there’s no long list of patriarchical, corpo-BS ditties like these in the four simple Valve metrics:
- Takes initiative and is a self-starter
- Knows how to acquire resources when needed
- Manages time well
- Knows how to prioritize tasks
- Yada, yada, yada
As you might guess, the stack rankings are used for salary adjustment:
…stack ranking is done in order to gain insight into who’s providing the most value at the company and to thereby adjust each person’s compensation to be commensurate with his or her actual value. Valve pays people very well compared to industry norms. Our profitability per employee is higher than that of Google or Amazon or Microsoft, and we believe strongly that the right thing to do in that case is to put a maximum amount of money back into each employee’s pocket. Valve does not win if you’re paid less than the value you create. Over time, compensation gets adjusted to fit an employee’s internal peer-driven valuation. – The Valve Employee Handbook
Whenever I serendipitously discover jewels in the rough like Valve, SAS Institute, HCL Technologies, Semco, Zappos.com, etc, I always ask myself why they’re rare exceptions to the herd of standard, cookie-cutter corpricracies that dominate the business world. The best answer I can conjure up is this Ackoff-ism:
The only thing harder than starting something new is stopping something old. – Russ Ackoff
But it’s prolly something more pragmatic than that. Since corpo profits seem to keep rising, there is no burning need to change anything, let alone blow up the org and re-design it from scratch to be both socially and financially successful. That would be like asking the king to willingly give up the keys to his kingdom.
“T”, “Hyphen”, And “I” People
In this:
the company talks about “T” people:
We value “T-shaped” people. That is, people who are both generalists (highly skilled at a broad set of valuable things—the top of the T) and also experts (among the best in their field within a narrow discipline—the vertical leg of the T). We often have to pass on people who are very strong generalists without expertise, or vice versa. An expert who is too narrow has difficulty collaborating. A generalist who doesn’t go deep enough in a single area ends up on the margins, not really contributing as an individual.
That’s too bad for the typical borg. These beasts actively recruit and develop horizontal “hypen” (mgrs, execs) people and vertical “I” (induhvidual contributors) people. Of course, the stewards of these dinosaurs get what they wish for. On top of that, anybody who tries to self-improve towards a “T” person is silently ignored. It would screw up the nice and tidy employee-in-a-box process of emasculation.
Glad To Be Of Service
Much of my thinking on hierarchy and unconsciously veiled corpo-insanity is founded on the ideas of systems thinkers and cyberneticians like Ackoff, Deming, Beer, Ashby, Wiener, Forrester, Meadows, Senge, Wheatley, Warfield, Bateson, Gall, Powers, etc. But mostly, my dirty thinking is rooted in the life work of William T. Livingston and his most influential mentor, Rudy Starkermann.
Over the years, Bill has always claimed that his work on socio-technical dysfunction may not be right, but it is irrefutable because it is derived from natures laws (mostly thermodynamics and control theory). And in walking his talk, Bill constantly solicits feedback and asks for counterexamples that disprove his theories.
After I discovered and wrote about Valve Inc, I threw this skunk on my friend’s table:
Here’s Bill’s response and my response to his response:
With his approval, which I have no doubt whatsoever that I’ll receive, I’ll try to decode and post the results of Bill’s research when I get it.
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Come To Papa!
I recently listened to a fascinating podcast interview of Valve Inc‘s “economist-in-residence“, Yanis Varoufakis. According to Yanis, the company is still organizationally flat after 17 years of existence.
The thought early on at Valve was that the maximum limit to flatness would be around 50-60 people. Above that, in order to keep the wheels from falling off, some form of hierarchy would be required for concerted coordination. However, currently at 300+ employees, Valve has managed to blow through that artificial barrier and remain flat. Mind you, this is not a company solely made up of like-thinking engineers. There are also artists, animators, writers, and accountants running around like a herd of cats inefficiently doing the shit that brings in $1B in revenue each year.
According to Yanis, in order to maintain their egalitarian culture, Valve can’t afford to grow too quickly. That’s because they have to deprogram people who are hired in from hierarchical borgs as former bosses who expect others to work for them, and former workers who expect to be “directed” by a boss. If Valve didn’t do this, their culture would get eaten alive by the pervasive and mighty command-and-control mindset. The spontaneity, creativity, and togetherness that power their revenue machine would be lost forever.
Nevertheless, Valve is pragmatic with respect to hierarchy:
“Valve is not averse to all organizational structure—it crops up in many forms all the time, temporarily. But problems show up when hierarchy or codified divisions of labor either haven’t been created by the group’s members or when those structures persist for long periods of time. We believe those structures inevitably begin to serve their own needs rather than those of Valve’s customers. The hierarchy will begin to reinforce its own structure by hiring people who fit its shape, adding people to fill subordinate support roles. Its members are also incented to engage in rent-seeking behaviors that take advantage of the power structure rather than focusing on simply delivering value to customers.” – The Valve employee handbook
Whether Valve knows it or not, their success is due to their respect of some of Gall’s system laws:
- Systems develop goals of their own as soon as they come into existence – and intra-system goals come first.
- Loose systems last longer and work better. Efficient systems are dangerous to themselves and others.
Why am I here?
WTF?
Meh!
D'oh!
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