Product Pricing Customers Blog

Resources

Management Guides Help Centre
Login Start free trial

Valve: A case study on a radically different way to run a company

When we think of the richest and most profitable companies in the world, Apple, Google and a couple of oil companies are usually the first that come to mind.

However, it’s likely that a comparatively tiny software company delivers per employee revenues far in excess of these global giants.

That company is Valve, maker of the online gaming platform Steam and one of the world’s most profitable companies per employee.

Amazingly, these profits are not even close to being the most interesting thing about Valve. Neither is their string of hit games that includes Half Life and Counter Strike.

What makes Value so unique and impressive – and why we’d want to write about them at Peakon – is the why the company is regularly voted the best place to work in the games industry, even outscoring the option of ‘My Own Company’ in many surveys!

How teams are structured at Valve

Valve is an entirely flat organisation, meaning it has no hierarchical management structure. As respected economist (and scandalously disrespected Greek finance minister) Yanis Varoufakis explained, the company functions through a form of internal free-market for the time and team allocations projects receive.

An employee can propose an idea and if it garners enthusiasm and support from others, a project group will form. Every desk at Valve is fitted with wheels, enabling workers to cluster together for the duration of the project.

No person or system directs this flow of resources around the company, other than the spontaneous order that arises from each employee deciding where they can add the most value.

The Valve handbook tells each new employee why they no longer have a boss:

“Hierarchy is great for maintaining predictability and repeatability. It simplifies planning and makes it easier to control a large group of people from the top down, which is why military organizations rely on it so heavily.

“But when you’re an entertainment company that’s spent the last decade going out of its way to recruit the most intelligent, innovative, talented people on Earth, telling them to sit at a desk and do what they’re told obliterates 99 percent of their value. We want innovators, and that means maintaining an environment where they’ll flourish.”

A project group will often have a lead, however this lead is chosen by the group and the role is temporary – based on the duration of the project.

How performance is measured at Valve

When learning of the levels of autonomy Valve employees enjoy, an impulsive reaction is to first question how anything gets done when no one is commanded to do anything.

One reason is the social pressure generated by everyone being peers – when people feel they are equal, most people feel they should make an equal contribution. Another is the result of their hiring technique (more on that below).

Then come the two formalised methods Valve employees use to review each other and their contribution levels to the company:

Peer reviews
A group of employees (the group changes each time) will interview every person in the company – asking them who they’ve worked with since the last peer review and what that experience was. Once the feedback has been collected and anonymized, it’s delivered to each employee with the goal of helping them grow as individual contributors.

Stack ranking
Whereas peer reviews are used for personal development, a form of stack ranking is used to determine the value each employee delivers to the company. Each project group is asked to rank its own members based on skill level/technical ability, productivity/output, group contribution, and product contribution. An employee’s ranking is then used to adjust the level of pay they receive.

How hiring is done at Valve

Valve concede that when done wrong, poorly fitting employees can be more destructive than in companies where managers provide checks on their influence. Therefore, the company describe hiring as the single most important task an employee can be involved in. The same fundamental hiring criteria are used across the company, with the aim of finding “T-Shaped” candidates – meaning people with a strong and broad skillset (the top of the T), combined with deep expertise in one area (the centre of the T).

When evaluating each candidate, some of the questions employees ask themselves include:

  • Would I want this person to be my boss?
  • Would I learn a significant amount from him or her?
  • What if this person went to work for our competition?

Naturally strong collaboration skills are a must, as are high levels of intrinsic motivation.

With their flat structure, Valve believe they can avoid a common hiring misstep – that being manager hiring candidates that are good enough to get the job done, but not so good they could eventually challenge their superiority. With no pecking order to fear falling down, there are no perverse incentives leading people to not hire the absolute best.

Estimated to be around 350 employees now, the Valve way appears to scale to a far greater extent than many expected. Being self funded and privately owned, they are also under no external pressure to expand at a pace that could jeopardise their stability.

From the outside – watching Valve as an experiment in how to do things very differently – this incredibly company only gets more interesting over time.

30 day free trial

Peakon is free to try for 30 days. No credit card required.

Almost there,
check your inbox

We've sent you an email to verify your account.

What’s included in the free trial? ⚡️

  • 30 day free trial
  • Mobile survey app
  • Branding
  • 24/7 access to online support portal

Powering the world’s best workplaces 💪