Don’t look now, but Valve just humiliated your “corporate culture”.

The game company Valve has gotten a lot of press recently for, among other things, its unusual corporate culture in which employees are free to move to whatever project they choose. There’s no “transfer process” to go through when an employee decides to move to another team. They just move. This is symbolized by placing wheels under each desk. People are free to move as they are capable. Employees are trusted with their time and energy. And it works.

Surely this can’t work for larger companies, can it? Actually, I’d argue that Valve has found the only solution that actually works. When companies trust their employees to self-organize and allocate their time as they will, the way to make sure that unpleasant but important work gets done is to provide an incentive: a leadership position or a promotion or a bonus to the person who rolls up her sleeves and solves this problem. That’s “expensive”, but it actually works. (Unpleasant and unimportant projects don’t get done, as they shouldn’t.) The more traditional, managerial alternative is to “assign” someone to that project and make it hard for her to transfer until some amount of time has been “served” on the shitty project. There’s a problem. First, the quality of the work done when someone tells a newcomer, “Complete this or I’ll fire you” is just not nearly as good as the work you get when you tell someone competent, “This project will be unpleasant but it will lock in your next promotion.” Second, it tends to produce mediocrity. The best people have better options than to pay 18 months of dues before having the option (not a guarantee, but the right to apply) to transfer to something better, so the ones who remain and suffer tend to be less talented. Good people are always going to move around in search of the best learning opportunity (that’s how they got to be good) so it’s counterproductive to force them into external transfer with a policy that makes it a lot harder to get onto a decent project than to get hired.

Valve actually Solved It with the elegance of a one-line mathematical proof. They’ve won the cultural battle. The wheels under the desk are a beautiful symbol, as well: an awesome fuck-you to every company that thinks providing a Foosball table constitutes a “corporate culture” worth giving a shit about. They’ve also, by demonstration of an alternative, shown a generation of technology workers how terrible their more typical, micromanaged jobs are. What good is an array of cheap perks (8:30 pm pizza!) if people aren’t trusted to choose what to work on and direct their own careers?

I think, however, that Valve’s under-desk wheels have solved an even deeper problem. What causes corporations to decay? A lot of things, but hiring and firing come to mind. Hiring the wrong people is toxic, but there are very few objectively bad employees. Mostly, it comes down to project/person fit. Why not maximize the chance of a successful fit by letting the employee drive? Next, firing. It always does damage. Even when there is no question that it’s the right decision to fire someone, it has undesirable cultural side effects. Taking a short-term, first-order perspective, most companies could, in theory, become more productive if they fired the bottom 30 percent of their workforce. In practice, virtually no company would do this. It would be cultural suicide, and the actual effect on productivity would be catastrophic. So very companies execute 30 percent layoffs lightly. Nonetheless, good people do get fired, and it’s not a rare occasion, and it’s incredibly damaging. What drives this? Enter the Welch Effect, named for Jack Welch, inventor of stack-ranking, which answers the question of, “Who is most likely to get fired when a company has to cut people?” The answer: junior people on macroscopically underperforming teams. Why is this suboptimal? Because the junior members of this team are the ones least responsible for its underperformance.

Companies generally allocate bonuses and raises by having the CEO or board divide a pool of money among departments for the VPs to further subdivide, and so on, with leaf-level employees at the end of this propagation chain. The same process is usually used for layoffs, which means that an employee’s chance of getting nicked is a function of his team’s macroscopic performance, rather than her individual capability. Junior employees, who rarely make the kinds of major decisions that would result in macroscopic team underperformance, still tend to be the first ones to go. They don’t have the connections within the company or open transfer opportunities that would protect them. It’s not firing “from the top” or the middle or the bottom. It’s firing mostly new people randomly, which destroys the culture rapidly. Once people see a colleague unfairly fired, they tend to distrust that there’s any fairness in the company at all.

Wheels under the desk, in addiction to creating a corporate culture actually worth caring about, eliminate the Welch Effect. This inspires people to genuinely work hard and energetically, and makes bad hires and firings rare and transfer battles nonexistent.

Moreover, the Valve way of doing things is the only way, for white-collar work at least, that actually makes sense. Where did companies get the idea that, before anyone is allowed to spend time on it, a project needs to be “allocated” “head count” by a bunch of people who don’t even understand the work being done? I don’t know where that idea comes from, but its time is clearly long past over.

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22 thoughts on “Don’t look now, but Valve just humiliated your “corporate culture”.

  1. Even if it’s avoided the Welch Effect, it’s still hazy to me how firings happen in Valve. Trouble firing fast can sow seeds of decay as easily as the other kinds of dysfunction they’ve successfully avoided.

    • Short answer: coach or reassign subtracters and fire dividers.

      Subtracters are people who seem to be decent human beings, and are minimally competent, but not good enough to be profitable, especially when you factor in communication costs. Or, they might be good but far behind the rest of the team in experience. You should bring them up to speed and turn them into adders, instead of firing them for short-term reasons. You have to fire dividers, though, and fast.

      Who are the dividers? Bad managers are dividers because managers, by definition, can only be multipliers or dividers. But I doubt Valve has that problem. Other dividers are the obvious incompetents and assholes who create interpersonal drama and deliver extremely poor work. You don’t need a formal authority structure to fire these people; it’s obvious what needs to happen. You do need a CEO type to deliver the news, but it’s not really a hierarchical/authoritarian thing because it’s obvious at that point that it’s not working out for anyone.

      Firing people doesn’t have to be nasty and dramatic, either. That’s what severance is for. Get the person out of there, but with enough cash to move on smoothly. Reduces drama considerably.

      • I still think the details are problematic. There’s three phases to firings: create a procedure (“algorithm”) for detecting firable people, make sure people follow the procedure, and communicate the decision. I think the second stage is the hard part even in a traditional organization, both because it’s stressful to make the decision (think of the anticipation regardless of overt drama in the actual event) and because of legal liability issues. I suspect it’ll be very hard to create the right decentralized incentives to get people to do this. They’ll keep finding reasons why people are in unique circumstances, so the procedure doesn’t apply to them.

        • I was skeptical of that claim as well. I think it’s impossible to keep a Valve-style culture intact without firing anyone. People think of firing as the end-game result against someone who resists being controlled– and that’s the most common case– but a firm also needs to fire the people who demand inappropriate control over others. If it doesn’t get rid of toxic people, it loses its culture rapidly.

          My guess, knowing nothing about Valve specifically, is that they’ve probably never fired an engineer, but that they’ve had “manage out” a few people who haven’t been able to get along with the culture– and that they’re probably quickest to act against those who are trying to set themselves up as executives (inappropriate delegation, threatening, disparagement of colleagues to gain status).

          A bad fit in a closed-allocation company is someone who doesn’t get on well with his direct manager. A bad fit in an open-allocation company is someone who insists on having the kind of authority that impinges on others and thereby weakens the culture.

          It’s probably true that no one has been officially terminated, so much as people who were obvious bad fits and asked to leave. They probably either (a) got generous severance packages including the right to represent the departure as mutual, or (b) left on their own accord before The Axe could fall.

          This is good for the culture, because if no one seems to be leaving on bad terms, people aren’t afraid. The company benefits by giving these people severance and letting the departure seem mutual, because if you cold-fire, you generate a gossip and fear load. It’s when people are afraid that they glom on to strongmen who become the next generation’s nobility (5th-century Europe) or de facto bosses.

          Again, I know nothing about Valve per se, but this is how I would imagine firing playing out in such a culture. Yes, you have to do it, but you can be conservative and humane about it.

  2. I take it that you have never worked as an employee at Valve. And you have written a long, heart-melting article about how it is fantastic, inferring it from an article. Have you tried getting a project approved in Valve? The wheeled-tables that you are infatuated with is as symbolic as the free beer or the fussball table that you look down on.

    • I’ve never worked at Valve. I like the concept and the courage of the experiment, but I don’t know anything about the company itself other than what I’ve read.

      I don’t take “wheels under the desk” to mean “everyone gets to do what they want”. I take it to mean that people are expected either to lead or to follow, and probably only able to do the second of these when they start out, but that leadership roles emerge from actual leadership ability and having good ideas rather than managerial fiat. This wouldn’t mean that there aren’t standards, and it wouldn’t eliminate all the politics given how people can be, but at least it would get rid of the degenerate arrangement where a person can be fired from a whole company because of a disagreement with one (!) person. It would probably also improve the quality of work by eliminating the unpleasant/unimportant quadrant that gets no attention if employees can vote with their feet (i.e. the worst projects wouldn’t get done).

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  5. While Valve certainly has gained profile for their innovative corporate structure, they’re not the first to challenge the orthodoxy of the hierarchy. That distinction belongs to W.L. Gore & Associates who have had a “latticed” structure since their inception (hence the “Associates” – everyone there besides Bill is an Associate)

    However, in this type of organization (or any other), I’d caution against the idea that financial or similar incentives will attract people to do “unpleasant, but important” work. There’s enough evidence that has been mounting that there are much more important motivators for people to engage in their roles besides money, as Patrick Lencioni points out in his Three Signs of a Miserable Job and Dan Pink’s Intrinsic Motivators.[1]

    In short, financial rewards – whether they come with a promotion or not – can actually serve to backfire and become the long tail of sabotage as employees figure out how to game the system to their advantage (irrespective of how enlightened its creators may be). Liz Keogh covered just this scenario in her 2011 Q-Con talk on Learning and Perverse Incentives.[2]

    Valve is a step in the right direction, but there’s a bit more to it than “Wheels Under Desk” + “Culture Magic” = “Profit!” unfortunately.

    [1] http://www.derailleurconsulting.com/blog/why-financial-incentives-dont-work
    [2] http://www.infoq.com/presentations/Learning-and-Perverse-Incentives

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