In the Shadow of the Crowd: A Comment on 'Valve's Way'

Carliss Y. Baldwin

Comment | Journal of Organization Design | 2015

In the Shadow of the Crowd: A Comment on 'Valve's Way'

Abstract

There are many ways to exercise authority. Perrow (1986), in his review of March and Simon's Organizations (1958), offers a threefold classification of the ways authority can be exercised in organizations: (1) direct, "fully obtrusive" controls such as giving orders and direct monitoring; (2) bureaucratic controls such as defined specializations, roles, and hierarchy; and (3) "control of the cognitive premises underlying action." Valve ostentatiously makes little use of direct authority. It downplays bureaucracy, although in fact many bureaucratic controls are in place. Instead, the legal authority vested in the owners of the company (especially the majority shareholder, Gabe Newell) is used quite extensively to set the premises of action and thus unobtrusively channel employees' efforts and communication patterns into a highly productive configuration. The sustained high profits of the company, and its ability to attract and retain talented software developers, are testimony to the success of this organizational model. At the same time, contextual variables—in particular Valve's identity as a video game creator and the fact of a single majority shareholder—are also critical factors contributing to its success. As a result, even within the software industry, the range of companies for which this organizational model is appropriate is quite limited.

Keywords: new forms of organizing; organizational forms; non-hierarchical organizations; self-organizing teams; boss-less organizations; Organizational Design; United States;

Format: Print

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Citation:

Baldwin, Carliss Y. "In the Shadow of the Crowd: A Comment on 'Valve's Way'." Journal of Organization Design 4, no. 2 (2015): 5–7.

Working Paper | HBS Working Paper Series | 2019

Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 8 Rationalizing Flow Processes

Carliss Y. Baldwin

The purpose of this chapter is to examine the value structure of flow production processes and to explain why it is necessary to rationalize flow processes using the tools of systematic management. I first explain the problems facing managers of multi-step flow production processes at the end of the 19th Century. I introduce a model of the value structure of a production process made up of interdependent steps and define the production bottleneck of the process. I use the mathematical definition of a bottleneck to derive two general properties of stochastic multi-step flow processes with bottlenecks. These properties imply a need for ongoing managerial oversight and intervention using a set of tools that went by the label systematic management. Without active systematic management to address production bottlenecks, large-scale flow processes can easily collapse into chaos. I then argue that that the use of automated machinery, larger (or growing) markets, and systematic management are supermodular complements: each attribute makes the other two more valuable. The next chapter will explore how the technological requirements of multi-step flow production processes affect the optimal design of organizations implementing these technologies.

Keywords: flow processes; bottleneck; systematic management; Production; Management; Problems and Challenges;

Citation:

Baldwin, Carliss Y. "Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 8 Rationalizing Flow Processes." Harvard Business School Working Paper, No. 20-032, September 2019. View Details

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The purpose of this chapter is to explain what the technologies of flow production with stochastic bottlenecks require and reward in organizations. I argue that organizations successfully implementing these technologies are likely to have unified governance and exercise direct authority over process design, job definitions, and task assignments. As they come to employ more people, they will create hierarchical management structures as a means of managing information flows and delegating decision rights. Finally from the early 20th Century through the present, most of these organizations saw advantage in being legally organized as corporations, which could own assets, enter into contracts, and employ individuals in their own right. The result was a “paradigm” of mass production—a cluster of concepts that came to define both “big business” and “high technology” in the United States and elsewhere. Throughout the middle years of the 20th Century, many members of society took for granted the fact that successful businesses using advanced technology would be organized as large, vertically integrated corporations, exercise direct authority, and use managerial hierarchies to channel information and delegate responsibility.

The purpose of this chapter is to explore how technologies and organizations engaged in flow production evolve over time. To allow for an apples-to-apples comparison, I examine organizations using essentially the same physical technologies, making similar products, and competing in the same markets. Specifically, I look at the organizational differences among the largest automakers in the United States and Japan. I focus first on Ford between 1910 and 1930, then on General Motors from the 1920s through the 1960s, then Toyota (and other Japanese automakers) from the 1960s through 2000. The differences among these organizations show that while technology shapes organizations within broad limits, it does not determine an organization’s complete design nor its long-term competitive success.

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In the Shadow of the Crowd: A Comment on 'Valve's Way'

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