Case 2 – Opening the Valve: From Software to Hardware.

Ximena López Cifuentes

1. Why has Valve been so successful?

Valve has been able to develop a competitive advantage based on three components:

a) Core competences: Founders past experience and knowledge in tech sector laid the
foundation to establish and develop the product vision. Understanding the customer needs
and fomenting intrapreneurship along the cabals enabled them to create value faster than
competitors.

Their ability to identify user needs allowed them create economies of scale. Steam platform
drove the company growth and allowed them to win between 50% to 70% of video game
market.

Hiring only T-shaped people and endeavoring to retain them strengthened their core
competences, but most important, successful coordination of brilliant employees allowed
them to achieve business goals.

b) Organizational structure: Even though the case describes the Velvet as “amorphous corporate
structure”, there is a clear task and people coordination system. A non-traditional one. Cabals
are the main structure to control cooperation and resources usage to achieve organization’s
goals. This type of structure allowed them to effectively control and coordinate employee’s
motivation and shape organization behavior and culture. Likewise, Cabals structure based on
flexibility made Velvet a company able to deal with complexity, ambiguity and contingencies,
as well as adapting faster to environment changes.

c) Organizational culture: Successful coordination inside and between cabals was possible thanks
to organizational culture. Since shared values based on agility, innovation, excellence and fast
growing drove interaction between organization members coordination and control was easier
and smoother for managers and founders.

2. Should Valve start producing hardware? If so, how?

I’d recommend Valve do not start producing hardware.

Hardware for video game products is a very competitive, fierce and fragmented market. Historic data
shows how competitors failed to dominate market share or even keep the business alive, big players
such as Atari in 1993, Saga in 1999 had to exit the market and face millionaire losses. Valve core
competences does not give them any competitive advantage over stablished players as Nintendo,
Microsoft, Sony or big players in the mobile market like Apple or Samsung.

On the other hand, components of Valve success in software market does not necessary guarantee
success in hardware market. Since hardware market is capex intensive, proof and error and
experimentation methodology once successful in Cabas model would be very expensive in hardware
development.

Finally, once hardware design is finished, hardware production is a repetitive and routine task that
needs control and coordination mechanisms different than cabals and new to Valve organizational
structure and culture.