Did Poor Management Kill Half-Life 3?

Fans have been wondering for years if Valve will ever produce a new entry in the enormously successful Half-Life franchise. Questions about the existence of a new Half-Life project have even become something of a joke in the game industry. Yet as the years drag on, the possibility of a sequel grows less and less likely. But now, for the first time, we might actually know why, and it turns out, the culprit could be poor economic organization.

The new information comes from Game Informer, which is running a story more than two years in the writing about why Valve’s much-anticipated projects were never delivered, and in fact, why they were never even really begun. The story is based on an interview with an anonymous employee within Valve. It has not been confirmed by other sources, so we should be careful about accepting it as a definitive account. However, it does dovetail with other well-known information about Valve’s corporate culture, as well as with previous remarks from the company about its Half-Life projects, or lack thereof.

So why did Valve abandon its extremely profitable and critically-acclaimed franchise? Much of the answer has to do with Valve’s unique economic organization, which ultimately undermined efforts to get new games off the ground. I’ve previously written about it in more detail (here), and for those interested, there’s also a fascinating symposium on Valve in the Journal of Organization Design.

Basically, Valve uses a “flat” form of business structure with little or no hierarchy. There are no job titles, and employees are not assigned tasks by managers; instead, they decide for themselves what projects they want to work on, and then try to convince others with similar interests to form groups and teams to take their ideas forward.

This type of “wikified” organization can be efficient for certain firms, especially when knowledge is dispersed in the company or decisions are not time-sensitive. This has in fact been the case with many Valve projects over the years, and because the company inhabits a very specific market, the model usually works. However, Half-Life provides an instructive example of how it can also go wrong.

The basic problem is a lack of good entrepreneurial judgment and practical management. Entrepreneurs act as a locus of control and decision making within firms. Contrary to popular belief, this doesn’t always mean playing an active role in the everyday running of the business—an important part of entrepreneurship is making major decisions while also knowing when to delegate tasks to managers, who determine how best to reach company goals efficiently. Management doesn’t necessarily mean specific direction or monitoring of employees: managers also play more general, coordinating roles that support the work of employees. Ultimately, the kind of goods and services firms produce depend a lot on whether entrepreneurs are willing to trust managers.

In the case of Valve, the main entrepreneur is CEO Gabe Newell. Newell does not seem to have taken the lead by making the decision to move ahead with more Half-Life games. Instead, any decisions about potential projects were left to Valve’s “democratized,” manager-less organization. Without a “driving force” behind their development, new games never materialized. All of this comes through pretty clearly in the Game Informerinterview. Here are a few examples:

In other words, a lack of entrepreneurial and managerial direction prevented the company from ever coordinating enough to focus on delivering a product to consumers. In my previous writing, I actually joked that Valve’s organizational problems were the reason for the lack of progress. But it seems now this is exactly what happened. Half-Life serves as a reminder that although alternative forms of business organization can bring a great deal of value to the market, they also have limitations.

At the same time, a counterargument can be made that Valve has actually been acting in its own interest, and in the interests of consumers; after all, it has pursued many profitable projects over the past ten years or so. Perhaps they correctly realized that the path they’ve taken has created more value for consumers than making another Half-Life. Unfortunately, the alternatives are “unseen,” so we’ll never really know.