Pixar Case Study
Paper instructions:
This is a 1,000 word or more paper in APA format. You need to review the information provided and answer the following questions: 1. How does Pixar use strategic
management? 2. What elements in the external environment might affect Pixar’s strategy? 3. What key internal resources does Pixar have that might help it support its
competitive strategy? 4. What is Pixar’s competitive strategy, and what is the basis of Pixar’s competitive advantage? 5. How has strategic leadership and the
management of innovation helped Pixar sustain its competitive edge? What challenges remain for Catmull and Lasseter? This paper is due on September 7, 2014 at 11:59 pm
Link to Strategic Management book with the Pixar Case Study in it, I don’t own the actual online book, but this is it just in PDF format:
http://www.homeworkmarket.com/sites/default/files/q3/20/02/strategic_management__text_and__-_gregory_dess_0.pdf
Teaching Note: Case 4 – Pixar
Case Objectives
1. To investigate how external environmental issues can affect a firm’s strategy.
2. To examine how a reevaluation of strategy involves assessment of internal activities and resources.
3. To discuss the decisions and actions that a firm has to undertake to sustain a competitive advantage.
4. To understand the role of strategic leadership, especially when pursuing innovation.
See the table below to determine where to use this case:
Chapter Use Key Concepts Additional Readings or Exercises
1: Strategy Concept Strategic management; vision, mission, strategic objectives
2: External Environment External environmental forces; five forces analysis NOTE additional web link reading, video news story
3: Internal Analysis Value chain; tangible vs. intangible resources; VRIN NOTE additional reading, viewing of film clips
5: Business-Level Strategy Generic strategies
11: Strategic Leadership Leadership; learning organizations NOTE additional reading and photos of Pixar workspaces
12: Managing Innovation Innovation; sustaining vs. disruptive innovation; scope of innovation; entrepreneurial orientation NOTE additional web link reading,
embedded video clips of Lasseter’s early work
Case Synopsis
In 2013, Pixar’s Brave received an Academy Award nomination for best animated feature. This was not unusual: Toy Story 3 had been nominated in both the best picture
and best animated feature categories in 2010, and became the first animated feature to gross more than $1 billion in theatres worldwide. Wall-E had won the Academy
Award for best animated feature in February 2009. And with this win, Pixar had claimed its fourth feature length animation Oscar, which represented half of the eight
trophies that had been handed out since the category was added in 2001. Pixar’s track record had made it one of the world’s most successful animation companies. The
string of successful releases since Toy Story’s success in 1995 — Up, Cars, Ratatouille, and Wall-E —suggested that Pixar had continued to flourish despite its 2006
acquisition by the Walt Disney Company for the hefty sum of $7.4 billion. Concerns at the time of the acquisition were that Disney’s difficulties resurrecting its
animation department would have a negative effect on Pixar’s unique creative culture. However, actions taken by Pixar’s major original investor Steve Jobs, president
Edwin Catmull, and “creative” vice president John Lasseter had not only made Pixar successful, but were becoming mutually beneficial for both firms. But might Pixar be
negatively affected by the loss of Steve Jobs, who passed away in 2011? Jobs was an important sounding board for Lassiter. In addition, even though the Pixar sequel
Cars 2 had made about $560 million worldwide, it did not win any critical acclaim. Industry observers wondered if this sequel had been developed as a result of
pressure from Disney – an opportunity for the parent company to gain revenue from sales of related merchandise. Might Disney’s increasing emphasis on sequels dilute
some of the creative opportunities Pixar had been known for? As part of Disney’s animation division, could Pixar continue to develop hits, both for itself and for
Disney, and hold onto the creative talent necessary to do so?
Teaching Plan
This short case allows for discussion of the full arc of strategic analysis, formulation, and implementation. The movie industry has had some challenges as public
tastes change, technological developments allow innovation, yet movie distribution channels affect profits. Investigating the strategic decisions of an innovative
company like Pixar can help students grasp these elements. This case might be positioned after discussing the other movie industry case. Movie Exhibition Industry 2013
sets the stage by providing an industry analysis, while Pixar continues the discussion by giving an example of how one firm formulated and implemented strategy in the
movie industry environment.
ICEBREAKER
This case can start with an icebreaker. Starting from the perspective of a customer may make it easier for students to transition to a strategic analysis.
How many of you have seen an animated movie? Which one was your favorite? Why?
It’s entirely possible that all students have seen at least one animated movie. If students have never seen one, ask them why not – it may be because they are not
movie watchers in general, or they may be movie goers but think that animated films are only for children. Refer to Case Exhibit 1 to see if the films they mention as
their favorites are on this list, and how many are Pixar films.
It might be interesting to put a list on the board to tally up favorite animated movies, and why they were favorites, and then identify which studio made them:
Favorite Animated Movie, Why a Favorite, and Which Studio. There’s a high likelihood that the majority of the student’s favorite movies have been made by Pixar. As
students answer why they liked the movies, themes such as creative idea, excellent animation technique, touching story, may emerge. This might give students an idea of
what Pixar leadership may have had to do to sustain the company’s success, and will lead them into a discussion of how Pixar has crafted its successful strategy over
the last decade.
If there are older students in the class, some of them may remember the Disney classic animated films, i.e. Sleeping Beauty, Snow White, even The Lion King. Ask if the
Disney movies had the same kind of broad appeal as the Pixar films. Students may say the Disney movies were more simplistic in their storylines, appealing more to
children, while the Pixar films had more sophistication, appealing not only to children, but to adults as well. This insight will help make the point about how Pixar
was able to craft a differentiated competitive strategy based on unique value.
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign, and also which additional readings or exercises to include to augment
each discussion. Refer back to the Case Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.
Discussion Questions:
1. How does Pixar use strategic management?
2. What elements in the external environment might affect Pixar’s strategy?
3. What key internal resources does Pixar have that might help it support its competitive strategy?
4. What is Pixar’s competitive strategy, and what is the basis of Pixar’s competitive advantage?
5. How has strategic leadership and the management of innovation helped Pixar sustain its competitive edge? What challenges remain for Catmull and Lasseter?
Discussion Questions and Responses
1. How does Pixar use strategic management?
Referencing Chapter 1: Strategy Concept: Introduction and Analyzing Goals and Objectives
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter 1, Exhibit 01: Strategic management consists of the analyses,
decisions, and actions an organization undertakes in order to create and sustain competitive advantages:
• strategy directs the organization toward overall goals and objectives;
• includes multiple stakeholders in decision making;
• incorporates both short-term and long-term perspectives;
• recognizes trade-offs between efficiency and effectiveness.
Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a
certain level of “ambidextrous behavior”, where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out
opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.
See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision, mission and strategic objectives. Leaders must communicate their
initial vision of the organization’s purpose: what was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be
massively inspiring, overarching, and long-term, that represented a destination that is driven by and evokes passion?
The organizational mission also needs to be considered: a mission encompasses both the purpose of the company as well as the basis for competition and competitive
advantages. In writing a mission statement, it is important to understand the definition of the business: 1) who are its customers, 2) what customer need is the
organization trying to fulfill, and 3) how does the business create and deliver value to customers and satisfy their needs.
Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational
stakeholders. Although vision statements tend to be quite enduring and seldom change, a firm’s mission can and should change when competitive conditions dramatically
change or the firm is faced with new threats or opportunities.
Anticipating that things might change, an organization’s leadership must then establish strategic objectives to operationalize the mission statement. That is,
objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher
goals” in the goal hierarchy—the mission and vision.
Pixar’s vision might have been best expressed by Steve Jobs: as he pointed out, a film only works if its story can move the hearts and minds of families around the
world. The mission of Pixar is then to be known for the quality of its storytelling, to create “great stories and characters that endure with each generation.”
Following this, Ed Catmull and John Lasseter set the objectives of the company to continue to push the boundaries of animation technology, and to inspire creative
passion in the people that utilized this technology to create great films. Jobs pursued the initial marketing and distribution relationship with Disney in order not to
dilute Pixar’s resources or require Pixar to acquire resources to perform these duties – this allowed Pixar to do what Pixar did best.
See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic analysis, the leader does “advance work” to anticipate unforeseen
environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formulation, the
organization addresses the issue of how to compete in a given business to attain competitive advantage. Strategies are formulated at the business, corporate, and
international levels. Entrepreneurial initiatives may also play a role. In strategy implementation, depending on the type of organization structure, the leader might
include key individuals in a discussion around selecting which strategies might be best to implement at which level within the organization. The leader must ensure
proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers,
customers and possible alliance partners. Leaders should also be committed to excellence and ethical behavior while promoting learning and continuous improvement.
Here’s where innovation is important.
The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also
difficult for competitors to copy or substitute?
2. What elements in the external environment might affect Pixar’s strategy?
Referencing Chapter 2: Analyzing the External Environment
Organizational leaders must become aware of factors in the overall environment that might affect their ability to create a competitive advantage. So how do managers
become environmentally aware? By doing scanning, monitoring, and gathering competitive intelligence, and using these inputs to develop forecasts. This prepares the
firm to do more extensive analysis of the forces in the general environment and the industry or competitive environment.
Environmental scanning involves surveillance of a firm’s external environment to predict environmental changes and detect changes already under way. It is a BIG
PICTURE viewpoint of the industry/competition, looking for key indicators of emerging trends – what catches your eye? Alerts the firm to critical trends before changes
have developed a discernible pattern and before competitors recognize them. Environmental monitoring is a firm’s analysis of the external environment that tracks the
evolution of environmental trends, sequences of events, or streams of activities. Leaders need to monitor the trends that have the potential to change the competitive
landscape – what do you want to track? Firms need to CHOOSE the trends identified via the scanning activity, and regularly monitor or track these specific trends to
evaluate the impact of these trends on their strategy process.
What factors or trends might be most important to Pixar? To assess how the external environment might affect Pixar’s strategy, it’s necessary to take a look at the
factors in the general external environment. Pixar must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that
might affect the ability of the firm to deliver its products and sustain its business. See which factors in the general environment students might pick that have a
significant impact on the movie industry. Although there is not much information directly in the case, some of this is intuitive. Most specific information about the
movie industry is available if the instructor has used the “Movie Exhibition Industry 2013” case. Students might respond as follows:
Demographic – The core movie theatre viewing audience targeted by movie studios has been 14-24 year olds. This population is projected to grow by only 35% through
2050, while the larger U.S. population increases by 42%. Increasingly, movies must cross cultural and language boundaries in order to appeal to a global market. (See
the “Movie Industry” case.) Where do movie studios see growth? Not in the theatres, but in DVD and Internet download for home viewing, and in sales of related
merchandise, i.e. Buzz Lightyear figures. Note that this merchandise is marketed by Disney, and sold as, for instance, the “Disney Toy Story Collection”. No mention of
Pixar…
The implication for Pixar, now part of Disney, is that if the movie touches people’s hearts, i.e. if the story is great, then the characters from the story will have
value. If Pixar can create the characters, as with the Cars franchise, Disney can market them. This confirms that the original decision to make a deal with Disney was
a good one, since Disney had the resources and skill to be very good at marketing and merchandising, while Pixar was very good at storytelling.
Sociocultural – The recent explosion of comic book characters from paper to film (i.e. Spiderman, Iron Man) implies that audiences of all ages are willing to engage in
make-believe. The Pixar creations have also gone from film to paper (comic book publisher BOOM! Studios has the license to create a hardcover version of Cars). Pixar
creative head John Lasseter has been a guest at the San Diego ComicCon (comic book convention), which has had over 130,000 attendees in recent years. (See
http://www.comic-con.org/about)
Once again, the implication is that good characters sell merchandise, and can be licensed. For the collectors, Pixar productions have become a treasured brand, and
creative talent, such as John Lasseter, can become as well known as the actors that voice the characters.
Economic – Costs of movie production keep going up, up 25% in five years, however revenue from the movie-going public has not increased (see the “Movie Industry”
case). On the other hand, when the economy declines, more people go to the movies, since a $10 movie ticket is cheaper than admission to almost any other form of
public entertainment (i.e. amusement park or sports event). Plus, make-believe movies with happy endings, like Pixar films, provide a welcome escape from economic
worries.
Technological – Advances in technology, especially computer-generated animation techniques, have allowed companies like Pixar to utilize its technological talent to
push the technology even further, to everyone’s benefit.
It’s also necessary to assess the segments of the external competitive environment that include competitors, customers, and suppliers, substitutes and new entrants.
Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable. Although there’s not much information in the case about this,
common sense might provide some answers.
One important question is “what business is Pixar in?” Until students are sure about the boundaries of the business, it is impossible to do an industry analysis – what
is the “industry” to be analyzed? Here’s where some understanding of the industry structure is necessary (see the “Movie Industry” case). There are several components
to the movie business that may need to be broken out in order to assess the profitability potential of firms like Pixar. Pixar is in the movie production industry,
with Dreamworks Animation SKG (a public company, NYSE:DWA, now separate from the live action movie studio Dreamworks) as a major rival for the animated film market.
Disney is a corporation in the movie production, movie distribution, TV studio, travel, entertainment, and tourism industries. Disney’s Buena Vista division does movie
distribution.
Help students apply Porter’s Five Forces of competition by drawing a diagram on the board similar to the following, and having students fill in the details:
Based on the external environmental industry analysis, the movie production business may require attention to growth strategies – acquisition, diversification, or
internal development – in order to accrue profits. This is one reason Pixar was acquired by Disney.
NOTE – ADDITIONAL READING, VIDEO STORIES:
For information about the movie business in general, see this 2005 article about how movie studios make profits. The majority of the big movie studios (Disney, Fox,
Warner Brothers, Paramount, Universal, Sony) make their money from three sources: the box office (movie theatre-goers), DVD/video/downloads (home viewing), and TV
licensing (rights to broadcast a movie on TV). TV licensing yields the best profit – box office usually loses a studio money. See the story at
http://slate.msn.com/id/2124078/ . See revenue and profit data at http://www.edwardjayepstein.com/TVnumbers.htm.
Not included in this analysis is the money earned from merchandising of characters and themes from movies. Merchandising is usually done by the distributor, which is
Disney’s Buena Vista in the case of Pixar. (For brief information about distribution, see this 2002 description:
http://www.essortment.com/hobbies/electronicdevic_sfhs.htm )
Regarding profitability at Pixar, the deals for licensing in general have not been as lucrative in recent years – Toy Story and Cars had the best results – and some
analysts are worried about the marketability of characters from Pixar’s 2009 movie Up, especially given the more mature nature of the main character. However, John
Lasseter routinely says in interviews that marketability is not a factor in decisions about what projects to pursue. Instead of ideas that feel contemporary, he aims
for stories that are rooted in the ages. According to the following 2009 article, “Quality is the best business plan” is one of Mr. Lasseter’s favorite lines. See
http://www.nytimes.com/2009/04/06/business/media/06pixar.html?pagewanted=1&_r=1
Should Pixar be worried about profitability now that it’s part of Disney?
The overall movie business, Hollywood itself, in 2009, does not now follow the formula it invented in the 1930s: “In terms of product, what most distinguished Studio
Era Hollywood was a devotion to three principles: a corporate approach to creativity, being in it for the long haul (rather than just a one-weekend killing), and
reaching every part of the moviegoing public. There was nothing especially idealistic about these principles. The studios thought they were the best way to make the
most money. Quality paid, and the more possible ticket-buyers there were the more money was likely to be made. Add to those three principles unfailing creativity and
innovative use of computer technology, and you have the genius of the Pixar system. Think of Pixar as an up-to-the-minute studio throwback.”
http://www.boston.com/ae/movies/articles/2009/06/07/pixars_success_is_an_up_to_the_minute_throwback/
As the above article points out, “No small factor in the animation boom of the past two decades has been the tweaking of cartoons to appeal to parents as well as
children. Dreamworks Animation has been especially proficient. Its Shrek films include as many pop-culture references as a season’s worth of Saturday Night Live. Yet
although boomers may not realize it, making a movie palatable to them as well as their offspring isn’t the same as seeking to appeal to the entire filmgoing public.
It’s unthinkable that Dreamworks would build an animated feature around a crabby old man, let alone acknowledge a character’s barrenness and death, as Pixar has with
Up. The Pixar demography is humanity, in both senses of the word.”
On the other hand, Dreamworks, even with hits like Shrek, has been chasing Pixar’s success almost since Dreamworks beginning in 1994:
http://www.businessweek.com/magazine/content/05_20/b3933121.htm
Here’s a 4 minute video news story about the rivalry between Pixar and Dreamworks Animation from 2009, explaining how Pixar differentiates itself from Dreamworks:
http://video.foxbusiness.com/3697051/disneys-pixar-vs-dreamworks-animation/?category_id=9824c119cf18c40fc33fb1cf1ff66fe52d60c85c
If Pixar has been able to do it, why hasn’t Dreamworks been as successful?
Regarding the money-making potential of sequels, up until 2009 Pixar had only made one sequel, Toy Story 2. Going into 2012, Pixar had three sequels planned: Toy Story
3, Cars 2, and Monsters, Inc. 2. The Toy Story 2 sequel was a money-making and creative hit, but some feel Pixar may be planning the subsequent sequels as a way to
extend the merchandising profits. As the commentator in the following article notes, Cars 2 appears to be a film “whose purpose looks like propping up the massive
merchandise machine that the slightly underwhelming first movie ignited (the merchandising on Cars currently accounts for over $5bn in revenues, scarily). Again, it’s
an understandable business move, but it never struck me as a film crying out for any kind of follow up.”
http://denofgeek.com/movies/264007/monsters_inc_to_get_a_sequel_so_wheres_pixar_heading.html
By making so many sequels, is Pixar taking a chance that its reputation for creative and technical genius will be compromised? Is this a good business move?
Another business decision by both Pixar and Dreamworks Animation is to produce all future movies in 3D. There is some concern that not enough movie theatres currently
have the capability of showing 3D, and some critics (Roger Ebert) say the 3D experience is not worth the extra price to see it. In addition, some viewers have visual
disabilities that prevent them from being able to view 3D images.
See http://www.wired.com/techbiz/media/news/2008/04/3d_movies
And http://meganmcardle.theatlantic.com/archives/2009/06/is_3d_the_future_of_film.php
And
http://www.screendaily.com/3d-cinema-shows-strength-in-depth/5002670.article
Filmmaker Peter Jackson (Lord of the Rings) has said he will now produce all his films in 3D: http://screenrant.com/peter-jackson-shoot-films-3d-ross-13128/
But, in an update from December 2012, there are still many directors who refuse to shoot in that format.
It remains to be seen if 3D will really catch on, but moviegoers in Asia, especially China, seem to prefer to watch content in 3D:
http://www.bbc.co.uk/news/entertainment-arts-20808920
Is the commitment to 3D still a good business decision?
3. What key internal resources does Pixar have that might help it support its competitive strategy?
Referencing Chapter 3: Analyzing the Internal Environment
To answer the question of how to support a competitive strategy, it’s important to consider the concept of the resource-based view of the firm, and the three key types
of resources: tangible resources, intangible resources, and organizational capabilities. Pixar’s profile might look like this:
Tangible Resources:
Financial – Thanks to Steve Jobs’ initial investment and Pixar’s ability to deliver, financial assets appeared more than adequate for future growth.
Physical – Pixar’s physical facilities were certainly adequate. Now it had access to Disney’s facilities if needed.
Technological – Steve Jobs’ initial financial investment allowed Pixar to acquire the hardware and software needed to develop internal resources further
Intangible Resources:
Organizational – Pixar’s committee-run structure for decision-making supported the creativity needed to produce high quality animated films.
Human – This was Pixar’s greatest strength – the quality of its human resources. John Lasseter has been called “the Walt Disney of the 1st century”.
Innovation – Ed Catmull spearheaded the technological development that allowed Pixar to innovate beyond any other animation studio
Reputation – As a result of all the above resources, Pixar had the best reputation in the business. Its new relationship with Disney meant Disney’s reputation would
provide synergy.
Organizational Capabilities: The ability to harness technological innovation in support of creative storytelling meant Pixar had significant capabilities to support a
sustainable competitive advantage.
Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage.
See Chapter 3, Exhibit 3.6. Applying the VRIN analysis to the above shows that Pixar had both valuable and rare resources, which nearly every competent firm should
have in order to compete; but Pixar also had in-imitable resources due to the path dependent, causally ambiguous, and socially complex nature of these resources’
development – how could any other firm, such as Dreamworks, copy what Pixar had developed? In addition, there wasn’t really any way to substitute resources from other
sources to compete in creating top quality animated films.
NOTE – ADDITIONAL READING, VIEWING OF FILM CLIPS:
Pixar has used “shorts”, short animated films, to explore new technologies and train new animators. These shorts are not released separately, but run in the theatre as
preludes to the full-length feature films. The following is a review of some of Pixar’s shorts, explaining the pioneering techniques that were incorporated (a clip of
one of the films is included):
http://www.pastemagazine.com/articles/2009/06/salute-your-shorts-pixar—part-2-the-other-years.html
According to John Lasseter, it can take 17 hours to produce just one frame of film, with sometimes 24 frames per second, so a lot of manhours are involved even in a 5
minute short. Given that these short films are not released separately, and therefore cannot be money-makers, do you think it’s worthwhile for Pixar to spend the time
and effort to produce these?
4. What is Pixar’s competitive strategy, and what is the basis of Pixar’s competitive advantage?
Referencing Chapter 5: Formulating Business-Level Strategies
In order to achieve a sustainable competitive advantage, Pixar has to assess its ability to contend with other movie studios, especially those who make animated films.
The question of how to compete in a given business to attain competitive advantage requires an assessment of the types of competitive strategies, including the three
generic strategies that are used to overcome the five forces and achieve a competitive advantage:
• Overall cost leadership
o Low-cost-position relative to a firm’s peers
o Manage relationships throughout the entire value chain
• Differentiation
o Create products and/or services that are unique and valued
o Non-price attributes for which customers will pay a premium
• Focus strategy
o Narrow product lines, buyer segments, or targeted geographic markets
o Attain advantages either through differentiation or cost leadership
Ask the students which strategy they think Pixar pursues. Their answers may include some of the following points:
Pixar chose a strategy of differentiation – creating products that were unique and therefore valued. The strategy of differentiation consists of creating differences
in a firm’s product or service offering by creating something that is perceived industry wide as unique and valued by customers. Differentiation can establish a brand
image that conveys value to customers. Pixar’s brand name resonated with family audiences. The brand name was associated with technologically advanced and fun movies
that the entire family could enjoy. Customers, once aware of the Pixar magic, might choose a Pixar film over any other animated feature, and price wouldn’t enter into
the decision-making. Here the instructor can ask students to recall the icebreaker exercise – why did they choose Pixar films as their favorites?
From Chapter 3, a firm’s value chain helps support its basis of competitive advantage. Pixar’s value chain can be examined to ascertain the various activities that the
firm carries out to establish and maintain a strong differentiation advantage.
Primary Activities
In terms of primary activities, the key to Pixar’s differentiation resided in its operations and marketing. Pixar placed a lot of attention on every aspect of
developing and making its films. From the creation of a good storyline and characters to the application of state of the art computer animation technology, there were
many aspects of its operations that were tied to its differentiation advantage.
In terms of marketing, Pixar relied on the Disney brand to pitch its films to family audiences. However, Pixar had attained sufficient recognition for its own brand
name. The Pixar name was now a sufficient brand for signaling its audience that a high quality film was available.
Support Activities
With regards to support activities, differentiation is achieved by developing a strong general administration that is built around visionary leadership and a culture
that pushes for creativity. Pixar relied on human resource functions to recruit and train individuals who could make a strong contribution. In addition, apart from
developing a variety of software for film making, Pixar continually pushed the envelope in technology development. In each film, Pixar attempted to go farther than it
had before, i.e. developing software that could randomly apply physical and emotional characteristics to each ant’s face in A Bug’s Life, or the Luxo software which
could make the main character’s curly hair in Brave appear to be natural.
Pixar’s value chain is captured visually in the diagram below:
Value chain activity How does Pixar create value for the customer?
Primary:
Inbound logistics Information not available in the case.
Operations Tremendous attention to every aspect of developing and making films; software to make animation more lifelike; slow, deliberate process of moviemaking
with strong emphasis on story development (The example of reworking “A Bug’s Life”).
Outbound logistics Information not available in the case.
Marketing and Sales Reliance on the Disney brand to attract family audiences; Pixar name brand recognition fairly strong itself; reliance on Disney for downstream
activities, marketing & distribution, reduced the need for cash outlays.
Service Information not available in the case.
Secondary:
Procurement Information not available in the case.
Technology development. Creation of new software helped in the production process. Luxo enabled creation of movies with fewer people.
Human resource management Recruitment and training of individuals who made a strong contribution; Pixar University for training; masseuse and doctor in campus
every week; limit of 50 hours per week.
General Administration Strong visionary leadership – Jobs, Catmull, and Lasseter – kept the organization ahead of the curve; organizational culture (Tiki huts, etc.)
that pushed for creativity; sound financial position – over $500 million in cash and no debt.
Pixar’s value chain provided the basis for its competitive advantage.
5. How has strategic leadership and the management of innovation helped Pixar sustain its competitive edge? What challenges remain for Catmull and Lasseter?
Referencing Chapter 11: Strategic Leadership: Excellence, Ethics & Change
The concept of leadership involves the process of transforming organizations from what they are to what the leader would have them become. See Chapter 11, Exhibit
11.1. This involves:
• Setting a direction
• Designing the organization
• Nurturing a culture dedicated to excellence and ethical behavior
Leaders need to set the direction for the organization by continually scanning the environment to develop knowledge of all stakeholders, and knowledge of salient
environmental trends and events. Then leaders must integrate that knowledge into a vision of what the organization could become. Leaders require the capacity to solve
increasingly complex problems, and must be proactive in their approach so they can develop viable strategic options.
Steve Jobs set the initial direction for Pixar when he saw the possibility in George Lucas’s original computer group. Although Jobs was not a movie-maker, he
understood the promise of computer technology, and how that technology could be harnessed to create innovative animated films.
Leaders are responsible for designing the organization: a strategic leadership activity of building structures, teams, systems, and organizational processes that
facilitate the implementation of the leader’s vision and strategies.
Steve Jobs also understood and appreciated the talent of Ed Catmull and John Lasseter. Jobs provided an initial structure where both these creative individuals could
thrive. Catmull and Lasseter in turn continued to build and sustain an organization that supported teamwork, effective production processes, and systems that
encouraged creative ideas, even after the integration with Disney’s animation division. Evidence of this organizational design was apparent in:
• Pixar’s campus-like environment
• Pixar University courses
• Pixar kept as a separate division within Disney
• Steve Jobs remained as both director and individual stockholder until his death
• Committee approach to story development
• In Lasseter’s responsibility for creativity at both companies, he reported directly to Disney CEO Iger
Difficulties in implementing the leader’s vision and strategies include a lack of understanding of responsibility and accountability among managers, reward systems
that do not motivate individuals and groups toward desired organizational goals, inadequate or inappropriate budgeting and control systems, and insufficient mechanisms
to coordinate and integrate activities across the organization.
Pixar’s leaders understood the importance of culture – that employees had to be allowed to be creative in their work environment. Employees were encouraged to:
• Transform office cubicles into tiki huts and circus tents
• Devote up to 4 hours a week to furthering their education
• Take the time to develop a story – don’t rush development
• Not be afraid to admit mistakes and revamp the story or production
• Avoid collective burnout – ask permission to work more than 50 hours a week
The leader also has the responsibility to create successful learning organizations by creating a proactive, creative approach to the unknown, actively soliciting the
involvement of employees at all levels, and enabling all employees to use their intelligence and apply their imagination. See Chapter 11, Exhibit 11.5.
Jobs, Catmull, and Lasseter created a learning organization: shared their passion by involving employees in every step of the creative process, enabling employees to
apply their imagination in pursuit of Pixar’s mission.
NOTE – ADDITIONAL READING, PHOTOS OF PIXAR WORKSPACES:
Pixar is noted for its approach to human capital, and knowing how to combine talent to produce innovative and profit-making product.
See http://www.businessweek.com/managing/content/jul2008/ca20080710_173268.htm (Some videos are available on this site as well.)
And photos of the “tiki hut” workspaces inside of Pixar: http://www.google.com/search?q=pixar+office+pictures&hl=en&client=firefox-a&hs=6vw&rls=org.mozilla:en-
US:official&prmd=ivns&tbm=isch&tbo=u&source=univ&sa=X&ei=yVk_TobHDsnq0gHd04z6Aw&ved=0CBgQsAQ&biw=776&bih=565
Referencing Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship
Innovation involves using new knowledge to transform organizational processes or create commercially viable products and services using the latest technology,
experimentation, creative insights, and information from competitors. Sustaining innovations extend sales in an existing market, usually by enabling new products or
services to be sold at higher margins. Disruptive innovations overturn markets by providing an altogether new approach to meeting customer needs.
There’s no doubt Pixar disrupted the existing technology at the time, innovating in a way that created a whole new approach to animation.
Some of challenges of innovation involve choosing when and how to continue to innovate, the scope of future innovation and the pace, as well as whether or not to
collaborate with innovation partners. The innovation of new ventures requires resources such as financial, human and social capital; requires the leadership team to
have adequate vision, dedication and drive.
Before proceeding, firms must first define the scope of the innovation efforts, and must ensure that their innovation efforts are not wasted on projects that are
outside the firm’s domain of interest. In defining the innovation scope, a firm should answer several questions:
• How much will the innovation initiative cost?
• How likely is it to actually become commercially viable?
• How much value will it add; that is, what will it be worth if it works?
• What will be learned if it does not pan out?
Pixar’s leaders, Jobs, Catmull, and Lasseter, were mostly concerned with creating value, with utilizing the resources they had, with achieving the organization’s
original vision and mission. They were also willing to approach any failures as opportunities for learning. By staying true to their vision, they did not waste
innovation efforts.
Organizations must have the entrepreneurial orientation necessary to succeed in a new venture. Students should assess the vision, dedication and drive, and commitment
to excellence demonstrated by Pixar’s management team; the degree of autonomy, innovativeness, proactiveness, competitive aggressiveness and risk taking, and the
implications of this for the organization’s culture. See Chapter 12, Exhibit 12.3.
Autonomy – Experts, such as Pixar’s technologists, and Lasseter’s creative team, were allowed the freedom to experiment with new ideas.
Innovativeness – Edwin Catmull’s team made substantial breakthroughs in the development of computer-generated technology for animated films
Proactiveness – Both Jobs and Catmull were proactive in identifying how computer technology could be used to push the creative boundaries of animation filmmaking.
Competitive aggressiveness – Now that Pixar is part of Disney, CEO Iger hoped to use the combined assets of both organizations to attain competitive superiority.
Risk Taking – Steve Jobs’ original investment in Pixar was a risk – first $10 million, then an additional $50 million, more than 25 percent of his total wealth at the
time.
The actions by Jobs, Catmull, and Lasseter instilled passion and energized effort toward making great films: “everyone at Pixar remains committed to making films that
are original in concept and execution, despite the risks involved.” Thus the original vision and mission remain applicable and inspiring of future success.
What challenges remain?
• Increased temptation to make sequels
• Disney’s Iger pledged to keep Pixar culture protected – will that commitment hold if Disney divisions have problems and resources need to be reallocated?
• Both Catmull’s and Lasseter’s responsibility for both Disney and Pixar animation divisions may pull them in too many directions
• Integrating expanded staff – not everyone may have the same talent or desire to pool their abilities
• Increasing the pace of production may encourage short cuts, compromising high standards
• Steve Jobs’ death may remove a source of inspiration and a sounding board for Lassiter
• Pixar original staff may leave if the culture changes
NOTE – ADDITIONAL READING, VIDEO CLIPS OF LASSETER’S WORK:
John Lasseter has been one of the major creative forces behind Pixar’s success. Here is a retrospective of John Lasseter’s early animated creations, including the
award-winning short film Luxor, Jr. which was a turning point for Pixar (clips of some films are included):
http://www.pastemagazine.com/articles/2009/06/salute-your-shorts-pixar—part-1-the-early-years.html
Although Lasseter is the more well-known face of Pixar, Edwin Catmull, president of Pixar and Walt Disney Animation Studios, is its spiritual father. The following is
what people say about Catmull: “Ed believes that you should always hire people who are smarter than you. Ed believes that it’s more important to invest in good people
than good ideas. Ed believes in a “talent-ocracy.” If you make films for everybody, you need to listen to everybody’s ideas, whether they come from a janitor or a
storyboard artist. Ed believes that you learn by making mistakes and that success often disguises problems. Ed believes that magic happens when you don’t operate out
of fear.” See more about Catmull’s management philosophy: http://articles.latimes.com/2006/jun/12/business/fi-catmull12
Similar to Steve Jobs’ visionary leadership at Apple, and at Pixar in his role on the board, it appears Pixar has been successful because of the combined genius of
Lasseter and Catmull. What might happen if these two leave the company?
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