Imagineering Culture of Creative Collectivity: A Case Study of Disney Pixar Animation Studio

From the Pixar’s Point of View

1. Rationale

In 1991, Disney and Pixar Animation Studios began a corporate relationship that would
lead both companies to great success in years to follow. Beginning their relationship, Disney and
Pixar made an agreement that stated they would produce and distribute one computer
generated animated movie together. That movie was known as Toy Story, the world’s first
computer animated feature film. Because of the popularity and success of Toy Story, which was
released in November of 1995, Disney and Pixar developed another contract in 1997 that agreed
to jointly produce a total of five movies over the next ten years. Nearing the end of the Disney
and Pixar collaboration deal in January of 2006, the Walt Disney Company announced they
would be acquiring Pixar Animation Studios for $7.4 billion in an all-stock transaction. Steve Jobs,
CEO of Pixar, explained: Disney and Pixar can now collaborate without the barriers that come
from two different companies with two different sets of shareholders. Now, everyone can focus
on what is most important, creating innovative stories, characters and films that delight millions
of people around the world (The Walt Disney Company, 2006).

The merger between the two top animation movie producers allowed Disney and Pixar
to collaborate without any external problems they previously encountered. Although this
acquisition greatly attributed to Disney’s success in the animation business, many shareholders
worried that the famous Disney movie culture would be compromised for Pixar’s innovative
movie generating techniques.

This case studies analyzes the merger and acquisition strategy and cultures of the Disney
and Pixar. With the events leading up to Disney’s acquisition of Pixar, would it lose its
entrepreneurial spirit and become part of Disney’s corporate machine? What should be the
corporate strategy to create a sustainable corporate culture that would foster collective
creativity?

1.1 The Entertainment Culture of Pixar

In 1979, George Lucas recruited Ed Catmull from The New York Institute of Technology
to head Lucasfilm’s Computer Division, which was a group that wanted to develop state-of-
theart computer technology for the film industry. In 1983, Pixar invited John Lasseter to join their
team to work on a short film; Pixar hired him full-time as an Interface Designer the following year.
In 1984, Pixar released their first short film called The Adventures of André & Wally B., which
featured flexible characters, hand-painted textures and motion blur. Steve Jobs bought the
computer graphics company in 1986 and established it as “Pixar”. At this time, Pixar had a total
of 44 employees. During this year, the company released Luxo Jr., the first three-dimensional
computer animated film to be nominated for “Best Animated Short Film Oscar”. Pixar is currently
located on 22 acres in Emeryville, California and has produced many popular, award winning
animated films such as Monsters, INC, Finding Nemo, and Cars. Pixar’s success can be
accounted to their exceptional company culture that inspires unique ideas, compelling stories
and uses cutting-edge technology.

Pixar has three defining characteristics that set them apart from other corporate
companies. Pixar puts their people first, they focus on a purpose that makes people feel proud,
and lastly, they encourage self-expression and diversity of thought. It is important to care about
the people, because excellent ideas come from them. Not only that, but Pixar’s purpose to
“make great films” is what attracts their shareholders and energizes their employees. Pixar also
encourages self-expression and diversity of thought, which allows everyone to contribute their
ideas and opinions about everyone’s work, working toward a greater quality film. Pixar places
their focus on creating a cultural community atmosphere where everyone works together as a
team and communicates openly with all employees. The characteristic that really sets Pixar’s

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company culture apart from the rest is the sense of community that they create. Pixar places a
lot of trust in the creative abilities of their employees, which allows the minds of the workers to
run wild and come up with out-of the-box ideas for new films.

Ed Catmull, Pixar President, explains, “Our philosophy is: You get creative people, you
bet big on them, you give them enormous leeway and support, and you provide them with an
environment in which they can get honest feedback from everyone”. Pixar has what they call a
“Peer Culture” where people at all levels within the company support each other. Pixar culture
stresses the ability to freely and openly communicate with anyone and everyone. Pixar also
provides a safe environment where sharing ideas and feedback to other people’s work is
strongly encouraged. Staying updated with innovations happening in the community by sending
employees to conferences with their ideas connects Pixar to the academic community, and
more importantly to people who possess exceptional talent. Pixar employees are the most
valuable assets to the company, which is why Pixar works hard to provide an outstanding work
environment for their driving force.

1.2 Disney’s Corporate Culture

The Walt Disney Company was originally established as “The Disney Brothers Studio” in
October of 1923 when Walt signed a contract with M.J. Winkler to produce a series of comedies
that got their foot in the door of the entertainment industry. The Walt Disney Company was
founded by Walt and Roy Disney, two brothers who had endless creativity and built the
foundation of “making dreams a reality”. Disney began by producing wildly popular cartoons
such as Mickey Mouse, Snow White and the Seven Dwarfs, and Donald Duck. In the 1950’s,
Disney opened their first theme park in Anaheim calling it Disneyland. Since Disney’s early days,
they have grown to be arguably the most well-known name in the entertainment industry. Disney
has expanded their empire by owning ABC Television Network, managing 11 theme parks and
47 resorts, producing consumer products and creating interactive entertainment through
mobile, Internet and console video games.

Walt Disney once said, “You can create, design, and build the most wonderful place in
the world, but it requires people to make the dream a reality”. In order for Disney to be so
successful, they must have extraordinary employees as their driving force. The culture that Disney
creates for their employees is vital to the innovation and creativity that makes Disney the most
successful entertainment business in the industry. As a company, Disney embraces the values of
innovation, quality, community, storytelling, optimism and decency. Disney is committed to
providing a rewarding, inclusive and supportive work environment in order to create a unified
mission to help deliver treasured moments to people around the world.

Disney believes there are four interconnected processes that define an organizations
culture. These four processes are employee selection, training, care and communication. In
order to have a successful corporate culture, Disney hires employees who not only have the right
skills, but who also have the right behaviors that align with Disney’s company values. After
selecting the right employee, Disney’s training reinforces their core principles. The care and
values defined during training is a direct reflection of Disney’s company culture to employees.
Disney believes in the importance of continual education so their employees are able to grow
and excel in their roles for the company. Along with training and education, Disney values
communication because how they care for their workforce determines how closely the
employees will align with Disney’s desired culture.

1.3 Pixar-Disney Relationship

Disney and Pixar first collaborated with each other to create Computer Animated Production
Systems (CAPS).

Feature film agreement: Pixar and Disney signed its first business contract in the production of
feature films, where the owning rights of movies belonged to Disney and Pixar was paid a
participation fee based on the profits.

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 Co-production agreement: The major agreement where, the company’s distributed profits
inclusively to only movie productions where Pixar and Disney held 40% and 60% of the
production’s profits respectively. Disney also had acquired 5% of the Pixar during its initial IPO
which led to a more beneficial cooperation. The co-production agreement also covered
ancillary revenue streams of Home video, Television, Licensing agreements, and Merchandise
and games. In 2002, Pixar and Disney negotiated a deal where 100% of the ownership of the
film goes to Pixar, whereas the distribution fee was lowered in favor for Disney. Finally, the deal
was closed where Disney got rights to Pixar’s films and Pixar had the rights of any of the film’s
sequels.
Strained relationships created during the partnership of Pixar and Disney created in 1997
made the merger between the two more challenging than one would foresee. Steve Jobs and
Michael Eisner, CEO of Disney, failed to work together well in the previous partnership that bound
Pixar to produce five computer animated feature films for distribution by Disney. Shots were fired
between the two egotistic CEO’s who were unwilling to give up their power or dominance in
order to work out the relationship between the two companies. The rift between Jobs and Eisner
created a lack of trust, among other issues. Employees at Pixar lacked faith in their colleagues
at Disney.
After a 21-year long career at Disney, Michael Eisner was released due to increased
conflict and issues he was having with employees and company partners. Before his oust in 2005,
Eisner appointed a man by the name of Bob Iger to President of Disney. When Eisner was
released, Iger took over his position as Chief Executive Officer. Iger began quickly and started
his work by extending a hand to Pixar and Apple CEO, Steve Jobs, in an effort to restore the
strained relationship. This effort to bridge the gap between Pixar and Disney worked out in
Disney’s favor. The 10-year partnership between Disney and Pixar was nearing end, and Iger was
able to draw up a plan that both parties could agree on for Disney’s acquisition of Pixar. With
Iger’s hard work and Jobs’ regained trust in Disney, they were able to finalize the acquisition of
Pixar.

1.4 Steve Jobs Sell Pixar to Disney

In early 2006, Disney bought Pixar for $7.4 billion in an all-stock deal. John Lasseter
became the Chief Creative Officer of both Pixar and Walt Disney Feature Animation, while Ed
Catmull became President of both studios. The two were originally encouraged to just replace
Disney's broken animation department with Pixar, but Catmull and Lasseter decided to revive it
instead. Meanwhile, Pixar would remain a separate entity within Disney: it would keep its own
separate building, personnel, and policies, and the two animation studios would not be allowed
to share ideas or resources, to maintain both studios' independence. Steve Jobs, meanwhile,
became Disney's largest shareholder, and got a seat on its board. Unlike other media acquisitions
,are notorious for failure and they often create internal warfare, but overall, the Disney Pixar
merger went surprisingly well.

0.2 Issues and Concern

• One of the cultural issues at Pixar was the formation and sustaining of mergers. The
merger between Pixar and Disney, which occurred in 1991, led to production of films.
Disney took the responsibility of marketing and distribution on behalf of the merger.
• A fear that an acquisition and merger with Disney will hold - its freedom and creativity
to create based on its core competencies of creativity - the Pixar culture.
• Pixar’s proprietary rights to the technologies and movies might be pirated
• Potential mass exodus of Pixar’s creative talents
• Merging together two large, successful companies has the potential to create barriers
in organizational change. If done correctly, there should be no problem in the
collaboration between the two companies. However, if done incorrectly, the merger
could be extremely detrimental to the company's overall advancement.

0.3 Point of view

I took the point of view of the President of Disney Pixar Animation Studios, Ed Catmull.

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0.4 Statement of the problem

What should be Pixar’s corporate strategy to create a sustainable culture that would foster
collective creativity?

0.5 Objectives

To create a sustainable corporate culture that would that would foster collective creativity.

0.6 Areas of Consideration

o One of the most decisive reasons that Pixar had been able to emerge as a leader in
animation and productions was due to the seer leadership and visions of the founders Steve
Jobs and Lesseter. In a counterargument, Disney acquiring Pixar and indulging in a self-
deprecating side form of Pixar in the coming years.
o Overall, the merger between Disney and Pixar has been successful, however, mixing the
two company cultures is an issue that remains unresolved. Strong egos and issues of power
of higher up managers and people associated directly with the change had a negative
effect on the merger. Because of Eisner and Jobs troubled history, Jobs was not eager to
jump on board with the merger to Disney.

0.7 Alternative Course of Action

o Alternative Course of Action #1: Pixar will continue to stand-alone as a film production and
distribution company
Advantages:
➢ Creative freedom for the Pixar’s talents
➢ Proprietary rights of its patented technologies (Renderman, Marionette,
Ringmaster) and the movies that they will be producing
➢ Maximization of profits

Disadvantages:
➢ Inability to focus on core business
➢ Financially risky
➢ No experience in distribution Business
➢ Lack of avenues for enhancing popularity of characters and movies

o Alternative Course of Action #2: Merge with Disney

Advantages:
➢ Strategic fit & Strengthen competitive position
➢ Access to critical complementary assets
➢ Pixar can focus on creative innovation
Disadvantages:
➢ There is a chance that cultural clash may lead to exodus of creative talent from
Pixar leading to failure of the acquisition Potential mass exodus of Pixar’s
creative talent
➢ Differences in culture and leadership style that can stifle Pixar’s creativity
➢ Stuck with Disney with possible restrictions

0.8 Recommendation

It is in the best interest for both Pixar and Disney to adapt Alternative Course of Action #2: Merge
with Disney. Agreeing with Bob Iger’s point of view in the brand value and recognition and its evasive
evidence that it has sustainable global recognition is not because of the brand value of Disney but due
to the entertaining, life-like, heart-sunk characters which they embodied in their animated films, which
allows them to go to unrecognized places and create a global impact through its animation and films. I
believe Pixar has the same vision intricately when regarding the context and views of Disney, but differ in
their exuberant paths to achieve these desired results. In my review of this issue, a partnership with
continued and shared equity with the production costs going to Disney and the for the cost of creation
going to Pixar, where the distributed profit structure though may sound intimate and anxious in the
present field of negotiation, but the action of Disney acquiring Pixar would help in the long run bearing
both the companies’ future prospects in mind for profit, growth, and impact will truly outshine its

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partnerships and help diverse in the global competitive market of CG animation and 3D-render
productions in film.
To ensure that Pixar’s creative culture could be sustained, Pixar would remain a separate entity
within Disney: it would keep its own separate building, personnel, and policies, and the two animation
studios would not be allowed to share ideas or resources, to maintain both studios' independence. Pixar
was allowed to operate as an independent entity. Some key people from Pixar were assigned to manage
the joint operations of Pixar and Disney. Steve Jobs become the largest shareholder, John Lasseter
became the Chief Creative Officer of both Pixar and Walt Disney Feature Animation, while Ed Catmull
became President of both studios.

0.9 Plan of Action

In order for the cultures to work together flawlessly in the future, a vision for the two companies
must be developed. Visions are the most important part of producing a useful change by helping to
direct, align, and inspire. Although both companies are known for their individual productions and
movie cultures, Disney and Pixar need to work together as one to establish an overall vision. By
establishing a vision that foster creative collectivity, the President of Disney Pixar Animation Studios –
Ed Catmull should impose the following plan of action:

In terms of Structure and Culture:

❖ Reinforce competitive position in the animation film industry by merging the production entity of
Pixar and Disney into in single unit where the creation and animation responsibility mainly lies
within Pixar and with minor-major contributions to story- board is given by Disney to ensure
cooperative competitive advantage over rivals like Dreamworks, etc.
❖ Retain Pixar's three governing principles which has laid the foundation and fostered its success:
“everyone must have freedom to communicate with anyone”, “it must be safe for everyone to
offer ideas”, and “stay close to innovations happening the academic community”.
❖ Facilitate knowledge transfer and sharing of best practices within. Adopt and replicate the
creation of Pixar University, say having a Disney-Pixar University- which would provide in house
courses provided through the company’s own established training and educational institution.
❖ The hiring process should communicate the organization’s shared purpose and management
transmit the values of the company. In order to foster creativity, it is vital to recruit and retain
“rare talents”.
❖ Encourage all team members to share their ideas through process called “creative brain trust”.
That means all employees are seen as valuable assets in the organization and therefore all ideas
are valued.
❖ Regular injection of outsiders. A core competency of any business is to be able to embrace
change. Regular injection of outsiders who will challenge the status quo are necessary but not
enough to stay on the rails.
❖ Build a culture and processes that encourage people to share their work-in-progress and support
one another as peers; and dismantle the natural barriers that divide disciplines.
❖ Seek ways to continually challenge Pixar's assumptions and search for the flaws that could
destroy its culture.
❖ Clear values, constant communication, routine postmortems

In terms of Leadership:
❖ Train key creative officers for continuity, that will be composed of creative leaders of Pixar and
Disney. Strong leadership is essential to make sure people don't pay lip service to those standards.
❖ Creation of cross-company teams composed of director, writer, artists, storyboard people from
Pixar and Disney (collaboration).

In terms of Production
❖ Despite all the success Pixar garnered and its high net revenue, its pace of film production has
remained low. High standards of animation quality can be a reason behind its low pace of
production. However, along with sustaining its competitive advantage, the President as well
should focus upon boosting its animation efforts.
❖ Place the creative authority for product development firmly in the hands of the project leaders
(as opposed to corporate executives).

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