Strategic Alliances: Disney and Pixar

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    • 00:00

      [MUSIC PLAYING]Hi, I'm Stewart Clegg, Professor of Organizations and Managementat the University of Technology in Sydney.Pixar is a name that I'm sure most people willbe familiar with.

    • 00:21

      They'll have seen the movies such as Nemo and Toy Story.Pixar is a remarkable story.It's an organization that didn't set outto make movies, that ended up redefining howanimated movies were made, and itwas able to do this through largely very positive powerrelations and through some very positiveorganizational collaboration.

    • 00:41

      Ever since Walt Disney made the first full-length animationmovie, Fantasia, way, way back, I think, in the 1930s,animated films have always had a special placein the heart of children, their parents, and adults alike.The most successful recent animated filmmakershave been Pixar but, interestingly, they neverintended to make movies, and they

    • 01:02

      didn't start out making movies.They began as a computer hardware and software company.Two of the biggest egos in Californiawere involved in the firm.On the one hand, from Pixar International,Steve Jobs of Apple fame.On the other hand, from Walt Disney, Michael Eisner.And perhaps, not surprisingly, the egos

    • 01:23

      fell out with each other.It wasn't just an interpersonal issue.There were real conflicts of strategy between the twoof them.Pixar actually began in 1979, whenit was called the Graphics Group, producing softwareand computers, which it sold mostlyto governments and to health service establishments.

    • 01:43

      And these where graphic imaging capabilitiesthat they were selling.They were never in the business of making animated movies,but in order to promote the products, the team at Graphicstarted to produce short animated films,and as a result of doing this, theylearned capabilities and skills that

    • 02:04

      became the foundation of Pixar.Pixar really got off the ground when Steve Jobs invested in it,and it became Pixar Corporation.In 1988, they won an Academy Award for a short filmthat they had produced out of these capabilitiesof graphic imaging, called Tin Toy,and from there on it was a success story that

    • 02:25

      just escalated and soared.The initial animations were made to sell the hardware,but the market moved on, the hardwareceased to sell as well, and Jobs,together with Ed Catmull-- the other co-founder of Pixar--decided that maybe their real capabilitieslay less in selling computers and the software that

    • 02:45

      was associated with them and more in making animations.As I've said, that led to the success of the Academy Award,and from there on they moved into partnership with Disney,and it was this partnership that wasthe major source of their subsequent success,although as we shall see, there was a fallingout with Disney along the way.

    • 03:09

      The relations between Disney and Pixar soured in 2004,and in part this was down to a souringof the interpersonal relationship between MichaelEisner, who's the megalomaniac boss of Disney,and Steve Jobs, equally megalomaniac boss of Apple.The issue between Disney and Pixar

    • 03:29

      when Eisner was in command were several.There were differences of culture.Eisner didn't seem to share the same visionor have the same commitments that Jobs had,and there were also disagreementsabout story rights and associated in marketing, whichPixar was making the product, but Disney

    • 03:49

      was coining the capital.They were getting the rights from the toys and the on sales,and this didn't seem right to the people in Pixar.Eisner must've been a very poisonous factorin the whole deal, because once hewas disappeared from with Disney sign after his dismissal,then Steve Jobs re-signed with Disney,

    • 04:11

      and eventually-- fairly quickly-- sold Pixar to Disneyas a wholly owned but autonomous subsidiary.When, after the bust up with Eisner,Pixar International came back into the Disney fold,it did so with a clear understandingthat there would be quite distinct cultures, that therewould be quite distinct operations, but nonetheless

    • 04:33

      a degree of openness to learning onefrom the other within the overall frame.They did it in such a way that therewere no barriers to creativity, to collaboration,to innovation.They were separate entities under the same umbrella.So it's important to look at the way in which these featuresof open innovation were enabled by the structural relations

    • 04:57

      that they entered into.One of the important things that this case demonstrates for us,I think, is that understanding real-life strategyis not a matter of just applying one frame of analysis,one form of analysis.It's about mixing and matching and blending

    • 05:20

      different analytical tools to arriveat a more complete understanding of the strategy in process.Clearly the collaboration between Pixar and Disney,after Eisner had quit, was very different from thatwhich caused the breakup between them in the first place.

    • 05:41

      Steve Jobs captured this pretty well.He said, "Disney and Pixar can nowcollaborate without the barriers thatcome from two different companies with twodifferent sets of shareholders.Now everyone can focus on what's most important,creating innovative stories, characters,and films that delight millions of people around the world."

    • 06:04

      This is a sophisticated case, and it demandsa sophisticated analysis.You will have to draw on quite a number of materialsin the strategy literature to be able to address it, in partbecause it deals with processes that elapsed over quitea long period of time.But it's a very interesting case, and a very successfulcase, so understanding it has, I think, great merits.

    • 06:31

      There are a number of things that you need to considerin a case like this.How was the collaboration between Pixar and Disneydeveloped?How did Pixar develop its capabilities?What happened to the power relations between the twoorganizations that it ensued in a conflict whichsaw the breaking of connections between them

    • 06:54

      and then the takeover of one company by the other?Did Pixar deliberately move into animation movies?Was it a deliberative strategy, or was it the resultof an emergent process?Pixar's core competencies and capabilities clearlyshifted in its transition from being a graphic imagingfirm to a maker of animation, but there were clearly

    • 07:16

      capabilities that were open to exploitation thatmoved from the periphery and into the center,and you need to consider how that happenedand how Pixar enabled it to happen.You need to look at what those core capabilities and corecompetencies were and how they enhancedits competitive position, and whichof Mintzberg's eight types of strategy

    • 07:38

      do you think it fits into?To give you a clue, it certainly wasn't ideological,and it didn't seem to be an imposition,but which of the others would seem to best fitthe case as you understand it?What were the key strategic choicesthat were made by Catmull and Jobs in positioning Pixar?At issue in the dispute between Jobs and Eisner

    • 08:01

      was the issue of brand equity.Pixar flet that its brand equity wasbeing exploited in the value captured by Disney.So think about how Pixar went about reappropriatingthe value of its brand and ensuring that it accrued to itand not going elsewhere.One of the elements in Pixar's success,

    • 08:22

      which we haven't considered thus far,is the fact that every five yearsor so, a new generation comes along primed to enjoy Pixarmovies.They've seen the DVDs that their mothers and brothers havehad around the house, their sisters, their friends,and when the latest Pixar movie comes out,there's already a willing audience wanting to see it.

    • 08:45

      I think there might be one or two other industries which canhave a similar business model.What do you think?[MUSIC PLAYING]

Strategic Alliances: Disney and Pixar

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Professor Stewart Clegg chronicles the ups and downs of the eventually triumphant alliance between film giants Disney and Pixar.

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Strategic Alliances: Disney and Pixar

Professor Stewart Clegg chronicles the ups and downs of the eventually triumphant alliance between film giants Disney and Pixar.

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