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Teaching Note: Case 36 – 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.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The
Chapter Use Key Concepts Additional Readings or
Exercises
PRIMARY
2: External
Environment
External environmental forces; five
NOTE additional web link
3: Internal
Value chain; tangible vs. intangible
NOTE additional reading
SECONDARY
1: Strategy
Concept
Strategic management; vision,
5: Business-
Level Strategy
Generic strategies
11: Strategic
Leadership; learning organizations NOTE additional reading and
12: Managing
Innovation; sustaining vs. disruptive
NOTE additional web link
Case Synopsis
Going into 2015 Pixar was poised to release two films, Inside Out and The
Good Dinosaur, but this followed a year without any releases and less than
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
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
But Pixar had had difficulty stepping up its pace of production. The firm had built up its
workforce to well over 1,000 employees, had handed over directorial duties to new talent, and
had added new divisions. Since a large part of its success could be attributed to the talent that the
considering the increasing competition as more and more studios tried to grab a share of the
animated film market. Could Pixar continue to develop hits, both for itself and for
Disney, and hold onto the creative talent necessary to do so?
Teaching Plan
Although primarily indicated for the external environment and internal analysis chapters, 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. Pixar gives an example of how one firm formulated and implemented strategy in
the movie industry environment.
Since most students have watched movies, and may be very familiar with Pixar films, it can be
interesting to show them that things behind the scenes may not be as simple as they thought.
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
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
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
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 that can augment each discussion.
Discussion Questions:
1. PRIMARY QUESTIONS: What elements in the external environment might affect
Pixar’s strategy?
2. What key internal resources does Pixar have that might help it support its competitive
strategy?
3. SECONDARY QUESTIONS: How does Pixar use strategic management? What is
Pixar’s competitive strategy, and what is the basis of Pixar’s competitive advantage?
4. How has strategic leadership and the management of innovation helped Pixar sustain its
competitive edge?
Discussion Questions and Responses
1. What elements in the external environment might affect Pixar’s strategy?
Referencing Chapter 2: Analyzing the External Environment of the Firm
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?
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
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
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
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
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. Students might respond as follows:
Demographic – Although global box office revenues have growth every year, the U.S. box office
has remained flat since 2010. In 2014 the number of frequent moviegoers had increased or
remained flat among 40+ age groups, but fell or remained constant for younger age groups,
including the largest frequent-moviegoing age groups (18-24-year olds and 25-39-year olds), See
http://www.mpaa.org/wp-content/uploads/2015/03/MPAA-Theatrical-Market-Statistics-2014.pdf
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
Sociocultural – The recent explosion of comic book characters from paper to film (i.e.
Spiderman, Iron Man, The Avengers) 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
Once again, the implication is that good characters sell merchandise, and can be licensed. For the
Economic – Costs of movie production keep going up, however revenue from the movie-going
public has not increased. On the other hand, when the economy declines, more people go to the
Technological – Advances in technology, especially computer-generated animation techniques
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
One important question is “what business is Pixar in?” Until students are sure about the
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,
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
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
Rivalry
High
Substitutes’
Threat
Buyers’
Power
High
Suppliers’
Power
High
Suggested: Production
studios compete for talent,
and distribution deals:
Suggested: Movie
producers are dependent
on finding quality
Suggested: Talent is hard to
Suggested: Other forms
of entertainment exist -
Suggested: Anyone
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://www.slate.com/articles/arts/the_hollywood_economist/2005/08/hollywoods_profits_demy
stified.html . See revenue and profit data at http://www.edwardjayepstein.com/TVnumbers.htm.
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
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
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
On the other hand, Dreamworks, even with hits like Shrek, has been chasing Pixar’s success
almost since Dreamworks’ beginning in 1994 (NOTE embedded video):
http://www.ultimatemovierankings.com/pixar-movies-vs-dreamworks-movies/
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 moneymaking and creative hit, but some feel
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?
