978-1259278211 Case 36 Solution Manual Part 2

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1. What key internal resources does Pixar have that might help it support its competitive

strategy?

Referencing Chapter 3: Analyzing the Internal Environment of the Firm

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

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 Assumed adequate.

Operations Tremendous attention to every aspect of developing and

making films; software to make animation more lifelike;

Outbound logistics Assumed adequate.

Marketing and Sales Reliance on the Disney brand to attract family audiences;

Pixar name brand recognition fairly strong itself; reliance on

Service Assumed adequate.

Secondary:

Procurement Assumed adequate.

Technology development. Creation of new software helped in the production process.

Human resource

Recruitment and training of individuals who made a strong

General Administration Strong visionary leadership – Jobs, Catmull, and Lasseter –

kept the organization ahead of the curve; organizational

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.

In terms of marketing, Pixar relied on the Disney brand to pitch its films to family audiences.

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

Pixar’s value chain provided the basis for its competitive advantage, but to answer the question

of how to support a competitive strategy, it’s important to consider the concept of the resource-

Tangible Resources:

Financial – Thanks to Steve Jobs’ initial investment and Pixar’s ability to deliver, financial assets

Physical – Pixar’s physical facilities were certainly adequate. It had access to Disney’s facilities

Technological – Steve Jobs’ initial financial investment had allowed Pixar to acquire the

Intangible Resources:

Organizational – Pixar’s committee-run structure for decision making supported the creativity

Human – This was Pixar’s greatest strength – the quality of its human resources. John Lasseter

Innovation – Ed Catmull spearheaded the technological development that allowed Pixar to

Reputation – As a result of all the above resources, Pixar had the best reputation in the business.

Organizational Capabilities: The ability to harness technological innovation in support of

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,

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:

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 man-hours 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?

2. SECONDARY QUESTIONS: How does Pixar use strategic management? What is

Pixar’s competitive strategy, and what is the basis of Pixar’s competitive advantage?

NOTE: There are no PowerPoint slides to accompany this discussion.

Referencing Chapter 1: Strategic Management

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;

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

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

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

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

Pixar’s vision might have been best expressed by Steve Jobs: as he pointed out, a film works

only 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

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

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?

Referencing Chapter 5: Business-Level Strategy

In order to achieve a sustainable competitive advantage, Pixar has to assess its ability to contend

with other movie studios, especially those that 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

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

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

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?

3. How has strategic leadership and the management of innovation helped Pixar sustain

its competitive edge?

Referencing Chapter 11: Strategic Leadership

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

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

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 moviemaker, he understood the promise of

Leaders are responsible for designing the organization: a strategic leadership activity of building

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 by:

●Pixar’s campus-like environment

●Pixar University courses

●Steve Jobs remaining as both director and individual stockholder until his death

●Lasseter’s responsibility for creativity at both companies. He reported directly to Disney

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

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 four hours a week to furthering their education

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

Jobs, Catmull, and Lasseter created a learning organization: shared their passion by involving

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 products.

See http://www.businessweek.com/managing/content/jul2008/ca20080710_173268.htm

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_TobHDsnq0gHd04z6

Aw&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

There’s no doubt Pixar disrupted the existing technology at the time, innovating in a way that

Some of the 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

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.

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

Autonomy – Experts, such as Pixar’s technologists, and Lasseter’s creative team, were allowed

Innovativeness – Edwin Catmull’s team made substantial breakthroughs in the development of

Proactiveness – Both Jobs and Catmull were proactive in identifying how computer technology

Competitive aggressiveness – With Pixar part of Disney, CEO Iger hoped to use the combined

Risk Taking – Steve Jobs’ original investment in Pixar was a risk – first $10 million, then an

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

What challenges remain?

●Increased temptation to make sequels

●Disney’s Iger pledged to keep Pixar culture protected – will that commitment hold if

●Both Catmull’s and Lasseter’s responsibility for both Disney and Pixar animation

●Integrating expanded staff – not everyone may have the same talent or desire to pool their

●Increasing the pace of production may encourage short cuts, compromising high

●Steve Jobs’ death may remove a source of inspiration and a sounding board for Lasseter

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:

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

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?