If Walt Disney buys Pixar, how should they manage it and why?

1. Rationale for acquisition

Disney had been a behemoth in the animated movie industry since its very first
production, Snow White and the Seven Dwarfs, in 1934. Apart from just movies, an
important part of Disneys strategy has been to roll out memorabilia and character
stories from their films. Such a strategy ensures that Disney is able to extract
maximum revenue from its characters resulting in cash flows spread across years.
However, lately Disney had been facing trouble due to shifting industry trend
towards computer graphics (CG) technology while Disneys competency had lied
mainly with hand drawn 2-dimensional animations. So far Disney has relied on
Pixars 3-dimensional CG animation capabilities to produce films.

Pixar had been a major supplier to Disney for about a decade. However, initially the
terms of the contract had been in Disneys favour wherein it retained the exclusive
distribution and exploitation rights to all feature films produced along with its
marketing rights. Pixars Steve Jobs had been negotiating, unsuccessfully for some
time to obtain greater rights over the films produced. Pixars core competency lied in
its proprietary software (RenderMan, Marionette and Ringmaster) which were
technologically advanced and industry proven. Pixar, however, lacked proficiency in
executing full length feature films; it had mainly produced short length films and TV
commercials.

Although Pixar did not present any tangible threat to Disney in the near future, it had
the potential to become a strong competitor to Disney. Also, with increasing demand
for 3D CG animation pointed towards increasing market power of Pixar. Due to these
factors, Pixar had lesser and lesser incentives to stay with Disney when it could
negotiate a more favourable deal with Disneys competitors. Also, renegotiating the
contract with Pixar could only be a short term solution because while Pixar remains
an independent entity, it was free to sell its software to other market players, eroding
the differentiation in Disneys films. Due to these reasons, it made sense for Disney
to buy out Pixar and thereby its technical capabilities.

2. Pixars corporate culture

Pixar was an unconventional film studio. While the studio culture was generally idea-
centred, Pixars culture was people-centred. It was guided by three values:

1. Everyone must have the freedom to communicate with anyone

 2. It must be safe for everyone to offer ideas
3. Stay close to innovations happening in the academic community

These values were quite anti-industry where well established movie studios had a
bureaucratic setup and ideas generally flowed from top to down. Some studios, like
Disney, had started the collaboration culture and were performing well, but the
culture within Pixar was seemed inimitable which seemed to perform with a high
success rate. Some practices at Pixar were unheard of in the industry so far, e.g.
employees didnt have an employment contract, it never bought scripts from outside,
and was a technological pioneer in computer animation technology with a dozen
patents in its kitty. Pixar, therefore, was a company ahead of its time which depended
heavily on its internal talent pool for creativity and breakthroughs. Post-acquisition,
it was therefore very important to manage change effectively in order to retain the
talent pool at Pixar which was the only source of Pixars competitive advantage.

3. Challenges in post-acquisition integration

Table 1 Salient differences between Disney and Pixar

Disney Pixar
Animated short films and
Area Full length animated films
commercials
Animatio
Hand drawn 2D CG 3D
n
Software N/a; mainly outsourced 10 years of Proprietary software
Workforce not well trained in CG
Workforce mainly held PhDs animation
Skill
Focus on creativity Top-down approach to idea
generation
Top driven values and culture
Free spirited creativity
Hierarchical and risk averse
Egalitarian collaboration
Culture Profit driven production (sole
Risk taking and experimenting
focus on revenue generating
encouraged
ability of content)

While in almost all facets, Disney and Pixar stood to create synergies, the biggest risk
is that of a cultural mismatch. Several studies have indicated that while Disneys
typical employee was a soldier, that of Pixar was an artist. Of course, this
professional imagery are incompatible with one another and thus requires careful
integration. Disneys corporate culture was certainly unattractive to Pixar employees.
Retaining the talent should be the prime focus of Disney after acquisition.

Besides retention, it should also be important for Disney to maintain the community
like relationship among employees which Pixar has been successfully fostering
independently. According to one of the founders of Pixar, Ed Catmull, Whats
equally tough, of course, is getting talented people to work effectively with one
another. That takes trust and respect, which we as managers cant mandate; they
must be earned over time. What we can do is construct an environment that
nurtures trusting and respectful relationships and unleashes everyones creativity.
If we get that right, the result is a vibrant community where talented people are
loyal to one another and their collective work, everyone feels that they are part of
something extraordinary, and their passion and accomplishments make the
community a magnet for talented people coming out of schools or working at other
places. I know what Im describing is the antithesis of the free-agency practices that
prevail in the movie industry, but thats the point: I believe that community
matters. While assimilating technology would be fairly easy into the new easy,
assimilating this trust, respect, and empowerment is very difficult.

4. Recommendations
Based on the above discussed dissimilarities between the two corporate cultures, it
can be concluded that assimilating the two cultures would be critical while
maintaining the trust and respect between the two different workforces. Some steps
that should be taken in order to facilitate the assimilation of the two:

1. The original culture of creativity must be maintained in the Pixar unit. Disney
should be proactive to setup guidelines in discussion with Pixar officials
outlining how Pixar would be positioned within Disneys organization.
2. An alignment between the Vision and Mission of the two entities must be
sought and agreed upon to avoid operating conflicts between them
3. Pixars top executives must be given equivalent positions within Disney. This
would signal that Disney trusts and relies on Pixars talent and is willing to
hear them out too. Further, this would form an informal team of executives
from both Disney and Pixar committed to facilitating the transition. Such a
team will have the positional power, expertise, credibility and leadership
abilities to which employees from both the organizations will be willing to
listen to
4. A direction of change must be decided by both the entities which should be
reflected in the new vision and mission of the new entity
5. Pixars is a collaborative culture which also encourages individuality and this
has been credited as its source of creativity. In order to maintain the same
output, Disney should not tinker with Pixars internal paraphernalia. The
artists of Pixar must be treated so to assert their individuality within Disney
and later leverage this trust to diffuse the intellectual capital among the
workforce of Disney too.