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Management Case Study

Include a clear and concise introduction.

Format your case study assignment paper so that the three questions asked below are clearly defined. Double space your work, cite your work, limit quotes, and edit your work well for spelling, grammar, and punctuation errors. If you use any quotes, you must increase the length of your paper to compensate. Make sure you have two additional references other than the text and use citations.

This case study analysis will be based on the 26 cases (attached) in your textbook. (do not use Robin Hood - case 1)

No abstract is required.

Read the case study and answer the following questions in your Paper.

1. Assess the effectiveness of your company’s leadership.

2. Discuss the basis of your company’s competitive advantage and the potential challenges to its strategy.

3. What growth strategies might your company pursue?

Submit your paper into the assignment section of the classroom.

Font and Spacing - Use Times New Roman 12 pitch font with double-spaced lines.

Length - Write a 3 to 5 page analysis not including the title page and citation page. No fewer than 1050 words!

Reference Page - Include all sources including your textbook on a Reference page

Utilize the APA Style for documenting sources. You will need to include at least 2 sources in addition to your text. Finally, remember Wikipedia is NOT a scholarly source.

CASES

CASE 2 EDWARD MARSHALL BOEHM, INC.*

Edward Marshall Boehm—a farmer, veterinarian, and nature lover living near New York City—was convinced by his wife and friends to translate some of his clay animal sculptures into pieces for possible sale to the gift and art markets. Boehm recognized that porcelain was the best medium for portraying his creations because of its translucent beauty, permanence, and fidelity of color as well as form. But the finest of the porcelains, hard paste porcelain, was largely a secret art about which little technical literature existed. Boehm studied this art relentlessly, absorbing whatever knowledge artbooks, museums, and the few U.S. ceramic factories offered. Then, after months of experimentation in a dingy Trenton, New Jersey, basement, Boehm and some chemist friends developed a porcelain clay equal to the finest in the world.

Next Boehm had to master the complex art of porcelain manufacture. Each piece of porcelain sculpture is a technical as well as artistic challenge. A 52-step process is required to convert a plasticine sculpture into a completed porcelain piece. For example, one major creation took 509 mold sections to make 151 parts, and consumed 8 tons of plaster in the molds. Sculptural detail included 60,000 individually carved feather barbs. Each creation had to be kiln-fired to 2400° where heat could change a graceful detail into a twisted mass. Then it had to be painted, often in successive layers, and perhaps fired repeatedly to anneal delicate colors. No American had excelled in hard paste porcelains. And when Boehm’s creations first appeared, no one understood the quality of the porcelain or even believed it was hard paste porcelain.

But Boehm began to create in porcelain what he knew and loved best—nature, particularly the more delicate forms of animals, birds, and flowers. In his art Boehm tried “to capture that special moment and setting which conveys the character, charm, and loveliness of a bird or animal in its natural habitat.” After selling his early creations for several years during her lunch hours, his talented wife, Helen, left an outstanding opthalmic marketing career to “peddle” Boehm’s porcelains full time. Soon Mrs. Boehm’s extraordinary merchandising skills, promotional touch, and sense for the art market began to pay off. People liked Boehm’s horses and dogs, but bought his birds. And Boehm agreeably complied, striving for ever greater perfection on ever more exotic and natural bird creations.

* Republished with permission from H. Mintzberg and J. B. Quinn, The Strategy Process, Prentice Hall, New York, 1996.

By 1968 some Boehm porcelains (especially birds) had become recognized as collector’s items. An extremely complex piece like “Fondo Marino” might sell for $28,500 at retail, and might command much more upon resale. Edward Marshall Boehm, then 55—though flattered by his products’ commercial success—considered his art primarily an expression of his love for nature. He felt the ornithological importance of portraying vanishing species like U.S. prairie chickens with fidelity and traveled to remote areas to bring back live samples of rare tropical birds for study and later rendering into porcelain. A single company, Minton China, was the exclusive distributor of Boehm products to some 175 retail outlets in the United States. Boehm’s line included (1) its “Fledgling” series of smaller, somewhat simpler pieces, usually selling for less than $100, (2) its profitable middle series of complex sculptures like the “Snowy Owl” selling from $800 to $5,000, and (3) its special artistic pieces (like “Fondo Marino” or “Ivory Billed Woodpeckers”) which might sell initially for over $20,000.

Individual Boehm porcelains were increasingly being recognized as outstanding artistic creations and sought by some sophisticated collectors. Production of such designs might be sold out for years in advance, but it was difficult to anticipate which pieces might achieve this distinction. Many of the company’s past policies no longer seemed

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appropriate. And the Boehms wanted to further position the company for the long run. When asked what they wanted from the company, they would respond, “to make the world aware of Mr. Boehm’s artistic talent, to help world wildlife causes by creating appreciation and protection for threatened species, and to build a continuing business that could make them comfortably wealthy, perhaps millionaires.” No one goal had great precedence over the others.

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CASES

CASE 3 AMERICAN INTERNATIONAL GROUP AND THE BONUS FIASCO*

After two decades of rapid growth and expansion in an environment of very little regulatory oversight and unbounded optimism about the power of the markets to create limitless wealth, the U.S. financial system came crashing down in the second half of 2008. What started as a sudden decline in housing prices after years of speculative growth very soon snowballed into a full-fledged financial crisis. Major banking companies such as Citicorp and Bank of America found their equity base wiped out by loan losses. Investment banking firms such as Merrill Lynch and Bear Stearns, which operate largely outside the regulatory framework of the Federal Reserve, were in even bigger trouble because they were highly leveraged. Fearing a complete financial meltdown, Henry Paulson, secretary of the Treasury in the Bush administration, announced a bailout package of $750 billion on September 16, 2008, to restore confidence in the banks and to jump-start the credit markets.

What exactly does the government do in a bailout? A bailout can take many forms. For example, the government can buy stock in a troubled institution, thus shoring up its equity base.

The very fact that the government has an equity stake may be taken as an implicit government guarantee by creditors, suppliers, and clients because concerns about solvency and ability to stay in business are assuaged. Alternatively, the government can extend a loan to the institution, to be paid back when the company becomes profitable again. Another approach is for the government to buy preferred stock in the company. In this case the government is entitled to a fair return on the investment. Finally, the government can buy distressed assets of the institution, thereby helping it to clean up its balance sheet. Irrespective of the form of the bailout, all bailouts represent a temporary or, in some cases, long- term commitment of public money to private companies.

As the economic crisis gathered momentum and the credit markets came to a standstill in the fall of 2008, it became clear that banks were not the only institutions in trouble. American International Group (AIG), one of the largest and most respected insurance companies in the world, found itself in even bigger financial distress in September 2008 when the rating agencies suddenly lowered its credit rating. Not only did this cause the cost of borrowing to go up for AIG, but it also triggered the requirement that the company post collateral with its counterparties. Unable to do so, AIG approached the government for a bailout. In the next few months, the government pumped an astounding $85 billion into AIG alone to prevent it from going bankrupt. Insurance companies are generally supposed to be risk-averse and prudent. How did AIG get into such a big mess?

* This case was prepared by Professor Abdul A. Rasheed of the University of Texas at Arlington, Graduate Student Brian Pinkham, and Professor Gregory G. Dess of the University of Texas at Dallas. This case was based solely on library research and was developed for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2009 Abdul A. Rasheed and Gregory G. Dess.

The primary culprit for the problems of AIG was a somewhat exotic financial product called credit default swaps (CDSs). In simple terms, these swaps represented an insurance cover to holders of mortgage-backed securities: If the value of the securities went down, AIG would make good the losses suffered by the owners. In good times, when real estate prices were climbing steadily each year, the CDSs were pure profits for AIG. Emboldened by what it perceived as negligible risk and motivated by the prospect of ever-increasing profits, AIG sold hundreds of billions of dollars’ worth

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of these instruments. Although insurance is a business regulated by the states, these products were outside the range of regulation.

Right from the beginning, there was considerable controversy about whether the government should try to bail out any failing firm in a market economy. Even those who were not ideologically opposed to the bailout were skeptical whether the government efforts would be enough to save the company. There were also concerns about how the company would spend the bailout money.

Immediately after the first bailout was announced, AIG attracted considerable negative press when it was reported that AIG executives attended a lavish retreat in California that featured spa treatments, banquets, and golf outings. Total tab: $444,000. Immediately thereafter, AP reported that AIG executives spent $86,000 on a luxurious English hunting trip.1

This was only days after the Fed had extended a $37.8 billion loan on top of the $85 billion mentioned earlier. The company’s response: “We regret that this event was not canceled.”2

In March 2009, it was disclosed that AIG had paid $218 million in bonus payments to employees of the financial services division, the very division that was responsible for issuing the credit default swaps that got the firm into trouble. Overall, 418 managers were the beneficiaries of these “retention” bonuses, although 53 of them were no longer with the company! The highest bonus was $6.4 million. Six managers received more than $4 million each, and 51 people received between $ 1 million and $2 million.

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The announcement of these bonuses sparked instant outrage among the public. President Barack Obama accused the company of “recklessness and greed.” Noting that AIG had “received substantial sums” of federal aid, the president announced that he was asking Treasury Secretary Timothy Geithner “to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.”3 Andrew Cuomo, New York State’s attorney general, threatened to subpoena the executives and engage in a “name and shame” campaign by making the list of bonus recipients public.4 The House even passed a bill that effectively imposed a punitive 90 percent tax on the bonuses.5

At the same time, there were others who felt that the payments represented contractual obligations and therefore populist sentiments should not be allowed to violate the sanctity of contracts. Many of the employees felt that they had every right to receive the payments they were promised and worked for. Their feelings were best expressed in the following resignation letter sent by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of AIG.

Dear Mr. Liddy: It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read

this entire letter. Before describing the details of my decision, I want to offer some context: I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in—or

responsible for—the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company—during which A.I.G. reassured us many times we would be rewarded in March 2009—we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable—in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

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The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity—directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

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That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13. At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these

contracts—until several hours before your appearance last week before Congress. I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically

unwise. It’s now apparent that you either misunderstood the agreements that you had made—tacit or otherwise—with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats—even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn.

This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 1 received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less—in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses—especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much

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longer—there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Sincerely, Jake DeSantis

Liddy was clearly in an unwinnable situation. On the one hand, the politicians and the press were pillorying him for authorizing lavish bonuses while the company was essentially on welfare payments from the taxpayer. On the other hand, his own employees were upset at him that he was pandering to the politicians by describing these contractual payments as “distasteful.”

ENDNOTES 1. AIG executives spent thousands during hunting trip. Associated Press, October 17, 2008,

http://ap.google.com/article/ALeqM5g3InVeHoYnmXZnM2ACXSgjG0nlQD93R68VO0. 2. A. Taylor. AIG execs’ retreat after bailout angers lawmakers. Associated Press, October 11, 2008,

http://thecofJeedesk.com/news/index.php/archives/76kers. 3. T. Raum. Obama: AIG can’t justify “outrage” of exec bonuses with taxpayer money keeping company afloat. Associated Press, March 16,

2009, http://finance.yahoo.com/news/Frank-assails-bonuses-paid-to-apf-14646988.html. 4. Cuomo issues subpoena to AIG on credit derivatives data. March 27, 2009, www.rttnews.com/Content/BreakingNews.aspx?

Node=Bl&Id=895234%20&Category=Breaking%20News. 5. J. D. McKinnon and A. Jones. Laws may not hinder effort to tax AIG bonuses. Wall Street Journal, March 18, 2009,

http://online.wsj.com/article/SB123742691757579925.html.

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CASES

CASE 4 PIXAR*

On the morning of January 10, 2013, everyone at Pixar Animated Studios was pleased to find that Brave had received an Academy Award nomination for best animated feature. After a continuous string of critically acclaimed films running through Toy Story, Finding Nemo, Ratatouille, Wall-E, and Up, the studio had failed to obtain a single nomination for Cars 2. This was a great setback for Pixar, which had already claimed five trophies, more than any other studio, since the category was added in 2001.

Although Cars 2 made about $560 million in theaters worldwide, matching the success of many of the studio’s other hits, the film did not win the critical acclaim that has been accorded to every other Pixar offering (see Exhibit 1). This led many industry observers to question whether the sequel had been developed as a result of pressure from the Walt Disney Company because of the opportunities that it would offer for sales of related merchandise. John Lasseter, Pixar’s chief creative officer and the director of Cars 2, denied that there was any such pressure: “It’s not true. It’s people who don’t know the facts, rushing to judge.”1

Pixar had been acquired by Disney in 2006 for the hefty sum of $7.4 billon. The deal had been finalized by the late Steve Jobs, the Apple Computer chief executive who had also served as the head of the computer animation firm. Jobs had previously developed a deal that had allowed Disney to distribute all of Pixar’s films and to split the profits. Disney CEO Bob Iger worked hard to eventually acquire Pixar, whose track record had made it one of the world’s most successful animation companies.

Both Jobs and Iger had been aware, however, that they must try and protect Pixar’s creative culture while they also tried to carry some of this over to Disney’s animation efforts. In order to ensure this, Disney has not only allowed Pixar to operate on its own, but also assigned some of the animation studio’s key talent to take over the combined activities of both Pixar and Disney. The creative team at Pixar has been trying to use elements of its lengthy process of playfully crafting a film to replace the standard production line approach that had been pursued by Disney. This contrast in culture is best reflected in the Oscars that the employees at Pixar have displayed proudly, but which have been painstakingly dressed in Barbie doll clothing.

Above all, everyone at Pixar remains committed to making films that are original in concept and execution, despite the risks involved. They make sequels only when they are able to come up with a compelling story that can make use of the old characters. Lasseter claims, however, that because everyone expects Pixar to stick with original films, any sequels that it makes are judged rather harshly. He compared his role as director of Cars 2 to that of a trapeze artist with a death wish. “Not only is there no net,” he said, “you’re doing it over spikes with poisoned ends.”2

* Case developed by Professor Jamal Shamsie, Michigan State University, with the assistance of Professor Alan B. Eisner, Pace University. Material has been drawn from published sources to be used for purposes of class discussion. Copyright © 2013 Jamal Shamsie and Alan B. Eisner.

EXHIBIT 1 Pixar Films

All of Pixar’s films released to date have ended up among the top animated films of all time based on worldwide box office revenue in millions of U.S. dollars.

Rank Title Year Revenue

1 Toy Story 3 2010 $1064

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2 Finding Nemo 2003 $906

3 Up 2009 $731

4 The Incredibles 2005 $631

5 Ratatouille 2007 $624

6 Cars 2 2011 $560

7 Brave 2012 $555

8 Monsters, Inc. 2002 $525

9 Wall-E 2009 $521

10 Toy Story 2 1999 $485

11 Cars 2006 $462

12 A Bug’s Life 1998 $363

13 Toy Story 1995 $362

Source: IMDb, Variety.

Pushing for Computer Animated Films The roots of Pixar stretch back to 1975 with the founding of a vocational school in Old Westbury, New York, called the New York Institute of Technology. It was there that Edwin E. Catmull, a straitlaced Mormon from Salt Lake City who loved animation but couldn’t draw, teamed up with the people who would later form the core of Pixar. “It was artists and technologists from the very start,” recalled Alvy Ray Smith, who worked with Catmull during those years. “It was like a fairy tale.”3

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By 1979, Catmull and his team decided to join forces with famous Hollywood director George W. Lucas, Jr. They were hopeful that this would allow them to pursue their dream of making animated films. As part of Lucas’s filmmaking facility in San Rafael, California, Catmull’s group of aspiring animators was able to make substantial progress in the art of computer animation. But the unit was not able to generate any profits, and Lucas was not willing to let it grow beyond using computer animation for special effects.

Catmull finally turned in 1985 to Jobs, who had just been ousted from Apple. Jobs was reluctant to invest in a firm that wanted to make full-length feature films using computer animation. But a year later, Jobs did decide to buy Catmull’s unit for just $10 million, which represented a third of Lucas’s asking price. While the newly named Pixar Animation Studios tried to push the boundaries of computer animation over the next five years, Jobs ended up having to invest an additional $50 million—more than 25 percent of his total wealth at the time. “There were times that we all despaired, but fortunately not all at the same time,” said Jobs.4

Still, Catmull’s team did continue to make substantial breakthroughs in the development of computer-generated full- length feature films (see Exhibit 2). In 1991, Disney gave Pixar a three-film contract that started with Toy Story. When the movie was finally released in 1995, its success surprised everyone in the film industry. Rather than the nice little film Disney had expected, Toy Story became the sensation of 1995. It rose to the rank of the third highest grossing animated film of all time, earning $362 million in worldwide box office revenues.

Within days, Jobs decided to take Pixar public. When the shares, priced at $22, shot past $33, Jobs called his best friend, Oracle CEO Lawrence J. Ellison, to tell him he had company in the billionaire’s club. With Pixar’s sudden success, Jobs returned to strike a new deal with Disney. Early in 1996, at a lunch with Walt Disney chief Michael D. Eisner, Jobs made his demands: an equal share of the profits, equal billing on merchandise and on-screen credits, and guarantees that Disney would market Pixar films as they did its own.

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Boosting the Creative Component With the success of Toy Story, Jobs realized that he had hit something big. He had tapped into his Silicon Valley roots and, with Catmull’s team, used computers to forge a unique style of creative moviemaking. In each of their subsequent films, Pixar has continued to develop computer animation that has allowed for more lifelike backgrounds, texture, and movement than ever before. For example, because real leaves are translucent, Pixar’s engineers developed special software algorithms that both reflect and absorb light, creating luminous scenes among jungles of clover.

In spite of the significance of these advancements in computer animation, Jobs was well aware that successful feature films would require a strong creative spark. He understood that it would be the marriage of technology with creativity that would allow Pixar to rise above its competition. To get that, Jobs fostered a campuslike environment within the newly formed outfit, similar to the freewheeling, charged atmosphere in the early days of his beloved Apple (where he also returned as acting CEO). “It’s not simply the technology that makes Pixar,” said Dick Cook, former president of Walt Disney studios.5

Even though Jobs did play a crucial supportive role, it is Catmull, now elevated to the position of Pixar’s

EXHIBIT 2 Milestones

1986 Steve Jobs buys Lucas’s computer group and christens it Pixar. The firm completes a short film, Luxo Jr., which is nominated for an Oscar.

1988 Pixar adds computer-animated ads to its repertoire, making spots for Listerine, Lifesavers, and Tropicana. Another short, Tin Toy, wins an Oscar.

1991 Pixar signs a production agreement with Disney. Disney is to invest $26 million; Pixar is to deliver at least three full-length, computer-animated feature films.

1995 Pixar releases Toy Story, the first fully digital feature film, which becomes the top-grossing movie of the year and wins an Oscar. A week after release, the company goes public.

1997 Pixar and Disney negotiate a new agreement: a fifty-fifty split of development costs and profits of five feature- length movies. Short Gerl’s Game wins an Oscar.

1998 –99

A Bug’s Life and Toy Story 2 are released, together pulling in $1.3 billion in box office and video.

2001 –04

A string of hits from Pixar: Monsters, Inc.; Finding Nemo; and The Incredibles.

2006 Disney acquires Pixar and assigns responsibilities for its own animation unit to Pixar’s creative brass. Cars is released and becomes another box office hit.

2009 Wall-E becomes the fourth film from Pixar to receive the Oscar for a feature-length animated film.

2011 Toy Story 3 receives five Oscar nominations and wins two, including one for best animated film.

Source: Pixar,

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president, who has been mainly responsible for ensuring that the firm’s technological achievements help to pump up the firm’s creative efforts. He has been the keeper of the company’s unique innovative culture, which has blended Silicon Valley techies, Hollywood production honchos, and artsy animation experts. In the pursuit of Catmull’s vision, this eclectic group has transformed their office cubicles into tiki huts, circus tents, and cardboard castles, with bookshelves stuffed with toys and desks adorned with colorful iMac computers.

Catmull has also worked hard to build upon this pursuit of creative innovation by creating programs to develop the employees. Employees are encouraged to devote up to four hours a week, every week, to further their education at Pixar University. The in-house training program offers 110 different courses that cover subjects such as live improvisation, creative writing, painting, drawing, sculpting, and cinematography. For many years, the school’s dean was Randall E. Nelson, a former juggler who has been known to perform his act using chain saws so students in animation classes have something compelling to draw.

It is such an emphasis on the creative use of technology that has kept Pixar on the cutting edge. The firm has turned out ever more lifelike short films, including 1998’s Oscar-winning Geri’s Game, which used a technology called subdivision surfaces. This makes realistic simulation of human skin and clothing possible. “They’re absolute geniuses,” gushed Jules Roman, cofounder and CEO of rival Tippett Studio. “They’re the people who created computer animation really.”6

Becoming Accomplished Storytellers A considerable part of the creative energy goes into story development. Jobs had understood that a film works only if its story can move the hearts and minds of families around the world. His goal was to develop Pixar into an animated movie studio that becomes known for the quality of its storytelling above everything else: “We want to create some great stories and characters that endure with each generation.”7

For story development, Pixar has relied heavily on 43-year-old John Lasseter, who goes by the title of vice president of the creative. Known for his collection of 358 Hawaiian shirts and his irrepressible playfulness with toys, Lasseter has been the key to the appeal of all of Pixar’s films. Lasseter gets very passionate about developing great stories and then harnessing computers to tell these stories. Most of Pixar’s employees believe it is this passion that has ensured that each of the studio’s films has been a commercial hit. In fact, Lasseter is being regarded as the Walt Disney for the 21st century.

When it’s time to start a project, Lasseter isolates a group of eight or so writers and directs them to forget about the constraints of technology. The group bounces ideas off each other, taking collective responsibility for developing a story. While many studios try to rush from script to production, Lasseter takes up to two years just to work out all the details. Once the script has been developed, artists create story-boards that connect the various characters to the developing plot. “No amount of great animation is going to save a bad story,” he said. “That’s why we go so far to make it right.”8

Only after the basic story has been set does Lasseter begin to think about what he’ll need from Pixar’s technologists. And it’s always more than the computer animators expect. Lasseter, for example, demanded that the crowds of ants in A Bug’s Life not be a single mass of look-alike faces. To solve the problem, computer expert William T. Reeves developed software that randomly applied physical and emotional characteristics to each ant. In another instance, writers brought a model of a butterfly named Gypsy to researchers, asking them to write code so that when she rubs her antennae, you can see the hairs press down and pop back up.

At any stage during the process, Lasseter may go back to potential problems that he sees with the story. In A Bug’s Life, for example, the story was totally revamped after more than a year of work had been completed. Originally, it was about a troupe of circus bugs run by P.T. Flea that tries to rescue a colony of ants from marauding grasshoppers. But because of a flaw in the story—Why would the circus bugs risk their lives to save stranger ants?—codirector Andrew Stanton recast the story to be about Flik, the heroic ant who recruits Flea’s troupe to fight the grasshoppers. “You have to rework and rework it,” explained Lasseter. “