Contents
When you think of Pixar today, you think of films. Yet for a long time Pixar was not a film company. It was a technology group with a dream and changing business models. What carried the company through every change was not a product but a competence that hardly anyone could replicate – a textbook case of Core Competence.
A division at Lucasfilm
Situation
In 1979, George Lucas sets up a computer division at his company, Lucasfilm. The graphics group is led by Ed Catmull, whom Lucas recruits from the New York Institute of Technology, and Alvy Ray Smith. The team develops methods for image rendering, particle effects and animation tools. This later gives rise to the RenderMan software.
Link to the principle
At the beginning there is no product idea but a field of knowledge: the question of how a computer can create convincing images. This is exactly how core competencies arise. They grow over years out of accumulated skill, long before it is clear which product they will one day carry.
Steve Jobs buys a technology company
Situation
In February 1986, the group is spun off as a company of its own. Steve Jobs pays George Lucas $5 million for the technology rights and invests another $5 million in the company. At first, the most important product is a specialized computer, the Pixar Image Computer, for government agencies, science and medicine. It sells poorly. In April 1990, Pixar sells its hardware division to Vicom Systems. Meanwhile, the animation department led by John Lasseter makes commercials and short films. In 1986, “Luxo Jr.” demonstrates at an industry conference what the technology can do. In 1989, “Tin Toy” becomes the first computer-animated film to win the Oscar for best animated short film.
Link to the principle
The business model fails; the capability does not. The computer disappears, but the knowledge of image rendering and the experience of telling stories with the computer remain. In C. K. Prahalad and Gary Hamel’s image: the fruit was badly chosen, but the root was healthy.
RenderMan: software as a foundation
Situation
In 1988, Pixar releases RenderMan, software that turns models into finished images with light, surfaces and shadows. Pixar uses it for its own films and also sells it on the open market. On “Toy Story,” the team uses it to give the characters and objects their surfaces.
Link to the principle
RenderMan is a core product in Prahalad and Hamel’s sense. The competence takes tangible form in it and can be transferred to many end products: Pixar’s own films, short films, commercials and the work of other studios. But selling the software does not yet mean selling the whole competence. The competence lives in the people who tell stories with it.
Toy Story
Situation
In 1991, Pixar signs a contract with Disney for three computer-animated feature films. The first is “Toy Story.” After a failed screening in November 1993, production is halted and the story rebuilt. Over the course of production, the team grows from 24 to 110 people, including 27 animators. The film requires about 800,000 machine hours and 114,240 frames. It opens in U.S. theaters on November 22, 1995. It is the first feature film made entirely on a computer. A week later, Pixar goes public. In 1996, John Lasseter receives an honorary Oscar for developing the techniques behind the film.
Link to the principle
Only now does the competence find its strongest product. What is remarkable is that the crisis of 1993 was not a technology crisis but a storytelling crisis. The computers could have delivered the film. First, the story had to get good. Pixar’s lead lay in the combination of both capabilities.
Technology and story under one roof
Situation
In the years that follow, Pixar develops ways of working that support this combination. The best known is the Braintrust: directors, writers and lead storyboard artists give one another candid feedback on films in progress. In 1996, Pixar closes its commercials division to concentrate on longer projects. In 2006, Disney buys Pixar for about $7.4 billion in stock.
Link to the principle
Prahalad and Hamel stress that a core competence is a combination, a web of technology, knowledge and collaboration. That is precisely what makes it hard to copy. Other studios could buy computers and license software. The well-practiced culture in which engineers and storytellers work together on a scene could not be bought. You can read the 2006 acquisition this way: Disney did not acquire a film but this capability.
Key takeaways
Key lessons
- Hold on to your capability, not to your first business model.
- A competence can grow for years before it finds its product.
- Technology alone is rarely enough; combining several strengths makes you hard to copy.
- What others can buy is not a lasting lead.
- End side businesses when they no longer strengthen your core competence.
Summary
Pixar moved from a specialized computer through software and commercials to feature films. What remained was the core competence: computer image rendering combined with the ability to tell stories. “Toy Story” made it visible in 1995. Its value lay precisely in the fact that it consisted of technology, people and ways of working and was therefore hard to copy.
Sources
- Ed Catmull, Amy Wallace: Creativity, Inc. New York: Random House 2014.
- C. K. Prahalad, Gary Hamel: The Core Competence of the Corporation. In: Harvard Business Review 68 (1990), no. 3, pp. 79–91.
