Jennifer Reingold

5 ways your company can be like Pixar

February 3, 2014: 7:00 AM ET

In a new book, Pixar cofounder Ed Catmull shares a lifetime of lessons on how to create a culture of creativity. You don't need to be a filmmaker to benefit.

By Jennifer Reingold, senior editor

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FORTUNE -- If you have ever been to Pixar's corporate campus -- or even seen a Pixar film -- you instinctively know that it is an amazing place to work. Employees decorate their own spaces as Tiki bars or castles, eat at the (subsidized) cafeteria next to huge models of Buzz Lightyear, and work their you-know-whats off for years at a time in the service of the next Finding Nemo.

But Pixar is also a very successful business; since it was bought by Disney (DIS) in 2006 for $7.4 billion, the company has turned out hit after hit. And its co-founders, John Lasseter and Ed Catmull, have also taken their approach to Disney Animation Studios, where they have been credited with reinvigorating the once-moribund group. Put simply, the management philosophy is a radical one: Give the creatives the creative control, and the financial success will follow.

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Now Catmull has written a new book, Creativity, Inc., that details what he's learned -- and though it's not out until April, I'd advise anyone looking for a way to motivate their workforce to preorder it now. It is, in my estimation, one of the most practical and enjoyable management books I have ever read, full of useful lessons (both good and bad) for anyone who must deal with creatives in any way. (Even if you don't, the book is still great for its insight into the personality of Steve Jobs, who bought Pixar from George Lucas in 1986 and who Catmull says he worked with longer than any other person.)

Catmull is perhaps the least well known of the Pixar triad, after Jobs and Lasseter, but if this book has the impact I think it will, that won't be the case for long. Here are just five of the many ways Catmull suggests to help your company reboot its creative side.

1. Give good note.

One of the key parts of a film studio's culture is the concept of "notes," or written suggestions or criticisms made after the screening of a rough cut. At most studios, notes are given by the business executives or by people at the same level or above, and they are usually mandatory. At Pixar, anyone can give notes, and all employees are invited to screenings at very early stages -- way before a story line is finalized. Directors do not have to use the notes -- they are merely suggestions -- but together, it creates buy-in for everyone, whether or not they are part of the project, and it also helps to crowdsource ideas to sticky problems.

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Last year, when Pixar was going through a bit of an existential crisis, Catmull and Lasseter took the notes concept even further, creating a "Notes Day" for the entire company that looked broadly at how they could operate more efficiently. The entire day was devoted to the project; no normal work was done. People chose problems or areas that they felt passionate about and worked together to come up with solutions. Of 106 topics discussed, the company is seriously working on 21 of them today -- an amazing hit rate.

2. It's the story, not the box office.

You might think Pixar is a technology company. After all, it revolutionized the way animated films are made today. And yet, says Catmull, the key to its success is not building sophisticated animation technology, but instead telling a wonderful story that the technology will enhance. The goal is not to create a blockbuster; the goal is to create something that the employees feel is the best thing that they could possibly make -- even if, as happened in the course of Toy Story 2, that means completely jettisoning one of the major plot lines and starting over again deep in the process. Catmull's experience is that such passion ultimately translates into business success. Putting business success first, on the other hand, means choosing the safe path rather than the revolutionary one.

3. Good people trump good ideas.

When Catmull speaks to groups he often poses the question "Which is more valuable, good ideas or good people?" He finds that audiences are split 50-50 in their answers. But his experience at Pixar shows that good people are much more important. "If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better."

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Catmull cites, of all people, W. Edward Deming, the management expert who brought the notion of quality to the assembly line floor. Deming revolutionized the practice by creating a system where anyone can stop the assembly line if there is a problem -- giving everyone a chunk of responsibility for the finished project. During the making of Finding Nemo, Pixar tried to save money by finalizing the script before the filmmaking process started in earnest. It failed -- and that was a good thing, because the storyline would not have worked as it was. "Making the process better, easier, and cheaper is an important aspiration," writes Catmull, "something we continuously work on -- but it is not the goal. Making something great is the goal."

4. Balance pays off.

Pixar's workforce is famously intense, and the stories of trying to meet deadlines are legendary. There are, however, downsides to having a highly motivated workforce; in the scramble to make Toy Story 2 come out on time, one exhausted employee left his child inside a hot car instead of dropping him off at day care (the child lost consciousness but later recovered). "Toy Story 2 was a case study in how something that is usually considered a plus -- a motivated, workaholic workforce pulling together to make a deadline -- could destroy itself if left unchecked." So Pixar supports parental leaves, sabbaticals, fun. And its employees stay and give their all. Balance does matter.

5. Unearth the hidden.

Leaders miss a lot. Partly because they're busy, partly because they're not self-aware or become vulnerable to hubris. But mostly, says Catmull, because everyone has blind spots, and those are exacerbated when people reach positions of power and don't feel able to be honest for fear it might impact their own career trajectory. How to avoid this as a leader? You can't, he says. But at least you can be aware that there is so much that you don't know, and that you are not getting all the information you think you are. "The better approach," he says, "is to accept that we can't understand every facet of a complex environment and to focus, instead, on techniques to deal with combining different viewpoints." In other words, know that you can't know it all. And be okay with it.

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