Analysis of semco and pixar animated studio as an example of innovative organizations

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Innovation is essential for the success of an organisation as an organisation that wants to be a market leader in today chaotic and complex business world must be receptive to new ideas and continue to be innovative. .However, many organisations fail to realise the significance of innovation leading to the eventual loss of market share just like Nokia, one timed market leader in mobile industry which lost mobile markets to Apple. Companies like Semco, Gore and Associate, 3M and Pixar have made a reputation for themselves due to their emphasis on creativity. Innovation is a product of collaborative learning, idea generation, sharing and idea realization practices of workers in an organization (Dovey, 2009, p.311). For innovation to occur an organisation must foster an environment and culture that give room for creativity which is what Semco and Pixar have achieved. To this end, this report will analyse Semco and Pixar as an exemplar of innovative companies and the relationship that exist between them using some key theories of innovation and the defining features and managerial actions that set them apart as innovative organisations.


Semco is a loose organisation that encourages innovation and self organisation leading to trust, collaboration and cooperation. Semco was a small family engineering company originally called Semler and Company established in 1952 in Sao Paulo, Brazil by Antonio Curt Semler and renamed Semco after Ricardo Semler, the 24 year old son of the owner resumed office as the new chief executive officer in 1984, firing more than half of the top managers on his first day of resuming office as chief executive officer and eliminated all secretarial positions (CNN, 2004). The company prior to Ricardo taking over was characterised with autocratic style of management with control and rules being the order of the day and operating at the edge of collapse. Ricardo Semler favours a participating style of management, profit sharing and free flow of information. The company product range includes dishwashers, pumps, mixers, cooling units for air condition, biscuits factories among others (Semler 1999, p. 1). It is one of the most innovative companies in the world and has become the subject of study for most business schools all around the world due to its peculiar management style. There is no organisation structure that feeds managers ego, subordinates choose their own bosses, employees set their salaries, production targets and achieve them at their own time, and are encouraged to participate, share ideas and also share in the profit (Semler 1999, pp.1-7, 130 &131).


Pixar animated studio was established in 1986 after Steve Jobs purchased the computer graphics division of Lucas films for $10 million with Ed Catmull being named co-founder and Chief technical officer, Smith as vice president alongside Steve Jobs (Price, 2008, p.74 & 85-197). In 2001, Ed Catmull was named Pixar’s president. The company originally manufactures and sell hardware and software that enable computer graphics to develop animations. In 1987, the company began the making of short films with its first computer generated movie, Toy Story being released in 1995. The company which is a wholly owned subsidiary of Walt Disney acquired 2006 at $7.4 billion and located in Emeryville, California (Paik, 2007). The acquisition will help Pixar gain economies of scale and access to new technologies. Pixar has a range of films under its belt that has surpassed box office expectations from Rango, Hop, Toy Story 3, , the incredible and many others (Emerald Group Review, 2011). Its target audience cuts across all ages and nationalities and include families and children and its product range include short films in DVDs, soundtrack CDs, animated films among others (Price, 2008, pp.3-7). It fosters an environment that gives room for mistakes and encourages collaborations among teams and departments and devoid of micro management by executives to ensure creativity and innovation (YouTube-imperial college, 2009).


What makes Ricardo Semler and Ed Catmull exceptional in the way they run their companiesCould it be that they were born to innovation, an act of God, divine intervention, grace, or years of experience and acquisition of knowledge and educationAnalysts and business tycoons have called these men genius. Some critics of Semler and Pixar would have called the transformation at these companies as a gift from the gods. However, it is worthy of note that Semco was a company already in operation prior to Ricardo taking over and Pixar had several failed attempts before its major breakthrough in 1995 with Toy Story. Emerald group, 2011 quoted Ed Catmull in Harvard Business Review ‘I don’t think our success is largely luck. Rather, I believe our adherence to a set of principles and practices for managing creative talent and risk is responsible.’ Was grace far from the transformation in these companiesRicardo was one of the youngest graduates at Harvard Business School who would have learnt some of the traditional management theories in school but choose to manage in a uniquely different way that suite his life and believes suite those of his employees. Moreover, having had an encounter with a doctor who told him to change his work style, he decided to change his way of management, a factor that has led to the key changes at Semco today. Thus innovation at Semco may be a combination of association having graduated from Harvard, accident-a chance meeting with the doctor, personality-considering that while at high school he raised some money for the school vacation program which he reinvested to yield a return before the vacation, feature of life and a bit of cognitive considering the fact that innovation at Semco had evolved over time. It is far from being grace or act of gods. Several forms of innovation can be said to have taken placed at these organisations. They are:

Organisational innovation: An organisational innovation is one that entails the implementation of a new organisational method in the firm’s business practices, workplace or external relations (Stoneman, 2010, p.17; OECD, 2006). It is often intended to increase a company’s performance through improvement in workplace satisfaction and labour productivity and access to knowledge. It entails an adoption of an organisational method such as flatter organisation structures, employees’ participation among others that have not being used before in an organisation and often results from strategic decisions taken by management (Stoneman, 2010, p.18). Semco and Pixar posses a great deal of organisational innovation. Semco had implemented theories that have never being tried before such as the satellites programs that allow ex-employees to open their own companies with financial help and resources and become partners with Semco and employees cutting their wages by 30% to Semco at difficult times to get a higher returns when trading conditions get better. What drive such innovation are the organisational culture, structure and learning.

Social innovation: This is the innovation that supports and it is beneficial to the society. Pixar is an example of such innovation whose films though animated have a lot of influence on the society both young and small. Its latest film, hop for instance gives social lessons about the role of adult and children in society. Semco has also contributed to the Brazilian society through employment and a reduction in job cuts.

Traditional innovation: This is technological innovation and is measured in different ways such as through patents, expenditure and development among others. Semco and Pixar have shown a lot of innovation and creativity in technology with Pixar having a lot of patents. All these types of innovation create social capital which will be discussed later in this report.


SEMCO and Pixar’s success is built on a lattice or flatter organisational structure devoid of control culture that has gone through series of transformation through the years which has enhanced their innovative ability. An organisational culture devoid of control fosters innovation as individuals are giving the freedom to self organise and make their own decisions just like Semco where employees set their salaries and take decisions on production targets and the time they meet such targets (Semler, 1999, p.1). These companies have been able to manage innovation in the following ways:

Structure and culture: Organisational design is crucial to the continuous innovation of an enterprise. As the business environment becomes complex and uncertain, so is the organisational design changing to meet up with customers’ demands for value maximising products. Traditional management scientists like Max Weber emphasised formal structure which is a top-down approach characterised with command, control, rules, position power and neglect social and psychological influences on behaviours of employees and teams (Burnes 2000, p.45). Employees are likely to respond to a good leader who they trust and respect than being managed in a bureaucratic way as argued by Adair 1986:54. Semco operates a lattice structure and considers all workers as equal and has reduced bureaucracy from twelve layers of management to three (Semler 1999, p.7). Reduced hierarchies and high involvement will lead to faster decision making and idea generation and information sharing, leading to innovation. Formal organisational structure stifles individual creativity. In the words of Semler, authoritarianism diminishes productivity and as such no privileges or rules that discourages flexibility (Semler, 1999, p. 4). At Semco, People are made to enjoy their job and feel good about themselves, not just to survive. Business strategy in the company is determined without interference from the top. Similarly, Pixar is free from the thick layers of formal management and executives are not involved in the day to day running of the organisation. All employees are equally important and all work together for the success of a story. Both companies are devoid of micro-management which ensures creativity and innovation. To have these kind of organisations require a conducive organisational culture that is devoid of control. In the words of Ed Catmull, ‘Management really doesn’t tell people what to do.’ Thus both companies give employees freedom to take risk and there is reflection, learning and feedback. However , not everyone can work in an environment with such a structure as some people like being told what to do, also, people wants to know what their responsibilities are and who they are report to while others do not like responsibility. It means that such environment will attract liked minded individuals.

Trust and Freedom: Due to the flexible organisational structure and lack of formal reporting structures, employees can be trusted to carry out their roles. However, there is a tendency for employees to abuse the system giving the few reporting structures. Semco has absolute trust in her employees and encourages them to be self managing and governing and have made partners with them. There is so much trust that Semco made entrepreneurs out of its workers through assistance with setting up their own company through its satellite programs, buy from them and encourage them to sell to its competitors. One will assume trust will not be a possibility giving the large number of employees of over 3000. Semco has defiled business school expectations and has gone as far as allowing workers to participate in managerial decision making from deciding how much they get paid, to unlimited access to financial information and freedom to work whenever and wherever they choose and meet targets at their own set time and set their salaries which has resulted in impressive growth, long term loyalty and increase and better productivity. To Semler, his interest is in the final result not where, how and hours worked (Easen, 2004). Freedom drives performance and encourages innovation. Staff can work better if given more independence (Handy, 2004). Semco adopts a participating or democratic management style that create an atmosphere where both bosses and subordinates ( partners and associate) interact regardless of jobs and position and all are involved in decision making (Semler, 1999.pp.6 &81). In the words of Semler (1999, p. 6), ‘We don’t have as many bosses as we used to. As workers began to exercise more control over their jobs and assume more voices in our policies, the need for supervisors diminished.’ Having trust in individual will give them a sense of belonging and being wanted and encourage new ideas and sharing of ideas among one another. Semco and Pixar realised that the most powerful resources at their disposal are the people who make things happen in their organisations and have learnt to trust, believe in them and give them the freedom to express their innovative capabilities and drive production forward. Trust is seen as an outcome of social capital and shared values (Cote and Healy, 2001). However, the problem with freedom is that not everyone like being free. Some people want to be controlled and directed to get their job done. Some see control as a motivator. Moreover, some top managers may resist the need for reduced hierarchies for fear of losing control and power.

Social capital and Collaboration: At Semco and Pixar, there is collaboration and teamwork as people work together for common and shared values and not get in each others’ way but are committed to the achievement of the common goal of the company. At Semco, employees participate in managerial decision not just relating to their jobs but the business as a whole. They are included in decisions that pertain to choosing who their boss becomes (Easen, 2004). Before people are hired or promoted to leadership positions, they are interviewed and approved by all who will be working for them, and every six months managers are evaluated by their subordinates. Semco has autonomous business units established by ex- employees who open their own business with help from Semco and have become partners, associate and collaborators and has made Semco a leaner and agile organisation (Semler, 1999 P.7). Also different departments and business units and teams work collectively to drive innovation forward at Semco and Pixar. Easen, 2004 reported Semler as saying that ‘Growth and profit are a product of how people work together.’ There is a balanced collaboration at Pixar as artist and technologists are paired together. Every offer or idea is accepted and then people get the chance to plus it (Nelsen, 2008). A term Nelsen called ‘plussing’- taking an idea or a piece of work and find a way to add or improve upon it without judging it. At Pixar, collaboration means amplification whereby employees who are listening and interested in each other are joined together to work and bring separate depth to the problems and breadth that gives them interest in the solution as well as allow teams to communicate at different levels. The brain trust at Pixar is a framework or forum that gives an opportunity for some of the best brains to use their expertise and experience to share their understanding and knowledge with others and to get feedback. The Organisation for Economic Development and Cooperation, OECD defines social capital as ‘networks together with shared norms, values and understandings that facilitate cooperation within or among groups’ (ONS, 2001; Cote and Healy, 2001:41). It is the glue that holds organisations together and enables employees to join forces more effectively and pursue shared objectives. In a culture of continual change and uncertainty,

sustainable communities are those who are collaborative and always growing with and towards each other in the formation, sharing and adaptation to new knowledge (Smith and Paquette, 2010). Some of the outcomes of social capital are social relations, trust, collaboration, mutually enforceable agreement, general reciprocity and innovation (ONS, 2001). In Semco there is mutually enforceable agreement resulting from profit sharing. In the past, Pixar had used stock to motivate employees and encourage them to stay. Also, the need to produce quality output at Pixar could be a form of mutually enforceable agreement (Price 2008, p. 114).

Pay recognition: Motivation such as adequate pay, interpersonal relations and work and group dynamics are some factors that increase productivity and workers satisfaction (Mullins, 2007, p.53). Employees will be committed to work if they are being paid fairly and feel that their contribution is appreciated in the organisation. Semco’s employees set their salaries and share in the profits. As Semler (1999, P. 4) says, ‘Profit-sharing is democratic. We negotiate with our workers over the basic percentage to be distributed- about a quarter of our corporate profit.’ This has worked so well at Semco as there is very low labour turnover and when the need arises, those laid off are assisted to form their own company. Reward systems and benefits retain people and lead to workers’ satisfaction, commitment and loyalty (Chiu et al, 2002). There were times when workers salary proposal were rejected in instances of over- statement. Contrary to this is the argument that financial rewards are not enough to motivate people and that group pressure has more influence on employees than financial rewards (Mullins, 2007, p.301). In addition, people also have intrinsic motivation derives from within the individual which propels them towards the need for self actualisation and fulfilment.

Learning and feedback/ Gives room for mistakes/Risk taking: Learning within projects teams depends heavily on the inflow and transfer of knowledgeable among them. Semco and Pixar are learning organisations. Such organisations give room for failure and learning from mistakes and encourage risk taking and have a wide tolerance for new ideas and do not punish mistakes. A learning organisation was defined by Johnson et al (2008) as, ‘One capable of continual regeneration from the variety of knowledge, experience and skills of individuals that encourage mutual questioning and challenge around a shared purpose or vision.’ Semler pointed out that mistake is welcome and a sign that the employee is taking enough risk. Without mistakes, there will not be learning and consequently, innovation will be stifled. Likewise at Pixar, continuous innovation requires that executives resist the natural tendencies to minimise risks and accept uncertainty to ensure originality and ability to recover from failures resulting from taking risks. It encourages creativity by allowing people to experiment with new ideas and mistakes genuinely made are treated as part of the learning process Emerald Group review, 2011). Mistake are not punished at Pixar but seen as building block for new ideas and innovation just like 3M. Pixar endorses and encourages a creative by rejecting hierarchical and controlled system, instead the taking of risks and recognizes the importance of serendipity in the creative process (Smith and Paquette, 2010) It has been argued that employees’ collective knowledge exceeds those of the organisation and its capabilities and managers should aim at encouraging processes that unlock employees’ knowledge and encourage information, knowledge and idea sharing which is the sort of environment both companies have created for their employees. As a narrator said, each movies produced by Pixar contains a combination of tens of thousands of ideas arising from risk taking, failure and learning. Ed Catmull said that ‘Innovative people are failure recovered not failure avoider.’ Both companies give room for reflection, learning and feedback. The benefits of learning cannot be over emphasis. Learning increases employees’ commitment, improve quality as mistakes are identified. Senge 1999 reiterated that organisational learning leads to organisational performance.

Commitment: At Semco, everyone is committed to the achievement of the organisation’s objectives as they all feel a sense of belonging and part ownership of the company arising partly from the profit sharing. Employees are seen as being importance and valued. A worker in an interview said if an employee is idle, another worker will often ask why he or she is not working, reminding him or her that failure to work will reduce their profits and subsequently reduction in money for their pockets. So there is peer pressure. If employees feel that they are being trusted to take decision on their own and self manage, they will be committed. Semco operates an where there is no preferential treatment. Parking lots are for first come basis and all employees eat on the same canteen. Meetings are held based on the first two employees to be present. This makes employees feel as being a part of the team and big family and give them a sense of being wanted by the company. By removing privileges of ranks, employees will see themselves as a wider community, thus feel comfortable voicing their opinion, leading to generation of new ideas.

Dynamism: Semco is a highly flexible company with no boundaries to the type of business and products, making it difficult to say exactly what kind of business the company is in. There is no fixed business and it is open to any form of business that comes their way. It is also characterised with the absence of business plans and company strategy. In the words of Semler (2003, p.4), ‘ Once you say what business you are in, you create boundaries for you employees, you restrict their thinking and give them a reason to ignore new opportunities as they will say we are not in that business.’ Semco is so dynamic in its operations and processes that employees must not use one desk two days in a row. This is to make them difficult to track and are free to move and work anywhere that appeals to them be it home office. There is time flexibility as they are not concerned about when the employees arrive at work. However, contracts are negotiated on the basis of what to be achieved at a set period and what it stands to gain for paid value and what the employees get in return. It is a mutually enforceable agreement as both parties- employees and Semco benefit. Pixar, though in a core line of business of animated films, it is not to say it is not a dynamic company as different forms of films that benefits both adult and children have being produced over the years.

There is effective communication at both companies due to the organisational culture and flatter structure devoid of control. There is information, idea and knowledge sharing. At Pixar, technologists communicate with the artists.


Semco and Pixar are said to be innovative even though the companies are different in what they do and how they approach innovation. Nevertheless, some common factors in both companies is the delegation of a large amount of control to their employees and absolute freedom to take risk and give room for mistakes and failure, giving them freedom to generate new ideas and thus take a more active role and commitment. Both companies have decentralised the management structures to get employees more involved in decision making and give them a sense of belonging. They have created a culture that gives room for mistakes, failures, sharing of information, and ideas. There is also collaboration between employees, teams, departments, business units and partners, trust, social capital, communication, lack of micro-management and similar organisational culture and structure which encourages innovation. However, both companies differ in a number of ways such as absence of profit sharing at Pixar, languages, products, country of location and time scales.

Having carried out a detailed analysis of Semco and Pixar, it is possible that what works at these companies can be applicable to other companies. However, some disadvantages will be accrued if these features are applied in another company characterised with hierarchical control culture and structure such as resistance from top management who are control freaks and unwilling to relinquish power. Moreover, not everyone will be able to self manage as some people like being controlled and told what to do. In addition, that trust and freedom work well in these organisations does not mean it can be implemented in other organisations as differences in culture and environment will play a role in determining its effectiveness in another company with different organisational culture and business environment. Having said this, nothing is worth not trying, so these managerial actions that have worked so well in these organisations can be applied to other organisations. The reward may not be seen immediately, but in the long run, it will pay off.

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