Mergers and Acquisitions: Ensuring Positive Cultural Impact

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THE IMPACT OF MERGERS AND ACQUISITIONS
ON ORGANIZATIONAL CULTURE
A Case Study of
Disney-Pixar Animation Studios
and Disney-Marvel Entertainment

Presented to Dr. Melanio Santella
Professor, Organizational Behavior
Graduate School of Business, Far Eastern University

In Partial Fulfilment
of the Requirements of
Organizational Behavior (MBA 203)
Summer, 2009-2010

Submitted by:
MARIA ARLENE (Bam) T. DISIMULACION

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TABLE OF CONTENTS

BACKGROUND OF THE CASE STUDY ……………………………… 3 - 4

STATEMENT OF THE PROBLEM ……………………………………. 4

AREAS OF CONSIDERATION ………………………………………… 5 - 11

RELEVANT ORGANIZATIONAL BEHAVIOR PRINCIPLES
TO RESOLVE THE PROBLEM ………………………………………... 11 -14

FINAL RECOMMENDATIONS ………………………………………… 14 - 20

BIBLIOGRAPHY …………………………………………………………. 21

ATTACHMENTS

Disney-Pixar Management Strategies

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BACKGROUND OF THE CASE STUDY

When news broke out that Disney bought Pixar Animation Studios for US$ 7.4

billion, some were excited, while the rest expressed apprehension.

With a giant like Disney, the anxiety was based on the legendary Disney’s

extreme control over business operations. Many, too, were worried that Disney might

kill the sparks of creativity that made Pixar extremely successful.

Then, Disney announced its purchase of Marvel Entertainment Inc. for US$ 4

billion. This time, the world, most especially the Marvel fanatics, were up in arms.

They could not imagine Mickey Mouse, wholesome and cute, walking alongside

the masked Spiderman. Even analysts could only imagine the collision that could erupt

at Disney theme parks, resorts and entertainment catering to young kids when combined

with the Marvel Universe of anti-heroes.

The Walt Disney Company, founded in 1923 by brothers Walt and Roy Disney, is

the world’s largest media and entertainment organization. Today, it owns eleven (11)

theme parks; two (2) water parks; one (1) television network, American Broadcasting

Company; (3) movie outfits, namely Buena Vista Distribution, Buena Vista Motion

Pictures Group and Walt Disney Studio Entertainment; plus Disney Consumer Products

and hotels.

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Disney earned its reputation for successfully managing its empire thru a strong

corporate culture that includes extreme control over operations.

The case study will review topics and issues related to organizational culture with

reference to mergers and acquisitions, specifically in the cases of the Disney-Pixar

Animation Studios and the Disney-Marvel Entertainment.

However, it will exclude discussions on the other components of mergers and

acquisitions not related to organizational behavior such as due diligence for accounting

and finance; stock market prices; earnings per share and dividends distributed. Although

these are important areas for consideration, the case study is limiting its scope to

organizational behavior-related discussions.

STATEMENT OF THE PROBLEM

This paper will attempt to provide insights on the following questions:

1. What are the organizational cultures of creative giant Walt Disney

Company, innovative Pixar Animation Studios and maverick Marvel Entertainment?

2. What are the factors that will ensure the success of Disney’s merger and

acquisition of Pixar Animation Studios and Marvel Entertainment?

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AREAS OF CONSIDERATION

This paper will review of the Disney corporate culture as well as the

organizational cultures of Pixar Animation Studios and Marvel Entertainment before they

were bought by the former. To provide a holistic view, it will include a brief history of

each company

Further, the paper will discuss the rationale behind mergers and acquisitions. It

will also recommend specific action plans to ensure that mergers and acquisitions result

in a positive impact on corporate culture.

A. WALT DISNEY COMPANY

1. Roots

The Walt Disney Company (most commonly known as Disney) is the largest

media and entertainment empires in the world. Founded on October 16, 1923 by brothers

Walt and Roy Disney, it started as a small animation studio.

2. Corporate Culture

Disney has a strong foundation created by a strong heritage, established traditions,

quality standards, and shared values.

The Disney organization emphasizes happiness, not as an intangible, but

something that can be experienced through all contact with customers. Cast members, as

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their employees are referred to, play a key role in ensuring that customers are happy,

treating them as invited guests.

To define “happiness” within the context of the multimedia entertainment empire,

the writer refers to the research conducted by Charlene Marmer Solomon.

In her article entitled “How Does Disney Do It,” she outlines the methodology the

corporation uses to instil the required behavior, norms and values.

According to Solomon, there are four (4) main ingredients to the happiness

culture. These are safety, courtesy, show and efficiency – called the “Disney Courtesy.”

Taught at the Disney University, the concept focuses on “employees who are part of the

fantasy and are present to create happiness.”

The philosophy driving its culture is a “comprehensive approach to employee

relations.” The company believes that management needs to treat its employees the way

they treat their customers. As one of its founders, Walt Disney once said, “You can

create, design and build the most wonderful place in the world, but it requires people to

make the dream a reality.”

To teach Cast Members (Disney employees) about expected norms in the

workplace, they undergo an eight-hour orientation program.

First half of the program focuses on Disney history, Walt Disney’s philosophy

and the standards of guest service. For new hires, they are advised on where they best fit

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within the organization. To reinforce the lessons learned, they are repeated on internal

communications.

The second part includes a tour of the park “from a design and guest service

standpoint.” These are discussions on costumes and general office policies.

What makes the training more interesting is that these are taught by outstanding

employees in full costume.

Training does not end there, but continues – ahead of the curve – where

employees are trained before they even need it. “By the time a person moves through our

organization into middle management, they have a strong understanding of expectations

and have already gained the necessary skills.”

3. Disney Legends

True to its commitment of caring for its employees, Disney rewards and honors

individuals “whose imagination, talents and dreams have created the Disney magic.”

Established in 1987, the program has honoured animators, imagineers, song

writers, actors and business leaders.

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B. PIXAR ANIMATION STUDIOS

1. Roots

Pixar Animation Studios was established in 1986 by Steve Jobs, CEO of Apple,

and Ed Catmull. Renowned for its cutting edge technical skill and artistic innovations,

Pixar became the leading pioneer in animation in just four (4) years after its birth.

Original and extremely innovative, Pixar has never bought a story or a character.

The storyline, concept and characters of blockbuster animated movies such as “Toy

Story,” “Monsters,” “A Bug’s Life,” “Ratatouille,” “Wall-E,” “Up” and “Finding Nemo.”

In 2006, Disney bought Pixar Animation Studios for US$7.4 billion.


Researchers and critics agree. There are three (3) keys to Pixar’s huge success.

According to Bob Irish in “Pixarology” – the distinct organizational culture driving

Pixar’s extra-ordinary success – are the following:

2.1 People and Talent: Pixar scouts for the best talents and provide

them with the environment to nurture their skills. Co-founder Ed

Catmull reiterates that “everyone must have the freedom to

communicate with everyone,” and that “it must be safe for

everyone to offer ideas.”

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Furthermore, Pixar is not afraid to hire people who can even be

better than management. Ego must be set aside to allow each

employee to work creatively with the rest. The slogan which

reinforces this value is Pixar’s “All for one, One for All” belief.

2.2 The Fusion of Art and Technology: Pixar works hard to rid its

organization of the distinctions between “artists” and “scientists.”

The battle cry:“Technology inspires Art, and Art challenges the

Technology.”

2.3 Solid Financials: When Co-founder Steve Jobs bought the

computer division of George Lucas for US$ 10 million, he started

the legendary financial support Pixar gets from management. He

immediately invested US$ 5 million more in technology

C. MARVEL ENTERTAINMENT

1. Roots

Marvel Comics was founded by established magazine publisher Martin Goodman

in 1939. Its first publication was Marvel Comics #1, released in October 1939, featuring

the second appearance of Carl Burgos' android superhero, the Human Torch, and the first

appearance of Bill Everett's mutant anti-hero Namor the Sub-Mariner.

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Marvel Entertainment is best known for its imaginative comic heroes drawn by

technically-skilled artisans. But it only began diversifying its portfolio in the 1990s thru

licensing agreements.

Its main properties include Spider-Man, the Fantastic Four, the Incredible Hulk,

Thor, Iron Man, Captain America, the X-Men, notably Wolverine. In addition, most of

Marvel's fictional characters operate in one single reality known as the Marvel Universe.

Marvel's comics were noted for focusing on characterization than most superhero

comics before them. This was especially true of Spider-Man, whose “young hero suffered

from self-doubt and mundane problems like any other teenager.”

Pop culture experts agree that Marvel superheroes are “often flawed, freaks, and

misfits, unlike the perfect, handsome, athletic heroes found in previous traditional comic

books. Some Marvel heroes even look like villains and monsters. In time, this non-

traditional approach would revolutionize comic books.”


Marvel’s history is replete with various changes in ownership and boom and bust

scenarios which may be the reasons for its relatively weak organizational culture as

compared with Disney and Pixar.

In the earlier years of Marvel, there was a single editor overseeing operations.

But as the company grew, individual titles were managed separately. With increasing

number of properties (or characters and comic titles), jobs were overlapping.

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Aside from having chaotic work descriptions and titles, the 1990s were dominated

by gimmicks, such as swimsuit issues, to boost sales, which went against Marvel

Universe characters and storylines.

On another level, Marvel withdrew from the Comics Code Authority and

established its own Marvel Rating System for comics. This allowed Marvel to “reboot

heir major titles by deconstructing and updating their major superhero and villain

characters to introduce to a new generation.

RELEVANT ORGANIZATIONAL BEHAVIOR PRINCIPLES
TO RESOLVE THE PROBLEMS

1. Organizational Culture

Edgar H. Schein, author of “The Corporate Culture Survival Guide: Sense and

Nonsense about Cultural Change,” said that the increasing importance of organizational

culture is due to globalization, mergers and acquisitions, partnerships, among other

factors.

Tom Peters, in his seminal book “In Search of Excellence” agreed with Schein

stating that corporate culture plays an important role – “particularly if its values hinge on

customer service, innovation and proactivity, flexibility, action orientation and human

resource development – forging so-called excellent, and therefore successful,

companies.”

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The relationship between culture strength and performance reliability depends on

how strong-culture firms learn from and respond to both their own experiences and

changes in their environment. Adjustments can be when employees “ have an agreed

upon framework for interpreting environmental feedback and a common set of routines

for responding to different signals from the environment.”

2. Strong versus Weak Culture

Studies reveal that a strong culture was conceptualized as a coherent set of beliefs,

values and norms embraced by most members of the organization. It emphasized its

degree of consistency across the organization as well as its acceptance.

Many early proponents of organizational culture tended to assume that a strong,

pervasive culture was beneficial to all organizations because it fostered motivation,

commitment, identity, solidarity and the sense of belonging.

However, strong cultures can dampen the rise of subcultures that can lead to

organization dysfunction. A strong culture could also be a means of manipulation and

co-optation (Perrow 1979). It could further contribute to a displacement of goals or

subgoal formation, meaning that behavioral norms and ways of doing things become so

important that they begin to overshadow the original purpose of the organization (Merton

1957; March and Simon 1958).

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3. Mergers and Acquisitions (M&A)

These are strategies used in business to achieve the following:

3.1 Synergy: The gains to be made by combining resources of

companies lead to increased efficiency and decreased costs.

Among the most common type of synergies are the following

 Cost synergies: Savings generally may come from internal

economies of scale or through purchasing.

 Marketing and Sales synergies: This leads to a wider reach

of target markets through a larger sales force or expanded

customer base, cross selling one product to buyers of

another

 Technology synergies: This happens when companies gain

access to cutting-edge equipment, processes, systems

and expertise that can enhance their capabilities

3.2 Diversification/Sharpening Business Focus:. Companies which

decide to sharpen focus, often merge with companies that have

deeper market penetration in a key area of operation.

3.3 Growth for All Firms Involved: Mergers can provide the

acquiring company an opportunity to increase the market share

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without making any additional investment because they buy a

competitor’s business for a price.

3.4 Increase Supply-Chain Pricing Power: By buying out one of its

suppliers or one of the distributors, a business can eliminate at least

one level of costs.

FINAL RECOMMENDATIONS

The Disney-Pixar and Disney-Marvel mergers and acquisitions initiative will

always be considered as an exemplary success story in the annals of organizational

behavior.

Defying the odds that mergers and acquisitions will wreck havoc on corporate

cultures, productivity, profits and employee morale, the Disney example sets a new trail

for companies interested in taking the same path.

Most likely, Disney will soon include lessons learned from their actual

experiences in the Disney Institute.

As written in their brochures, Disney has created a method that brings together

organizational culture with personal and corporate success.

Some may see these as an oxymoron, but “Disney has a foundation created by a

strong heritage, established traditions, quality standards, and shared values. At each and

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every Disney destination around the world, these are the assets that create the road map -

the corporate culture that defines our people management processes and the philosophy

that leads to every business decision. Upon this foundation we have built unique traits

and behaviors, and introduced language, symbols, processes, and styles that distinguish

us in the marketplace. By protecting and nurturing these differences, we remain

committed, focused, and ready to achieve new business goals.”

To ensure the success of mergers and acquisitions as well a enable these to positively

affect corporate culture, follows are the recommendations:

Recommendation # 1:

Conduct a Bicultural Audit of the Companies Involved in Mergers & Acquisitions

To reduce, if not totally eliminate cultural differences between companies that are

merging or are being bought by another organization, it is recommended that a bicultural

audit be conducted.

A bicultural audit “diagnoses cultural relations between companies and

determines the extent to which cultural clashes will likely occur.”

In his book, “The Corporate Culture Survival Guide: Sense and Nonsense about

Cultural Change,” author Edgar H. Schein presents a guideline for doing bicultural

audits:

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First, a task force must be created with membership coming from organizations

involved in the merger and/or acquisition.

Next, the members will be involved in discussions and dialogues on the following

issues:

 External Survival Issues

 Mission, strategy, goals

 Means: Structure, system, processes

 Measurement: Error-detection and correction systems

 Internal Integration Issues

 Common language and concepts

 Group boundaries and identity

 The nature of authority and relationships

 Allocation of rewards and relationships

 Deeper Underlying Assumptions

 Human relationships to nature

 The nature of reality and truth

 The nature of human nature

 The nature of human relationships

 The nature of time and space

Third, both groups should explore major areas of how the other organization

operates.

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Finally, both groups will be required to use dialogues as their major medium of

communications.

By slowing down the conversation, we learn to hear the deeper layers of our own

discourse and realize how much our perceptions, thoughts and feelings are based on

learned assumptions. We begin to experience our own culture, that is, to the degree to

which our own group identifications and backgrounds color our thought processes. As

we discover this in ourselves, we are readier to hear it and accept it in others. (Schein,

1999)

Recommendation # 2:

Use Success Factors to Ensure a Successful Merger of Corporations and their

Culture

Companies involved in merges and acquisitions must be given the opportunity to

understand the reasons for the corporate change, thus, minimizing the resistance of their

respective employees.

It is highly recommended that employees see the reasons for the merger and

acquisition. They must understand its long-term, positive impact and be made to realize

that its effects can be beneficial to both.

Instead of looking at the negative view, that is, the elimination of competition,

employees of these firms must look at the following potential positive and lucrative

results of a merger and acquisition strategy as presented in the previous section.

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In the case of Disney-Pixar, separation was the best fit to allow the corporate

cultures to continue to flourish with the resulting synergies enhancing and expanding

their market reach as well as their revenues.

On the other hand, in the case of a company like Marvel with a relatively weak

culture being acquired by a dominant culture like Disney, I recommend the integration

strategy. This way, the acquired company gets access to equipment, marketing and sales

capabilities and reach of Disney as it strengthens by aligning itself with Disney.

Recommendation # 3:

Use the Separation Strategy for Mergers & Acquisitions of Companies With Strong

Corporate Cultures such as the Disney-Pixar Model

There are four (4) distinct strategies to merge organizational cultures, i.e.

Assimilation, Deculturation, Integration and Separation.

For organizations with strong corporate cultures with the willingness and

understanding in what can be gained from a merger and acquisition activity, I recommend

the use of the separation strategy.

Although, “Organizational Behavior” authors Steven McShane and Mary Ann

Von Glinow stated that “this strategy is most appropriate when the two merging

companies are in unrelated industries or operate to different countries,” the Disney-Pixar

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and Disney-Marvel merger and acquisition has successfully used and implemented this

strategy.

Attached is a copy of the Management Policies between Disney and Pixar,

articulating the latter’s freedom to continue its corporate legacy without interference from

the former.

Recommendation # 4:

Use the Integration Strategy for Mergers & Acquisitions of Companies, One with A

Strong Organizational Culture and the other with a Weak Organizational Culture

such as the Disney-Marvel Model

As far as the Disney-Marvel scenario, both companies instinctively knew that the

realization of their common goals could be achieved by integrating the culture of Marvel

into Disney.

Marvel's long history of several changes in ownership is reminiscent of orphans in

temporary foster homes which can lead to reduced capability to maximize their core

competencies.

With an integration strategy, Marvel can gain from the strength of Disney’s

organizational culture and use it to its advantage.

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Recommendation # 5

Companies Must Share a New Strategic Vision

To further increase the rate of success of mergers and acquisitions, without

negatively affecting the corporate cultures of the organizations involved, the leaders and

employees must share the same vision.

It is recommended that to reduce uncertainties, stabilize employee morale and

enhance productivity, goals and objectives must be clearly articulated, including the role

each one will play.

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BIBLIOGRAPHY

Edgar H. Schein “The Corporate Culture Survival Guide: Sense and Nonsense about
Cultural Change” Jossey-Bass, a Wiley Company, John Wiley & Sons, 1999

Judy Shimmin Levy “Pixar: A Case Study in Information Technology and the Creative
Practices”

Mike Werstuik “What Disney and Pixar Can Teach Us About Mergers” Callahan &
Associates, July 9,2008

R. Muthukumar, editor “Case Studies on Mergers, Acquisitions and Alliances – Vol. II”
Icfai Books, Icfai Business School Case Development Centre

“How Pixar Fosters Creativity”

“Will Disney's Latest Acquisition Prove As Marvellous As It Appears?”
The Economist, September, 3rd edition 2009

James M. Haley and Mohammed H. Sidky “Making Disney Pixar Into A Learning
Organization”

Sadri, G., Lees, B. (2001) "Developing Corporate Culture as a Competitive Advantage”
Journal of Management Development, Vol. 20 No.10, pp.853

Kathryn A Baker “Organizational Culture”

Mike Werstui “What Disney and Pixar Can Teach Us About Mergers” Callahan &
Associates, June 9, 2008

“The Walt Disney Company Makes A Hero-Sized Investment in a Brand Built by
Superheroes”
http://www.busmanagement.com/news/disney-purchase-marvel-entertainment/

“What the Marvel/Disney Merger Really Means”
http://www.comicsalliance.com/2009/08/31/what-the-marvel-disney-merger-
really-means-for-you/

http://www.companyculture.com/basicsmain.html

http://www.articlesbase.com/management-articles/definition-of-corporate-culture-
7329.html#ixzz0nyDk6SBL

http://www.comicsalliance.com/2009/08/31/what-the-marvel-disney-merger-really-
means-for-you/

http://247wallst.com/2009/12/29/disney-marvel-combo-assures-more-of-that-10-billion-
movie-market-mvl-dis/

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