Here is an excerpt from an interview of Pixar’s Ed Catmull for the McKinsey Quarterly, published by McKinsey & Company. The cofounder of the company that created the world’s first computer-animated feature film lays out a management philosophy for keeping Pixar innovative. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Ed Catmull has been at the forefront of the digital revolution since its early days. The president of Pixar and Disney Animation Studios began studying computer science at the University of Utah in 1965. In 1972, he created a four-minute film of computer-generated animation that represented the state of the art at the time.

In his 2014 book, Creativity, Inc., Catmull chronicled the story of Pixar—from its early days, when Steve Jobs invested $10 million to spin it off from Lucasfilm, in 1986; to its release of the groundbreaking Toy Story, in 1995; and its acquisition by the Walt Disney Company, for $7.4 billion, in 2006. But even more, he described the thrill and the challenge of stimulating creativity while keeping up with the breakneck pace of the digital age.

Catmull recently sat down with McKinsey’s Allen Webb and Stanford University professors Hayagreeva (“Huggy”) Rao and Robert Sutton for a far-ranging discussion that picked up where Creativity, Inc. left off. They delved deeply into Catmull’s rules for embracing the messiness that often accompanies great creative output, sending subtle signals, taking smart risks, experimenting to stay ahead of uncertainty, counteracting fear, and taking charge in a new environment — as Catmull did when he became the president of Disney Animation Studios.

One of the questions we had after reading your book is how do you, as the leader of a company, simultaneously create a culture of doubt—of being open to careful, systematic introspection—and inspire confidence?

The fundamental tension is that people want clear leadership, but what we’re doing is inherently messy. We know, intellectually, that if we want to do something new, there will be some unpredictable problems. But if it gets too messy, it actually does fall apart. And adhering to the pure, original plan falls apart, too, because it doesn’t represent reality. So you are always in this balance between clear leadership and chaos; in fact that’s where you’re supposed to be. Rather than thinking, “OK, my job is to prevent or avoid all the messes,” I just try to say, “well, let’s make sure it doesn’t get too messy.”

Most of our people have learned that it isn’t helpful to ask for absolute clarity. They know absolute clarity is damaging because it means that we aren’t responding to problems and that we will stop short of excellence. They also don’t want chaos; if it gets too messy, they can’t do their jobs. If we pull the plug on a film that isn’t working, it causes a great deal of angst and pain. But it also sends a major signal to the organization—that we’re not going to let something bad out. And they really value that. The rule is, we can’t produce a crappy film.

So that’s the rule; that’s the strategy?

Our real rule is to make a great movie. Our business is predicated on this. Of course, we need the film to be financially successful, and restarting a film is very expensive. But if we’re to avoid becoming creatively bankrupt, we have to do things that are high risk. This affects the entire culture—everybody keeps raising the bar, upping the ante in terms of what goes on the screen. This raises costs, so we have a continual struggle to reduce our costs.

People coming in from the outside, as well as employees, look at the process and say, “you know, if you would just get the story right—just write the script and get it right the first time, before you make the film—it will be much easier and cheaper to make.” And they’re absolutely right. It is, however, irrelevant because even if you’re really good, your first pass or guess at what the film should be will only get you to the B level. You can inexpensively make a B-level film. In fact, because the barriers to entry into this field now are quite low, you can get to B easily.

If you want to get to A, then you have to make changes in response to the problems revealed in your first attempt and then the second attempt, et cetera. Think of building a house. The cheapest way to build it is to draw up the plan for the house and then build to those plans. But if you’ve ever been through this process, then you know that as the building takes shape, you say, “what was I thinking? This doesn’t work at all.” Looking at plans is not the same thing as seeing them realized. Most people who have gone through this say you have to have some extra money because it’s going to cost more than you think. And the biggest reason it costs more than you think is that along the way, you realize something you didn’t know when you started.

You mentioned signals a moment ago; say a bit more about that.

Restarting something that doesn’t work is costly and painful, but in doing so, we send a major signal to our company. But there are other signals, too. We put short films at the beginning of our movies. Why? Nobody is going to go to a movie because of the shorts, and neither the theater owners nor Disney gets any more money because of them.

So why do the shorts? Well, we are sending some signals. It is a signal to the audience that we’re giving them more than they’re paying for, a signal to the artistic community that Pixar and Disney are encouraging broader artistic expression, and a signal to our employees that we’re doing something for which we don’t get any money. While they all know that we have to make money and want us to, they also want a signal that we are not so driven by money that it trumps everything else.

Are there any other signals you’d highlight?

Here is a simple example, so simple that most people would overlook it: our kitchen employees are part of the company. I think a lot of companies overuse the phrase “our core business”—for instance, “making food for our employees is not our core business.” So they farm it out. Now, in a lot of companies, including ours, there are certain things you do farm out. You don’t do everything yourself. But this notion of “our core business” can become an excuse for being so financially driven that you actually harm your culture.

If you farm out your food preparation, then you’ve set up a structure where another company has to make money. The only way they can make more money, which they want to do, is to decrease the quality of the food or service. Now we have a structural problem. It’s not that they’re bad or greedy. But in our case, the kitchen staff works for us, and because it’s not a profit group, their source of pride comes from whether or not the employees like the food. So the quality of food here is better than at most other places.

Also, the food here is not free — it’s at cost. Making it free would send the wrong signal about value to the kitchen crew. Everybody loves the chef and the staff. We have people who are happier. They’re not gone for an hour and a half because they’re going somewhere else to get a decent meal. They’re here, where we have more chance encounters; it creates a different social environment. That’s worth something to us, to our core business.

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Here is a direct link to the complete interview.

This interview was conducted by Stanford University professors Huggy Rao and Robert Sutton and the Quarterly’s editor in chief, Allen Webb, who is based in McKinsey’s Seattle office.