(FORTUNE Magazine) – Starting with The Little Mermaid, a string of animated blockbusters has earned the Walt Disney Co. some $5 billion since 1989. By any count, that's a tribute to how Disney not only sates its own notorious appetite for ever fatter profits but also gets the best out of that often-prickly-but-you-can't-live-without-'em bunch of folks, "the creatives." Most important, Disney sees to it that good ideas keep coming from all directions and that movies meet their deadlines. Peter Schneider, 45, president of feature animation, tells how a Gong Show for all his staffers--not to mention Ping-Pong with CEO Michael Eisner, who knows how to lose a game--helps the process.

How does a Gong Show get you the best ideas?

We have people thinking about what we should do next all the time. But lots of other people in the building, including secretaries, want to present their ideas too. So three times a year they get to do just that, pitching what they think would make a good animated film to me, Michael Eisner, Roy Disney, and my executive VP, Tom Schumacher.

Isn't that a pretty scary audience?

Well, people with ideas get some help from their co-workers. Development helps them shape their pitch, for instance, so that it can be presented in three to five minutes, and coaches them on things such as the sort of visuals they could use. And if you're scared to death, someone else will hold your hand when you're up there. On the day of the Gong Show, it's very formal. The four of us all sit at a table and the room is full of people with ideas they want to submit. That way everybody gets to hear all of the ideas. It's not as though you're pitching alone. There's a group supporting you. We usually have about 40 presenters. That morning we pick names at random, so there's no advance order, but each person knows when it's his or her turn.

Still, it must be tough for people to get up and say what they think to Michael Eisner.

That's key, though. You have to create an environment where people feel safe about their ideas. And you do that by setting the example. Senior management has to take on the responsibility of saying, "Michael, you're wrong." When people see us saying that, it gives them permission to say it too.

Once all the ideas are presented, the four of us talk about which ones we liked and what aspects we liked about some of the others. Somebody may have a great concept, but the story may not be very good. Or somebody may have a great title. What we can't do is say, "Oh, that's fabulous. Great pitch, guys!" and when they leave, mumble, "What an idea! That was awful!" You must have immediate communication and not worry about people's egos and feelings and how to do it gently enough. You have to tell people why an idea didn't work. We don't pull our punches. If you do that enough, and people don't get fired or demoted, they begin to understand that no matter how good, bad, or indifferent the idea, it can be expressed, accepted, and thought about.

What films came out of the Gong Show?

Most of Disney's animated features, in fact. In the case of Hercules, which is now in production, an animator came up with the central idea that a man is judged by his inner strength and not his outer strength. The title was also his idea, but we didn't go for his story line. In the end that came from the two guys who became the directors of the film.

Did the guy with the original idea get paid for it?

If we buy the pitch, the presenter usually gets what we'd pay for a first treatment. [Schneider would not give specifics, but a $20,000 payment, spread over the period between an accepted pitch and a movie's release, is not unusual.]

How does a good idea become a business?

First we come up with a core value for each story. I hate calling anything a mission statement, but I suppose it could be called that. The core value puts process in creativity. It's written down, and we all talk about it. It's not mysterious or ethereal. It's a value that we hang on to in terms of judging whether we're doing a good job. Are we telling the story we agreed to tell? You can't manage anything that doesn't have agreed-upon goals and direction.

How do you reach an agreement?

It's a very collective approach to our work. We spend a lot of time in meetings arguing, discussing, and trying to come to a consensus. For instance, there was a lot of initial debate about what story we were telling with The Hunchback of Notre Dame, which will be released this summer. People thought we could never make it work. So we went back to the book and asked questions. What was the fundamental value of the book? What could the story be? What should it be? We discussed what changes we were going to make to have it tell our tale. As everybody gave their input, the debate moved along a little bit and changed. We eventually decided that our story would be about discovering self-value.

But there's a time to talk and a time to start making the film.

Yes, and that's the dilemma. As soon as you make the process concrete, it's wrong--but you have to lock things up or you can't go forward. You want to keep things in flux, in change, in chaos, until everybody says, "Gosh, that's exactly right." At the same time, there has to be a system and a certain amount of expectation. You have to say, "Within these boundaries, you will create. This is the budget. This is as big as it gets. These are your limitations. Make it work within this framework." And then be open to the judgment of, "My God, the framework's not right. Let's change it."

Do deadlines help you draw boundaries and do they play a role in managing creativity?

They're a key ingredient to creativity. If you let people work on blank canvases with no rules, they tend to think too much. A deadline says, "By five o'clock tomorrow, you will have this up on storyboard, good, bad, or indifferent"--because we'll all come in and talk about it. We'll have something to react to. It'll spark the next idea.

Who sets the deadlines? Who's in charge?

It's unclear who really is in charge of our process. Certainly the directors and the producers are the day-to-day point people. But there's a lot of give and take with Michael, Roy, Tom, and myself. The four of us are always asking if we're telling the story, if it's correct, if it's good. It's the dialogue that makes it work. At the end of the day, I think the idea of Disney animation is in charge. There's never really a possessiveness in terms of a particular person. I think you can assign it to a group of people.

But there must be some sort of hierarchy?

I'm a very big believer in hierarchy, one that is not too structured. I don't think you can create things without it. When I first came here ten years ago, it was very flat. There was no real acknowledgment in the animation ranks of who was good and who was not so good. Now it's very clear who the top five people in our business are. It gives people a sense of what they're progressing toward creatively.

The other kind of hierarchy is clearly that you have directors, an art director, a head of background. Each of these people is charged with leadership in terms of their troops. By and large we try to choose someone who is a great manager and a great artist. Those are very hard skills to find together. There has to be a certain sense of judgment, of quality, of speed, and the ability to say, "This is not good enough, not fast enough. You can do more. I expect more." Or to say, "Take your time. This is really important. Go slow." A real sense of judgment and an ability to communicate it.

How much autonomy do you give those who lead a Disney project?

It's about putting the pieces together to allow people to do their job. It's about people clicking. So you want leadership to pick leadership. You want directors to pick their own art directors, the art directors to pick their head of background, heads of background to pick their own crew. You want people to have a sense of being chosen and wanted on a picture, not assigned, transferred, or exiled to it. You want people to say, "God, they want me."

How often can you do that?

Seventy-five percent of the time. The other times we arrogantly say, even to directors, "Just do it." On one of our most successful projects, we told the director to shut up and do it. He was a very talented man but a bit indecisive in terms of where he wanted to go with his career. He didn't know if it was the right project. I said to him, "You've been offered to direct a major animated movie. Do it." He said, "But I don't think I like this and that." "Then change it," I said. "Get in there and start working." He did, and he became ecstatic about the work. But it was the process of it, not that he came in saying, "I know what to do with this movie." It was the process: Going to work, drawing the drawing, talking about it, arguing about it, fighting about it, redoing it, being there.

But aren't you always going to have tension between the production side of the business and the creative side?

Always is right. But it's very healthy. Production's job is to ask whether every decision is worth it. We recently discussed making a small change at the end of Hunchback. We were in our last weeks, and the final four shots didn't quite fire off. We were talking about 30 feet of film, which is a significant change. Production said, "Guys, it's 30 feet." And we said, "Yeah, but it doesn't work." They finally agreed, but we didn't go with our first choice, which was time-consuming and expensive, and figured out a way to make the change faster and for less money.

People are getting more comfortable with the idea that this is not about us and them. One of our managers organized a Ping-Pong tournament during lunch hours last year, and the winners played a final game with Michael Eisner and [president] Mike Ovitz. They said, "Oh, my God, Michael Eisner's playing Ping-Pong in our building. Wow, I'm important." I'm not sure they say that directly. But where else would the CEO be playing Ping-Pong with an hourly artist? The big guys lost the game, which goes to show people didn't feel they had to let Eisner win. The lines of hierarchy are so blurred that it makes no difference who you are to get access.