Explore Or Exploit? Success Involves Balancing Transformation With Adherence To Core Values

by Peter Gustafson
Posted On: 10/19/2016

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TAGS: Peter Gustafson, Amusement Machine Association, AAMA 2016 Gala, balancing exploration with exploitation, Facit, skunkworks,Xerox's Palo Alto Research Center, coin-op, amusement business

Editor's Note: Peter Gustafson began his post as the American Amusement Machine Association's new executive vice-president on June 1. In one of his first public addresses before industry members as AAMA's EVP, Gustafson urged the amusement industry to hold on to its core values as it explores new paths of transformation. He blended his own observations with ideas from a TED Talk in a welcome statement to industry leaders attending AAMA's Gala in early September.

It was 13 years ago that someone in this room had the incredibly bright idea to transform our annual meeting by adding the Gala. The previous year, 2003, we had a total of 132 members, of which 16 were distributors. The Gala made a significant difference resulting in a 44% increase in distributor members who either rejoined AAMA, or joined for the first time. They did so because they saw what we were up to as an opportunity of which they wanted to be a part. Clearly, the Gala was a good idea, but it wasn't fully formed -- if you had a time machine and could go back to the 2004 event, you'd see a dramatic difference between then and now, which leads me to my theme for this year's event -- one I hope you'll adopt, as well: "transforming while holding on to core values."

Successful businesses do this by balancing exploration with exploitation. I recently watched a Ted Talk that dove into this concept and I'll share with you the highlights of that conversation. The speaker said there are two primary reasons companies fail: they either only do more of the same (exploit) or they only do what's new (explore).

He referenced a Swedish mechanical calculator company. Facit made the best mechanical calculator in the world. When the electronic calculator was introduced, Facit kept doing what they'd always done and in six months they closed their doors. They were so stuck in their ways that in the end, engineers were actually using a small, cheap electronic calculator to test their mechanical calculators. They literally held the future in their hands, but failed to see it.

The opposite are companies that never stop creating and rarely commercialize their ideas. When I worked with Gary Stern I recall him saying more than once, "Peter! There's a time in the life of every project when you have to shoot the engineers and build the damn thing." (He seemed to always say that right after Joe Kaminkow left his office.) There's pragmatism in Gary's statement that Vince Lombardi understood. In his first meeting with the Packers, Lombardi said, "Gentlemen, we will chase perfection, and we will chase it relentlessly, knowing all the while we can never attain it. But along the way, we shall catch excellence."

Exploration is sexy. It's about coming up with new ideas, new innovations and new products. Exploration is risky. It's about stepping into the unknown without a roadmap, and hoping to find your way home.

Exploitation is exploration's polar opposite. Exploitation is taking what you know and making it better, finding ways to cut costs, save time and reduce labor. Exploitation is not risky in the short term, but it is risky in the long term.

Think of old rock bands that are presently touring county fairs playing the same old tired songs. They once toured the world in private jets and filled stadiums with fans. Today, they drive around in vans performing on the backs of flatbed trucks next to the 4H animal enclosures. They made the choice, conscience or not, to stop writing new material and ultimately fell into the abyss of irrelevance.

The trick, and it's not an easy one to perform, is to balance exploration with exploitation.

There are two primary traps that keep us from achieving that balance. The first one is the perpetual search trap. A company develops an idea, but lacks the discipline, persistence or patience to bring it to market. Maybe it gets frustrated by unforeseen obstacles -- material costs go up unexpectedly -- or its corporate board is so stuck in tradition, it doesn't have the vision to see how this new "thing" fits into its historic business model.

The most famous example I can cite is Xerox's Palo Alto Research Center. PARC, as it was often called, was a skunkworks project of Xerox. You may or may not know that PARC created the very first personal computer, the first computer mouse and the first laser printer, along with computer-generated graphics and dozens of other revolutionary innovations. Yet, the only creation they brought to market was the laser printer. Why? Because printing is what their board of directors knew; the leadership felt it had to consider every new idea in that context alone. Had they allowed the team at PARC to bring these creations to fruition, the computer you're using would most likely be a Xerox, not an Apple, IBM or Dell.

The second trap is the success trap. There's a Bill Gates quote that sums this up perfectly: "Success is a lousy teacher. It seduces us into thinking we cannot fail." The success trap kills innovation. You think it's keeping you safe while in reality, it's driving you into obsolescence.

At the American Amusement Machine Association, we're intentionally working toward achieving the balance between exploration and exploitation. We're reaching out to adjacent communities, engaging them in the creation of our agenda and creating a clearing for all of us to exchange ideas and share best practices. At the same time, we're cognizant of our responsibility to protect the interests of our membership from harmful legislation, to provide tools to help each member grow and prosper, and to ensure that being an AAMA member actually provides tangible benefits for all of you.

That said, I challenge each and every one of you to make the commitment to contribute your knowledge, passion and energy toward making a difference. If you do, there is absolutely no way we can fail in exceeding expectations.

American Amusement Machine Association, Pete Gustafson PETER GUSTAFSON is executive vice-president of the American Amusement Machine Association. Prior to taking up his post at the nonprofit trade group in June 2016, Gustafson was U.S. general manager of Sega Amusements International. He spent most of his career at Sega, with several interim assignments at other amusement companies, including Face Place and LAI Games. He entered the coin-op industry at Bally Pinball in the early '80s, while serving in the Marine Corps Reserve.