Exploration vs. Exploitation

Pixar's blockbuster WALL-E begins with 39 minutes of dialogue-free storytelling.

Imagine pitching such a non-traditional opening to the film’s producers. Pixar, fortunately, understands that the recipe for success requires a mixture of risks and safer projects.

In his book Creativity Inc., Pixar co-founder Ed Catmull writes:

We recognized that making sequels, which were likely to do well at the box office, gave us more leeway to take those risks. Therefore, we came to the conclusion that a blend—one original film each year and a sequel every other year, or three films every two years—seemed a reasonable way to keep us both financially and creatively healthy.

The company's success with this model is not an anomaly.

In his 1991 paper "Exploration and Exploitation in Organizational Learning," Stanford Graduate School of Business professor James G. March discusses the idea that organizations have two modes: exploration and exploitation.

"Exploration" refers to riskier endeavors like WALL-E that might not work. They solidify companies as innovators.

To fund that research and development, groups must also "exploit" existing successes. In Pixar's case, that means producing stories like Toy Story 4.

It's this balance between exploring new frontiers and exploiting existing discoveries that creates the engine for long-term success.