The Company That Invented Its Market

Learning objectives

1. Separate an economic question from a question of identity, using the successor test.
2. Recognise how sunk costs and loss aversion delay exits from a defining business.
3. See how an organisation's own allocation rules can reveal a strategic shift before its leaders decide.

Session plan

1. 0–5 min Read the situation, what is known and unknown, and the voices in the room. No discussion yet.
2. 5–13 min Each participant chooses an option on the case page, states a confidence and writes a one-line pre-mortem: if this choice fails, the most likely reason is…
3. 13–28 min Group participants by chosen option. Each group makes the strongest case for its option and names what it would need to believe for the option to be right.
4. 28–33 min Reveal the outcome.
5. 33–50 min Discuss the process separately from the outcome: what made the exit decision strong, and what would have made it look wrong if personal computers had stalled?
6. 50–60 min Transfer: participants name one product, team or practice in their own organisation that a successor with no history would stop.

The case page records each participant’s choice, confidence and pre-mortem in their own browser, and scores the confidence once the outcome is revealed. Nothing is sent anywhere, so it can be used in any classroom.

The key facts on one page

• The company left commodity memory in 1985 and kept specialised memory products for a time.
• It laid off more than 7,000 people, nearly a third of its workforce.
• Its microprocessor was already designed into the leading personal computer standard.
• Capacity was allocated by margin per wafer, which had been moving production away from memory before the decision.

Where discussions go wrong

• Treating the outcome as proof that the decision was obvious. At the time, leaving memory meant leaving the product that defined the company.
• Reading the successor test as a trick. It works because it removes identity from an economic question, which participants can use on their own decisions.

The forces at work

• Identity and loss: Memory was not just a product line; it was what the company had been. Leaving felt like losing a self, which made an economically clear choice emotionally very hard.
• The new owner's eyes: The decisive move was a thought experiment. The two leaders asked what a newly appointed chief executive, with no attachment to the past, would do. The answer was obvious once the question was asked.
• Knowledge at the edges: Middle managers allocating scarce manufacturing capacity by profit margin had already been shifting it away from memory towards microprocessors. The organisation had partly decided before its leaders did.
• Sunk cost: Years of investment in memory technology and plants pulled towards continuing. Treating them as sunk was necessary to see the choice clearly.

The lesson to carry out of the room When identity and economics disagree, ask what a successor with no attachment to the past would do.

Pairs well with: The strategy question “When should we abandon the product that made us?” and the idea Sunk Costs and the Escalation of Commitment.