Working, profitable products are starved and relabeled as legacy so that a sponsor's favored new initiative looks like the future, even when the new one performs worse.
An example
An industrial equipment maker's aftermarket parts business earned a 38 percent gross margin and had grown for six straight years. The new chief executive's priority was a connected-equipment platform, and within a year the parts business was reclassified into a new segment called Installed Base Solutions, merged with the platform, and no longer reported on its own. Two roadmap items for parts were denied. The two largest mining customers were reassigned to platform account managers. Three of the best product managers were moved across, and the parts general manager was passed over for a promotion that had been discussed for a year. The investor day slides featured the platform on nine pages and parts on none. The platform lost money for two years, and the combined segment's margin looked healthy enough that nobody had to explain it.
Why it works
Framed as the strategic future, the new initiative gives its sponsors a halo the working product cannot share. The product is recast as legacy or a cash cow whatever its numbers say, while roadmap items are denied and headline customers move. Defending it becomes career-limiting: talent is poached, budget is moved mid-cycle, and defenders are cast as backward-looking. A sponsor confident in the new thing would let the two compete on level ground, so degrading the incumbent suggests the sponsor expects to lose that comparison. It works when the sponsor controls reporting categories, headcount, and the narrative in offsites and board decks.
The thinking behind it
Barry M. Staw Staw's Knee-Deep in the Big Muddy (1976) found that people committed the most additional money to a course of action when they were personally responsible for its negative results, which he read as self-justification. A sponsor who has staked a reputation on a new initiative has every reason to keep investing in it when it underperforms, and to diminish the working product whose numbers make the comparison painful.
Daniel Kahneman Tversky and Kahneman's The Framing of Decisions and the Psychology of Choice (1981) shows that equivalent descriptions of the same choice produce predictable reversals of preference. Calling a profitable line legacy and a loss-making one the future is a frame applied to the same financial facts. Publishing revenue and margin for both side by side on the same basis replaces the frame with the comparison.
Warning signs
A profitable line is reclassified or merged out of standalone reporting. Its people start calling it legacy, mature, or not where growth is. Roadmap requests are denied while its biggest customers move to the new initiative's team. Its best people are recruited across and its leaders are passed over. The new initiative gets the offsite slides, the investor day, and the board deck.
How to defend yourself
Fight for the comparison. Arguing against the new initiative's vision makes you the backward-looking one.
- Ask finance to publish revenue and margin contribution for both businesses side by side, on the same basis.
- Keep your own standalone numbers, even after the reporting changes.
- Record each denied roadmap item and reassigned customer with its revenue effect.
- Let large customers speak for the product if they value it. Outside champions are hard to relabel.
- Take the comparison to a director on the audit or finance committee if management will not run it.
How a leader shuts it down
Keep standalone reporting for any line above a set size of revenue or margin, and protect finance's independence to publish it. Make new initiatives compete for resources against the numbers of what they would replace. The damage often shows only after the new bet underperforms and the working business has been hollowed out, which is too late to recover cheaply.