Don't berate the digital technology firm for going through the motions at work, it simply took on an "impossible task"

A task sheet full of "wanting everything at once" —— What has turned digital tech subsidiaries into unrecognizable oddities is never a matter of attitude

Just recently, a friend with over ten years of digitalization experience at a state-owned central enterprise dropped a snippet of industry chat records in a WeChat group and threw out a line: "Old Yang, look at these digital tech subsidiaries, aren't they just a bunch of shell companies drifting through their days?"

I replied to him: "Don't rush to criticize. First look at what kind of task they are taking on, then draw your conclusion."

In the past two years, in public opinion, corporate internal digital tech subsidiaries have collectively fallen into a "doubt of their very existence." Many scold them for drifting through their days, while others defend them. But the problem is, after all the arguments, many people haven't figured out one thing —— that task sheet they received was full of conflicting requirements from day one.

Today, as a witness from an internal digital tech subsidiary, Old Yang will reveal the most piercing layers behind that conversation. Let's change our perspective: instead of rushing to judge whether they did a good job, first see how impossibly difficult the task they are required to complete really is.

I. First rule of the task: It must cut costs, and also generate profits

The harshest line in the group chat was scolding digital tech subsidiaries for "only knowing to use parent company resources, acting as general contractors and resellers who drift through their days," calling them "shell companies."

Proof? There is! That is: Some business departments of the parent company would rather bypass their own digital tech subsidiary and go to external suppliers. The reason can be summed up in four words —— "Digital tech is more expensive."

From here it's easy to see that an internal service institution, disdained by its own internal customers as "not cost-effective," has already had its very rationality of existence shaken.

But we must analyze this issue objectively. When business departments think internal digital tech subsidiaries are more expensive, they are simply comparing the apparent project amount, but the accounts of a digital tech subsidiary are calculated like this: As an independent legal entity, when it takes on a group project, it has to count management fees, taxes, and profits. With markup at every level, the final cost to the business department is sometimes really higher than directly finding an external supplier. And some external vendors can bid at ultra-low prices or even take a loss to win the project. Who can resist that?

So after seeing the reality, stop scolding digital tech subsidiaries as "resellers." The markup they add is the tax and profit required of an independent legal entity —— this is the rope the system tied around them, not something they chose to do to drift through their days. Conversely, if a digital tech subsidiary can truly connect the scattered data, processes, and systems of the group, and build common capabilities that "cannot be bought externally but can be easily used internally," it will save huge costs in the long run. The problem is: Too many digital tech subsidiaries stop at the "reseller" stage, only doing subcontracting and markup, and fail to build something with "core competitiveness." They have to take half of the blame, but the other half is because the group never gave them the time, resources, and mechanism to grow their capabilities.

II. Second rule of the task: It must be the "direct line," and also the "sharp vanguard"

Digital tech subsidiaries are held to high hopes: Internally, they must serve the parent company well; externally, they must also have market competitiveness.

What about the reality? Their market competitiveness is "relatively weak." Worse still, top enterprise leaders' requirement is —— "At least incubate into a listed company, or develop software products comparable to SAP."

This is not an expectation, this is a death sentence. A newly established digital tech subsidiary that survives on group orders, with no market-oriented genes and burdened with internal service obligations, what can it use to compete in products and markets against veterans like Yonyou, Kingdee, and SAP who have been in the industry for two or three decades?

Objectively speaking, this is an expectation mismatch. The group confuses "internal service capabilities" and "market-oriented product capabilities." The correct positioning for the vast majority of digital tech subsidiaries is "group digitalization foundation + common capability center," not a "software product company." Measuring them with the wrong ruler will never lead to a passing grade. It's like asking a cafeteria to win a Michelin star —— of course it will be desperate. It's not that the chef is incompetent, it's that you assigned the wrong task.

III. Third rule of the task: In the morning it must ensure stability, in the afternoon it must go chase orders

This debate points out a deadlock: If you position a digital tech subsidiary as a cost center, "things are mostly fine"; once you add elements of a profit center, "things get complicated."

You must know that to be responsible internally, safety and stability are enough; to chase orders in the market, you have to be as fierce as a jackal. These two identities require completely different capabilities, cultures, and assessments.

But this is extremely dissonant in reality: For example, a certain enterprise's digital tech subsidiary is required by the group in the morning to "fully ensure that internal systems do not malfunction," and in the afternoon is required by a certain leader to "go chase orders in the market to support itself." It's not hard to see that most digital tech subsidiaries, from the day they were founded, have been forced to swing between two roles, and end up living as an unrecognizable oddity.

Digital tech subsidiaries are somewhat wronged to take this blame. It's the group that is swinging on positioning —— you want it to "be yours" (reliable and controllable), and you also want it to "be combat-effective" (profitable and independent), but you never give it supporting mechanisms and resources. Wanting everything at once, you end up with nothing. This is not because employees are not working hard, it's that the task sheet itself is a mess.

IV. Fourth rule of the task: Judge it with emotions, but never give it a measuring stick

Old Yang's analysis found that in the past two years, the entire public sphere's debates about digital tech subsidiaries are not about facts, but about emotions. On one side, people spread rumors and badmouth them, hoping they will close down; on the other side, people generalize from partial facts and negate them entirely.

In fact, more than half of the badmouthing comes from stakeholders whose interests are damaged: Traditional software vendors are jealous that digital tech subsidiaries have taken away group orders that originally belonged to them; of course, some people inside the enterprise also have their own emotions. When emotions mix, rationality becomes scarce.

So how do you objectively evaluate a digital tech subsidiary? Don't listen to emotions, look at three things: How much real money it has saved for the group, what kind of capabilities it has built that cannot be bought externally, and what new businesses it has incubated. If it can show one of the three, it has its reason to exist. But the reality is, the group negates it with emotions, yet never properly gives it a measuring stick.

V. The most critical rule: The task sheet never clearly states "what value you are supposed to create"

The founding of many digital tech subsidiaries is not driven first by "what the market needs," but by "where to place people stuck in the system." The employment systems of some central SOEs and large state-owned enterprises are rigid —— headcounts are locked, salaries are capped, and processes are long. It's extremely difficult to recruit experienced digital talents from the market. What to do? Set up an independent digital tech subsidiary, transfer those people there, and the headquarters only sets requirements while the subordinate enterprise handles the operations —— the so-called "separation of regulation and operation."

The original intention is very realistic: Get the people first, then talk about the work.

But after this step is done, side effects are planted —— a digital tech subsidiary, from day one, is not born out of "customer value," but is forced out by "organizational problems." From its very beginning, it has to answer "how to arrange people and bypass headcount limits," not "what unique value I can create for the parent company that others cannot."

When you ask a digital tech subsidiary "what is your core competitiveness," it often cannot answer —— because when it was founded, no one ever asked it to think this through. Until the group turns around and asks "how much incremental value have you created, how much external revenue do you have," it panics: I was originally just an outlet for organizational arrangements, why are you asking me for profits?

The original sin of digital tech subsidiaries is never that they "want to drift through their days," but that from birth they received a task sheet with no clear goals and full of conflicting requirements. For an organization that has never had its "value" defined, when you later force it to prove its "value," of course it cannot hand in a satisfactory answer.

VI. So they can only survive by "rule of man" and "handling fees"

In the group debates, there is a very piercing judgment: Whether a digital tech subsidiary can thrive often does not depend on the mechanism, but on "people." For example, what the group leader thinks, whether the CIO in charge can secure resources, and whether the games between key people go smoothly, all determine its fate.

When the company's fate is highly tied to a few people's "ability to get things done," can you expect it to build a stable, long-term, market-oriented organizational capability? Hard! Two words: very hard! Three words: extremely hard!

This core business model is often "receive group orders —— subcontract to outsourcers —— earn handling fees." This model is stable, can keep the company alive, but cannot help it build capabilities, and is naturally a hotbed for rent-seeking. To put it plainly, the prosperity sustained by rule of man will collapse once those people leave. It won't be long before the digital tech subsidiary gets optimized away.

VII. A market-oriented way out? Use "Party A thinking" to fight a "Party B war"

Someone offered a very practical market-oriented way out: Don't compete with pure software companies on technology and products. Use your "internal" advantages —— leverage industry experience, group relationships, and the data resources in your hands to get internal "bidding documents," and use these natural advantages to launch a "dimensionality reduction strike" against Party B software companies.

This is thorough "dimensionality reduction for survival." Admit that you can't beat others in the pure tech product market, and use asymmetric resources to carve out your own market.

Objectively speaking, this is the most realistic way of survival for many digital tech subsidiaries right now, and it can make money. But it can never answer a key question: Without the parent company's platform halo, can you still independently create value? The money you earn from leveraging resources can never fill the doubt about whether you are truly competent.

VIII. The most fatal thing: Using "revenue" to replace the concept of "value"

A very realistic problem faced by current internal digital tech subsidiaries is: They must "make money" —— "If you don't make money inside the enterprise, you have to endure unfair treatment; to earn dignity, you have to make money yourself," so "you can't rely on the group's financial support."

Old Yang believes that when the only ruler to measure the value of a digital tech subsidiary is distorted to "external revenue," it will most likely lead to short-term behaviors: Using parent company resources to do "legal rent-seeking" outsourcing, making revenue statements look good, but core competitiveness staying stagnant. Using money to silence doubts is a practical approach, but it may also cover up the internal service and strategic incubation value that it was supposed to take on.

All in all, the root cause of digital tech subsidiaries' collective dilemma right now is not "employees wanting to drift through their days," but unclear role definitions, mismatched capability models, and conflicting requirements in the task sheet. They are neither traditional IT departments, nor pure market-oriented software companies —— they are a species that needs to be redefined. To get rid of the insult of being called a "reseller" and win a dignified survival, the final path is not simply to "make money," but to "make irreplaceable money."

This article is from WeChat Official Account "Xiangjiang Digital Review" (ID: benpaoshuzi), author: Old Yang, published by authorization from 36Kr.