Asset Light Strategy !

Agility is key in today’s highly competitive market. If businesses are to thrive, they must be quick and nimble enough to respond to a continuously changing market. An asset-light strategy is exactly what facilitates them to do so. An asset-light approach, also known as business model innovation or ecosystem innovation, comprises moving non-core assets and capabilities to third parties in the larger ecosystem. This is done in order to strengthen the organization and emphasize greater focus on its core capabilities. These business models, that were once thought to be only, a protective technique utilized by underperforming organizations, now, are becoming an essential tool to fuel growth. The not only strengthen an individual entity but also and provide for a sustainable ecosystem of partnerships. Firms use asset-light strategies to gain a competitive advantage, improve financial performance and make better use of capital, while optimizing their customer and shareholder value proposition. When planned and implemented deliberately, these techniques may help decrease complexity, generate new income sources, boost innovation, and increase return on investment. A survey of Fortune 500 businesses by EY and Parthenon, 2021 also discovered a strong link between asset-light business models and higher yearly growth rates. Though the real question for an executive here is whether the Asset base of his organization is flexible enough to take advantage of such market shifts? While an asset-light strategy can create value and reduce complexity, it is a trade-off between owning the assets and transferring them to another party. Though these might include out sourcing, it is more commonly associated with asset divestment through partnerships, joint ventures, or spinoffs. It was also observed that despite existing opportunities, businesses sometimes find it difficult to reflect and change/improved their old business strategies. In addition to finding a suitable partner, structuring the agreement, and deciding long-term governance, 45% of conference attendees at the 2021 AICPA & CIMA CFO conference said that alignment of internal stakeholders was their biggest hurdle to taking the leap. Indeed, examining their capital allocation strategy and going through a process to separate core from non-core assets and capabilities can help them determine where they need to focus more in order to overcome these obstacles and have a stronger long-term perspective. In a February 2021 Ernst & Young LLP asset-light strategy webcast poll, with responses from more than 1,000 C-suite executives, 31% said digitization and technology shifts have prompted them to consider asset-light strategies, 25% said the trigger is imperatives to meet customer demand, and 21% said capital requirements to fuel growth are driving them to consider such strategies.

Asset-light business models are projected to be progressively adopted by enterprises across the value chain well beyond the current COVID-19 crisis. This is in turn to the growing demand for innovation, liquidity, and developing more nimble and robust operational models. The World Economic Forum dubbed the COVID-19 pandemic "a wake-up call for enterprises to establish a strategy to cope with interruptions to maintain business continuity". To over come the pandemic's economic harm and supply chain chaos, several businesses have turned asset-light which enables businesses to not just cut costs but raise cash quickly. Swiggy is a great example of a company that has gone asset-light. While their sole significant investment is in operational infrastructure and delivery vehicles, it purchases all of the products offered by the many restaurants in the operational region. Swiggy, in other words, is reliant on commissions from its affiliated eateries for every order placed, all while allowing customers to choose from their favorite restaurants and providing the food seller with much-needed exposure in its inventory. Despite the advantages of an asset-light approach, a vertically integrated model performs better, particularly where coordination, know-how, speed or information sharing are critical, or when core strategic assets are scarce. Many organizations have attempted to become asset light, but have run into issues with coordinating suppliers and keeping crucial know-how, one such example is aligning economic incentives with suppliers which Lego discovered in 2005 when it outsourced the manufacturing of its high-margin toy items to Flextronics. Lego required high-quality items in large quantities that couldn't be foreseen ahead of time, this requirement clashed with the cost-cutting incentives it was providing Flextronics and thus resulted in the end of collaboration in 2008. By enhancing coordination and knowledge exchange with their partner organizations, companies can go asset light while still reaping the benefits of vertical integration - getting best of both worlds using smart control. McDonald's, for example, tends to associate its former workers to become franchisees and thereby embeds them in the company's locations. McDonald's leases the properties that franchisees use to maintain control of prime locations, which has the added benefit of lowering franchise capital requirements, filtering out people who are more interested in real estate investment than restaurant management, and making it easier to replace franchisees. It also replicates what franchisees do by running some of its own locations, which enables the organization to try out new products and services while also establishing pricing and quality expectations. Despite the fact that McDonald's operates on an asset-light model, these smart-control measures add to the company's asset weight: McDonald's employs 40% more assets per sales dollar than its main competitors, but it routinely outperforms the industry in terms of shareholder return. As a result, becoming asset light is often the best option especially when smart-control strategies can mitigate the inherent trade-offs. Companies may enhance their returns, become more agile, take use of their suppliers' scale and experience and reallocate their operations more quickly as a result of doing so—advantages that are becoming increasingly crucial in today's fast-changing global market.