Businesses are constantly seeking new and innovative ways to scale up faster effectively and efficiently. This has given rise many alternate models of operations, including the concept of going asset light. Companies go asset light by owning fewer capital assets compared to their operational assets. By reducing the number of capital assets such as land and building, plant and machinery, cars and computers, companies stand to gain a significant advantage when compared to their competitors who are asset heavy.
Internationally, Uber is a stellar example of successfully implementing the asset light model. The company owns zero cars but invests heavily on technology. Uber is worth well over 50 billion dollars and continues to expand with presence in over 63 countries. Put simply, capital assets could potentially weigh down a company, but investing in technology and talent allows entities to scale up faster and compete with existing players in record time.
How does one go asset light?
Companies have three options to choose from, namely outsourcing, asset sharing and licensing:
- Companies can fully outsource their asset requirements, especially computers, furniture and other office equipment. Recently, companies are choosing to buy cloud space rather than invest in data centers & servers. Outsourcing allows companies the flexibility to update and adapt quickly.
- Asset sharing allows companies to use assets that are shared among multiple entities. From private jets to guesthouses, these assets are used on a semi-regular basis and are expensive to maintain. Sharing assets ensures that companies pay for these assets only when needed and thus, save on maintenance costs. Multiple asset sharing platforms have emerged to aid asset sharing amongst entities and individuals.
- Licensing enables companies to concentrate on their core strength, whether it is manufacturing or ideating. Licenses can be in the form of patents, copyrights, trademarks, design or any other intellectual property. When companies license out their products to manufacturers, they stand to win big financially while continuing to innovate further.
What are the pros and cons of going asset light?
Choosing to go asset light has many advantages, foremost being flexibility. The ability to change and adapt to current market conditions without losing one’s edge is what helps businesses flourish. Being free of non-performing assets, asset light companies are able to focus on partners who deliver to their strategic needs ensuring that man, money and material are better utilized. For instance, a company may choose to invest in the R&D department, instead of investing in a new Data Center, to ensure a steady stream of revenue opportunities. Very simply, when companies focus on their core strengths and invest in them, they are bound to open the doors to new innovations and smarter solutions. Apart from being financially lucrative, asset-light businesses are more sustainable and have a longer shelf life.
However, going asset light is not ‘all business proof’. The model has a few downsides as well. Vendor dependency has the potential to create bottlenecks, any delay in deliverables could spell trouble for the business. Asset light models work best only if a strong strategic plan is in place. The other downside is that this business model allows more players to participate, often crowding the marketplace.
The business world is evolving and going asset light is yet another facet of this evolution. Whether to go asset light or not, it is imperative is to have a long-term goal, strategic plan and necessary review and corrective mechanism, to ensure sustainability and success.