Relevance of Adopting Right Asset Strategy in Current Scenario
The current global crisis has compelled companies to take a comprehensive audit of their asset strategy. It has exposed the vulnerabilities of asset-heavy business models (such as supply chain disruptions, extreme pressure on the balance sheet, increased risk of obsolescence of fixed assets) leading businesses across industries to reassess their approach towards asset heaviness. Creating agile systems to mitigate risk and reduce operational costs to respond to the changing needs became a mammoth challenge for business leaders across the globe.
Asset-heavy businesses rely on vertically-integrated models that allow superior control over the assets but demand a continuous capital commitment that is unsuitable in the present fast-changing business environment. Vertically-integrated structures follow the traditional approach and focus on owning the production and distribution process as much as possible. The priority under this model is to own the end-to-end process and acquire assets/capabilities.
On the other hand, asset-light businesses function on an access-based model as opposed to a control-based (read ownership) model in asset-heavy businesses. The asset-light approach focuses on acquiring assets and capabilities that are paramount for value creation and customer satisfaction.
As pointed out by Businessworld, emerging businesses like Netflix, Xiaomi, etc. have adopted asset-light strategies (relying on an access-based model) by focusing on striking the right partnerships, and laying down flexible systems (for instance Xiaomi entered the Indian market by striking a strategic partnership with Flipkart to sell its phones online). In contrast, McDonald’s followed asset-intensive strategies to enter global markets decade