Asset Light Business Model
The Covid-19 pandemic threw the global economy into chaos. There was a massive decline in economic activity because of impaired…
January 12, 2022 | 4 mins read
The Covid-19 pandemic threw the global economy into chaos. There was a massive decline in economic activity because of impaired production lines, budgetary shortfalls due to reduced taxes, disrupted supply chains and restrictions on travel. Businesses had to re-evaluate strategies and make necessary upgrades that were long overdue. As a result, embracing technology and digitization became a common way to streamline operations and target newer customer segments. Other organizations looked towards an asset-light strategy to reduce operational costs and increase market scalability in volatile conditions. Adopting such a business strategy is more likely to help an organization achieve higher valuations and higher total shareholder returns.
An asset-light business model is one where organizations own fewer capital assets compared to the value of their operations. It’s usually adopted by startups since it offers better growth than traditional models. Owning operations and outsourcing non-core processes can prove especially beneficial for startups in scaling up and rapid expansion of business.
Having assets and a strong target operating model can give organizations total control and decision-making independence but the sheer amount of capital that’s involved makes it difficult to adapt to dynamic markets. An asset market model offers flexibility, which helps it survive challenging conditions as long as the quality is maintained. Here are some of the characteristics of the asset-light strategy:
Market players are increasingly looking to step away from the asset-heavy models. It can weigh down an organization by making it slow to respond when the market experiences change.
An asset market model is a sustainable strategy that brings flexibility and commercial acumen for responding to changing market demands and adapting to unforeseen conditions. These are some of its advantages:
For asset-light businesses, scalability often comes with technology. Leveraging the right technology presents an accurate and detailed insight into an organization’s business, streamlines operations and maximizes efficiency.
This model allows businesses to reach newer locations with ease. Outsourcing, resource sharing and licensing give them financial freedom. More resources and time can be dedicated to R&D for potential markets and strategizing potential services, products or partnerships. Here are some organizations that took advantage of the asset-light model:
Swiggy is a classic example of an asset-light model. Its major investment is for operational infrastructure and delivery vehicles as it procures every product it sells from different food outlets and restaurants in an operational area. The restaurants that it partners with pay a commission for every order. Simply put, Swiggy sells a vast variety of foods without owning a single restaurant.
Grofers is a platform for grocery delivery. Its on-demand delivery policy negates the time-consuming ordeal that customers face at shops. Grofers connects the nearest delivery personnel who buys the items from the marketplace and delivers it to the customers. They rely on tech and don’t have to worry about warehousing and storage.
Uber is one of the most popular businesses running on the asset-light model today. It’s a cab-hailing platform that connects a passenger with the nearest driver. Uber neither owns a single cab nor employs any driver. They work on contracts that give Uber a percentage of the revenue generated from each ride.
There are several principles that go together with an asset-light business model, which helps businesses incorporate it in remote work strategies and maximize success.
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