9 minute read 26 Mar 2021
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How asset-light strategies and models can boost business growth

Using asset-light business models can fuel growth and strengthen financial results.

In brief
  • The recent pandemic has prompted companies in all sectors to consider asset-light strategies to fuel growth and strengthen financial performance.
  • Companies that adopt asset-light strategies may achieve higher total shareholder returns and higher valuations, EY research shows.

Once seen as just a defensive tactic used by underperforming companies, asset-light strategies and business models are now becoming an essential tool to fuel growth and strengthen an ecosystem of partnerships. Recent Ernst & Young LLP research indicates that regardless of market position, an asset-light approach can help companies achieve higher total shareholder returns (TSR),1 among other financial benefits.

An asset-light strategy or business model involves transferring capabilities, such as people, process and technology, to “better owners” in order to enable companies to transition fixed costs to a variable cost structure, enhance agility, and facilitate a shift of resources that allows a focus on core capabilities.

“Today, companies of all types and sizes are using asset-light strategies to deal with massive market disruption and drive continued growth,” said Willem Appelo, former Worldwide Vice President Supply Chain, Strategy, Innovation and Deployment, Johnson & Johnson, and a leading authority on business transformation. “C-suite executives are taking this moment in time to review business models, assets and partnerships as they prepare their businesses to move forward post-pandemic. To remain competitive, they must make changes irrespective of their financial position,” he added.

The current COVID-19 crisis has prompted companies to conduct a comprehensive review of business portfolios and make long-overdue operational changes. Companies are also adopting an asset-light model to navigate market conditions.

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.

Today, companies of all types and sizes are using asset-light strategies to deal with massive market disruption and drive continued growth.
Willem Appelo
former Worldwide Vice President Supply Chain, Strategy, Innovation and Deployment, Johnson & Johnson

EY Asset-light survey result

Analysis shows asset-light companies have outperformed their peers on total shareholder return over the last five years.

More than half of February 2021 webcast respondents believe that digitization and innovation are the key drivers for considering an asset-light strategy.

What disruptive forces are driving you to consider an asset-light strategy

How asset-light models can be a strategic tool to build innovative, agile ecosystems

At its core, asset-light is about creating mutually advantageous partnerships that allow all parties to focus and manage the capabilities they are best at while creating greater profits and shareholder value for the benefit of all partners in a business’s ecosystem.

In addition to total shareholder returns, there may be other financial benefits. For example, another recent Ernst & Young LLP study found that companies that transitioned manufacturing ahead of a sale were 17 percentage points more likely to exceed expectations on the valuation of the remaining businesses and were more likely to exceed expectations on the price of the divestment.2

However, an asset-light business model is by no means exclusive to supply chain areas such as manufacturing and distribution assets. It can help extract value from other value chain areas such as the front office, including R&D, sales and field operations, as well as more traditional back-office functions such as information technology, infrastructure and procurement.

Where do companies realize asset-light model benefits?

Where do companies realize asset-light model benefits

Analysis shows asset-light companies outperform peers on total shareholder return

Ernst & Young LLP research of US Fortune 500 public companies across several sectors shows that asset-light companies achieved a greater total shareholder return when compared with their asset-heavy peers. We define asset-light companies as those that have a five-year property, plant and equipment (PPE) to sales ratio average lower than their respective sector mean. On average, the asset-light companies outperformed their asset-heavy peers by four percentage points in the last five years of total shareholder returns. Sample selected sectors are highlighted in the graphic below.

Asset-light companies outperform their asset-heavy peers

Cross sector analysis of five year tsr cagr

Is an asset-light model and strategy the right answer for your company?

Companies typically begin their asset-light journey by identifying which assets and capabilities are core to delivering value to their customer base right now. For example, sellers may find a path to greater operational agility by transitioning their manufacturing operations to a contract manufacturer rather than carving out an entire business unit and disposing of a valuable brand.

Others, due to their experience with the COVID-19 pandemic, may look to build redundancy in key business processes but choose an asset-light path, including joint ventures (JVs) or other partnerships that avoid a balance sheet impact.  Still, other companies that are intensely focused on reducing costs may want to reduce complexity and release capital by transitioning key pieces of their support operations, such as inside sales, to an external partner.

Overall, companies should begin by asking several key questions including:

  • Is your company performing at its full potential — on growth, margin, return on invested capital (ROIC) and total shareholder returns metrics vs. peers? Is there an opportunity to perform even better?
  • Do you have businesses or capabilities that need to be retained or non-core assets that may have a better owner in the marketplace?
  • Can you create a greater focus in your organization by retaining your core capabilities only?
  • Is your business model adequate for the products and services you sell in various markets?
  • Have you undertaken any significant business model transformations (e.g., third-party partnerships, JVs) in the last two to three years?

Based on the responses to the questions above, companies should conduct a rapid analysis on three levels:

  • Markets – determine which markets or geographies to play in
  • Product and service – determine the right business model(s) based on respective product position(s) and marketplace offerings
  • Capabilities – determine which capabilities are core and which are not

Full Potential Paradigm review

Full potential paradigm review

The Full Potential Paradigm is EY-Parthenon’s proprietary tool that provides an objective and quantitative point-of-view to set performance targets, prioritize investments and mitigate risks.

Choosing the product category can help determine focus

Capability-level analysis for the chosen product category can help determine the right focus areas, what is possible for that capability set and the right partnership model (e.g., JV, spin-off, partnership, sale-leaseback). Capabilities are assessed in terms of the relative strategic value delivered to the customer and the company. We have observed four primary dispositions:

  1. Core capabilities (top right of the chart below) – These are critical capabilities that are usually ripe for growth and innovation. In other words, if your company doesn’t have these in-house today, executives may consider proactively looking for players to help fast-track innovation.
  2. Non-core capabilities (bottom left) – In this quadrant, it often advantageous to actively package assets and capabilities and look for a partner that can operate these more efficiently and allow the company to focus on other “core” areas.
  3. High value corporate capabilities (bottom right) – These are of high strategic value to the company, but the customer doesn’t place an equal degree of value on them. With these capabilities, traditional cost and capital optimization efforts generally deliver value. However, it is important to keep these capabilities on the radar for potential future deals.
  4. High value customer capabilities (top left) – These capabilities are of high strategic value to customers. If they’re not available in-house, the partnership should be structured such that the company has a significant influence to drive high quality and service levels.

Capability map analysis

Capability map analysis

Note that a capability non-core to a company can be core to another, which creates the “win-win” situation for all parties.

In the Ernst & Young LLP February 2021 webcast poll, 34% of executives said enabling functions would be most suitable for an asset-light strategy, followed by middle office at 22% and front end at 24%.

EY asset-light strategy survey result

Capability level assessment diagram

Asset-light strategy journey

A typical asset-light journey can take 12 to 18 months. However, a rapid four- to six-week effort to short-list target capabilities can place companies on the right path to conduct an ecosystem scan for potential partners and build a business case that demonstrates the benefit. 

Asset light journey for target capabilities

Asset-light lessons learned from the field

For companies undergoing an asset-light review and transformation, developing consensus and buy-in among key internal participants can be challenging.

“In my experience, there’s often tension within companies when undergoing an asset-light assessment. For some people, this is a controversial subject. It’s sometimes viewed internally as a defensive move — a way to cut costs and drive earnings quickly. In reality, this is about making smart choices and better companies. It can be a real win-win,” says Appelo.

February 2021 webcast participants also shared their biggest challenges related to executing an asset-light strategy, with 31% saying finding the right partner is the biggest challenge, 27% saying structuring the deal or partnership, and 25% saying aligning internal stakeholders.

Companies that embark on this journey with strategic partners should prepare for how to manage barriers. Key considerations include the following:

Scoping and evaluation

  • Evaluate all products and services, businesses and capabilities, and geographies — nothing should be considered sacred.
  • Build and monitor the joint business case with various scenarios, covering multiple years and several iterations of proposed “transfers.”
  • Properly weigh benefits (e.g., cash release, return on assets improvement and reduced complexity) with operational challenges and risks (e.g., quality, disconnect with customer and brand image).

Deal structuring and enablement

  • Determine carve-out considerations for the seller and stand-alone integration activities for the buyer to allow for a smooth transition.
  • Prepare required opinions, operating manuals, documentation and commercial legal agreements to activate the new inter-company operating model.
  • Consider go-forward transition service agreements, take-or-pay arrangements and intangible asset valuations as part of divestitures.

Tax and accounting

  • Consider the operating model impact in asset-light environments from a tax (direct and indirect) perspective, including value-added tax, payroll registration, income tax and customs, global asset sales and currency impacts, preserve and extend tax rates, etc.
  • Evaluate the financial impacts of the deal to avoid surprises on go-forward reporting, including cash flows and accounting considerations for both the buyer and seller.
  • Structure asset sales in a tax-efficient manner. Consider the degree to which the continued dependencies in the operating model (e.g., outsourced manufacturing) create “control” from a tax perspective with the associated requirements of arms-length transfer pricing.

Collaboration and governance model

  • Collaborate early with your asset-light partner on the future state operating model and governance with a common vision (e.g., greater speed-to-market, overall costs reduction).
  • Clearly define the partner pricing mechanism and method for tracking value levers — both quantitative and qualitative to avoid long-term price arbitrage.
  • Avoid unnecessary or redundant oversight, controls and incremental costs.

EY asset-light survey result

What do you think are the biggest challenges related to executing an asset-light strategy?

Nearly a third of February 2021 webcast respondents believe that finding the right partner is the biggest challenge.

Biggest challenges related to executing an asset light strategy

Lastly, it is important to note that the strategic, financial and operational objectives for sellers and buyers may differ in a transaction. One party may be focused on improving return on invested capital and releasing capital for redeployment, whereas the other may be focused on improving the overall operational efficiency and utilization of assets. Knowing each partner’s value drivers before an arrangement not only speeds the process but allows both parties to achieve their often unique and potentially divergent desired outcomes.


Asset-light business models are expected to be increasingly adopted by companies across the value chain well beyond the current COVID-19 crisis. This is in response to an increasing need for innovation, maintaining liquidity, and building more agile and resilient operating models. When all partners in an ecosystem work together to create customer value – with capabilities aligned to better or best owners – it creates a winning value proposition for all participants. Companies that proactively seek out opportunities can benefit from a first mover’s advantage and, ultimately, create a competitive differentiation to outperform their peers.

Thanks to Wim Appelo, former Worldwide Vice President Supply Chain, Strategy, Innovation and Deployment, Johnson & Johnson, and a leading authority on business transformation, for his contributions to the article.

Ambar Boodhoo, Venkat Maddila, Ben Hoban and Harish Kumar also contributed to this article.

Using an asset-light strategy for growth

Watch our webcast (US) to discover how companies are using an asset-light strategy to gain a competitive advantage.

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Companies in all sectors are considering asset-light business models in response to the recent pandemic, as well as to drive growth in the new decade. At its core, asset-light is about creating mutually advantageous partnerships that allow all parties to manage the capabilities they are best at while delivering stronger financial results and shareholder value for the benefit of all partners in a businesses’ ecosystem. By following simple steps, companies can jump start their asset-light journey and prepare to meet today’s challenging market environment.