In this extract from the AICD publishing imprint’s latest title, Asset Management for Directors, author Monique Beedles discusses a novel approach for generating value from underutilised assets.
When assessing the value generated from a company’s assets, the board should consider the level of underutilisation and see the optimal release of value from these assets as a strategic imperative. In many cases the board may not be aware of situations where assets are underutilised, so this is an important question to ask of management. Seeking novel ways to exploit the company’s assets should form part of the strategic discussions between board and management. Where assets cannot be fully utilised or cannot generate an acceptable return of value to stakeholders, decisions around selling, improving or redeploying these assets should be made in light of the company’s strategic objectives.
E-commerce platforms as tools for improved utilisation
“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate,” writes Tom Goodwin, Senior Vice President of Strategy and Innovation at Havas Media.
Underutilised assets provide an opportunity to unlock value at little or no additional cost. As digital and e-commerce platforms have developed, they have provided new opportunities to exploit these underutilised assets for the benefit of the asset owners, their customers and third party service providers.
Examples such as wotif.com and lastminute.com illustrate how underutilised assets can be accessed through digital platforms that make availability transparent on a real-time basis. These platforms make it easy for hotels to list their unbooked rooms at a discounted rate. For the hotel it’s better to rent the room at a discounted rate than to let it go empty. For the customer there is the benefit of accessing a hotel room at a discounted price and for the platform provider a fee is earned for facilitating the transaction.
Creating value in the sharing economy
Companies in the so called ‘sharing economy’ create a market that releases the latent value in underutilised assets. Examples such as Uber and Airbnb have generated headlines and substantial interest, as they disrupt existing business models and pose a threat to entrenched monopolies and ‘old school’ ways of operating.
The concept of individuals earning money from underutilised assets, such as renting out a spare room, is not new. However platforms like Airbnb create networks of such assets that make the process easier, cheaper and more transparent.
A viable business model can be built through the facilitation of transactions in underutilised assets because the volume of transactions is high. This creates economies of scale for the asset owner, the customer and the platform owner. The creator of the platform earns a fee for the use of the service that connects those who have underutilised assets with those who are willing to pay for access to them.
Access to such a service provides supplementary income to the asset owner, which can in some cases add considerably to the income they would otherwise earn from the asset. The concept works because the customer derives value, either from discounted prices or access to assets not previously available to them.
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