Developing the right strategy for managing your company’s assets is critical for short and long-term performance. Particularly in the massively uncertain and volatile economic and business environment we find ourselves in now.
History is littered with examples of companies who were caught out when their strategies failed. This could have been due to the company not having a strategy in place, not following a strategy or they never took uncertainty of the future into account when making decisions.
For example, Xerox’s decision in the early 1980s, having fostered the development of the Graphical User Interface (GUI) – windows and menus – bitmapped screens to display graphics and the computer mouse, to not fully commercialise it itself, instead licensing it to smaller, more innovative players such as Apple through a desire to protect its core market, copying and printing documents.
Imagine if they’d kept that asset to themselves? – we’d probably all be using Xerox laptops.
As such hindsight isn’t available when deciding your asset management strategy, instead you need to have a robust decision-making process to manage your assets and the ability to measure and assess your strategic asset decisions at the time you make them.
What is an asset?
Before you start forming an asset strategy, you first need to review your list of assets.
The Oxford Dictionary of Business defines an asset as: “Any object, tangible or intangible, that is of value to its possessor.”
We first think of tangible assets as they’re typically things you can hold or use, such as cash, plant and machinery, buildings or land. They can be put to myriad uses in your asset strategy and each option will result in a different potential outcome for your revenue and profit.
What is an intangible asset?
You also need to list your intangible assets – things you can’t physically hold – such as patents, trademarks, goodwill and brand reputation, because these have and need to be assigned a financial value in your accounts. In 2014, Shell attributed 55% of its market capitalisation to its reputation and brand!
Intangible assets also hold the ability, when used well, to transform the performance and position of your company in its marketplace. Your reputation as a company can be the clinching factor in securing that huge, transformative deal for your company.
On the flip side, BP slipped from 2nd to 5th global oil company by market capitalisation after the Deepwater Horizon oil spill, partly because it had to write down the value of its reputation following its actions in dealing with the incident.
Assets to be considered should also include ones you control, rather than own. This is because what matters in your asset strategy is what assets you can use to further your goals, long and short-term.
Assets and company strategy
Next you need to assess what role each asset plays in your overall company strategy now and in the time period over which you’re looking forward.
Which assets will be critical for enabling success in achieving short and long-term goals?
Will an asset become more or less important to your performance, ability to achieve your goals and meet the needs of your key stakeholders over the period being planned for?
Next, consider if your current strategy is likely to be reviewed or flex to respond to major, temporary or permanent shifts in your marketplaces. With the economic shock the global economy has had this year, this is very likely. You need to consider taking into account future external uncertainties out-with your control and develop asset strategies that deliver on your goals while minimising downside risk.
It’s only once you’ve answered those questions that you can start the process of deciding on your new asset strategy or scenario strategies.
Our 6-Step Framework for decision-making helps you have insight and confidence in those strategic asset management decisions.
So you can avoid becoming the next MBA case study of a failed asset strategy. Get in touch for more information.