McKinsey on Finance

To hear the media expound on the subject, the main source of trouble for many companies of late has been their socalled asset-light business model. Surprised by the rapid unravelling of the recent economic boom, pundits have taken the axe to any strategy developed by the 1990s whiz kids whom they once lauded and now apparently disdain.

In the case of capital-light—or capitalefficient—models, their critique may be too hasty. It is certainly too sweeping. Acting in the best interests of investors includes structuring and restructuring the balance sheet to squeeze all possible earnings from every dollar of investor capital—and it always has. Focusing the investment of capital on those assets where a company’s expertise lets it earn the best return for investors is simply to be capital efficient. While this strategy carries its own risks and limitations, as does any innovative business approach, for many companies it also creates real value and may be the only alternative to stagnation.