Why the 21st century will be the Worst Century for Stranded Assets

Exploring the Resounding 21st Century Issue of Stranded Assets in Companies and Organizations of All Sizes in Every Industry

Stranded Assets Definition

In the business world, stranded assets refer to assets that have suffered from a significant reduction in value or become obsolete prematurely. These assets can no longer generate the expected returns or serve their originally intended purpose. Stranded assets can affect various types, including physical, financial, and non-tangible assets. This phenomenon often occurs due to changes in market conditions, technological advancements, regulatory shifts, or consumer preferences. Companies of all sizes and industries will need help managing stranded assets.

Why the 21st century will be the Worst Century for Stranded Assets

The emergence in early 2023 of generally available Large Language Models and Generative AI took most people by surprise. The overarching impact of these technologies will be to supercharge the creation of stranded assets. Generative AI is the icing on the Polycrisis cake.

The generally recognized definition of a Polycrisis is the simultaneous occurrence of several catastrophic events. Building on this, most experts agree that it tends to refer specifically, not just to a situation where multiple crises are coinciding, but one where the crises become even more dangerous than each disaster or emergency on their own. While the term seems to have become a must-use buzzword since this year’s Davos forum, it appears to have been around for quite some time, initially used by French philosophers Edgar Morin and Brigitte Kern in 1999 in their book ‘Homeland Earth: A Manifesto for a New Millennium’.

Furthermore, not-for-profit think tank, The Cascade Institute, describes a global Polycrisis as being ‘when crises occur in multiple global systems and become entangled in ways that significantly degrade humanity’s prospects.’ It is commonly considered that the best way to tackle the impending risk is to understand the effects of the events holistically.

Stranded assets are defined as having significantly lost value or becoming obsolete prematurely, affecting physical, financial, and non-tangible assets. These can arise from market changes, technological advancements, regulatory shifts, consumer preferences, or a combination of these factors.

Stranded assets profoundly impact companies and economies, affecting financial performance, competitiveness, and sustainability. They burden the balance sheets of private and public organizations, tie up capital, erode profits, and hinder investment and financing opportunities. Additionally, stranded assets impede a company’s ability to adapt to market dynamics and capitalize on opportunities, leading to a loss of market share and competitive disadvantage.

Notable case studies include:

1. The energy sector, where fossil fuel-based assets are becoming less valuable due to renewable energy adoption.
2. The retail industry, where brick-and-mortar stores face obsolescence from shifting consumer behavior.
3. The technology sector, where outdated products and services result in stranded assets.

To avoid these risks, leaders of companies must proactively evaluate assets, attempt to anticipate industry shifts, and be prepared to make strategic shifts in their focus. Understanding and managing stranded assets is crucial for long-term business sustainability.

Impact of Stranded Assets on Companies

The impact of stranded assets on companies can be profound, affecting their financial performance, market competitiveness, and long-term sustainability. When assets become stranded, they likely burden a company’s balance sheet, tying up capital and eroding profits that could otherwise be invested in more productive ventures. Also, stranded assets may hinder a company’s ability to attract investment or secure financing, as external stakeholders see them as less valuable.

Moreover, stranded assets can undermine a company’s ability to adapt to changing market dynamics or capitalize on emerging opportunities. This inability to transform or pivot effectively can lead to a loss of market share and competitive advantage. Companies that fail to address stranded assets may play catch-up as their competitors leverage new technologies, adopt more sustainable practices, or respond swiftly to evolving trends.

Case Studies of Stranded Assets in Various Industries

Stranded assets have the potential to impact businesses across every industry, including Government. Here are a few notable case studies that highlight the diverse nature of this issue:

Energy Sector: The transition towards renewable energy sources and increased efforts to combat climate change has resulted in significant stranded assets in the energy sector. Traditional fossil fuel-based assets, such as coal-fired power plants or oil reserves, have become increasingly risky and less valuable due to regulatory changes, evolving public sentiment, and the declining cost competitiveness of renewable alternatives.
Retail Industry: With the rise of e-commerce and changing consumer behavior, many companies in the retail sector have encountered stranded assets. Brick-and-mortar stores and shopping malls risk becoming obsolete as more consumers prefer online shopping. Companies that have heavily invested in extensive physical store networks and then find they need to adapt to the digital era rapidly will find their assets stranded and unproductive.
Technology Sector: In the rapidly evolving technology sector, companies can face the challenge of stranded assets when their products or services become outdated. For example, technology companies must constantly innovate to stay ahead of the curve and meet changing customer demands. Failure to do so may result in stranded assets, such as outdated software platforms or hardware devices that are no longer in demand.
Commercial real estate: the COVID pandemic prompted a major shift in how knowledge-worker employees value their time and learned that they don’t need to commute to an office to do their job. Since we transitioned from a COVID pandemic to a COVID endemic, the lifestyle decisions of employees stayed the same, with the result that up to 50% of office space assets are empty, with a strong likelihood that those assets are stranded.

These case studies showcase the need for companies to proactively evaluate their assets, anticipate potential shifts in their respective industries, and make strategic decisions to avoid or mitigate the risks associated with stranded assets.

In conclusion, stranded assets are a critical consideration for business owners and governments across all industries. Understanding the definition and impact of stranded assets is essential for successful asset management and long-term business sustainability.

What is very clear is that the 21st century will be the most challenging in the history of capitalism. The issue of stranded assets is just another thread in the Polycrisis quilt.

About the author: Greg Twemlow, CEO, Future Skills Studio

Develop Skills ~ Design Your Future

Email: info@futureskills.studio — phone: +61 412 555 416