Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE credits
Companies are continuously striving for saving more money in order to maintain and gain market shares as well as their competitiveness. This can be gained through better understanding for how value is created and generated and which value adding aspect to consider while purchasing a product. The concept of Total Value of Ownership, TVO, incorporates Total Cost of Ownership, TCO, as well as value adding aspects. Research initiatives have been conducted within the area of TCO but little research has been focused on revealing value adding aspects. Therefore it is of interest to find which value adding aspects that are considered to be the most important ones while purchasing a product. This thesis was initiated by Ericsson with the aim at placing the concept of TVO and value adding aspects in relation to purchase of software.
The objective of this study is to address the issue of how value is created and to reveal which value adding aspects that are considered to be the most important ones while selecting and purchasing software in relation to the concept of TVO.
This master thesis is conducted through a literature study and a case study at Ericsson, including a combination of interviews and a survey. Two expert interviews were also conducted and the thesis is of qualitative manner.
TVO is a philosophy which aims at understanding the total costs and value contributions of a purchase from a particular supplier. TVO recognizes that value goes beyond cost and working capital improvements to include elements that contribute to social, environmental and innovations agendas and is related to the question; “How will this create value for our customers?
The result shows an unclear distinction between the value adding aspects to consider while selecting and purchasing software. The four aspects that were considered to be the most important ones can though be extracted and are; (1) Reducing vendor lock-in, (2) Decreased operating costs for buyer’s customer, (3) Decreased operating costs for buyer’s customer and (4) Lowering the risk associated with purchase of software. The two most salient value adding aspects are; Fit between supplier’s offering and buyer’s demand and Reducing vendor lock-in. The findings also reveal a non cohesive view on value and what should be included in the concept.
The conclusions of the study are that TVO enables better understanding for the costs and value associated with software. By taking in consideration both TCO and value adding aspects a product’s total value of ownership can be estimated. Questions regarding value and value adding aspects have not gained a lot of attention within the organization. There is though a willingness to try to adapt this philosophy as a part of the sourcing process which is also a trend generally.
Concluded is also to have a cohesive view on the concept on value and have a holistic view on the value chain in order to be able to understand the total value of a software. A long-term commitment and engagement from involved parties within the organization is essential while implementing TVO.