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Cost escalation for many complex defence equipment is arguably not sustainable. Customer driven requirements have led to an exponential increase in costs by pushing frontiers of technology to support primarily incremental improvements of traditional equipment concepts. Accordingly, affordability has become a more discussed subject in defence acquisition. This paper addresses the process of generating complex defence equipment concepts. The purpose is to explore how affordability is managed in that process and to identify possible leads to how an unsustainable cost escalation for this type of equipment can be curbed. This is done by studying two cases of concept generation of future combat air equipment systems from a company process perspective. This applied micro perspective on cost escalation showed that none of the concepts generated in these two cases were assessed to curb the cost escalation. Further, the innovation model for the generated concepts, with only one notable exception, was incremental. Nevertheless, the empirical observations from these two cases offer leads on how to potentially foster a more innovative and affordability-oriented concept generation process for future defence equipment, as well as indicating avenues for future research.

This study originates in a recognised unsustainable cost escalation for complex defence equipment. In order to understand how such cost escalation for complex product systems (CoPS) can be avoided, this study comparatively explores four different industrial sectorsenergy, transportation, healthcare and defencewith and without intergenerational increasing costs, represented by four international companies. The results, collected from studying the development of one of each company's products, reveal some characteristic differences in market factors between those sectors and companies having problems with intergenerational escalating costs and customer affordability, as compared to other sectors and companies. It is suggested that dependent on market characteristics, it might be necessary to actively manage affordability when CoPS are developed. Efforts made by the companies to make products more affordable were identified, and several factors enabling and disabling the development of less costly products without compromising customer needs were explored. Further, the implications of affordability management in a CoPS setting are elaborated on.

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