Innovation in Limited Markets: Managing PCP Projects in the UK Defence Industry

This chapter will outline guidelines developed to both support and enhance innovation within the context of procuring complex performance (PCP) contracts. Such contracts are currently being employed across a range of sectors where limited market conditions exist. Such contracts and market conditions are set to remain the dominant form of defence procurement strategy for the foreseeable future. The case of the Typhoon combat aircraft programme is presented as an example of a typical, large-scale, complex procurement programme for the defence industry. The MoD and the UK defence industry have developed new, contractual models for procuring complex equipment, such as aircraft and naval ships. These models involve the contracting for complex performance, which has changed the paradigm in the relationship between the customer(s) (MoD, UK Armed Forces) and the supplier (UK Defence Industry). Outcome-based contracts for procuring complex performance (PCP) have been employed widely by the defence industry and other sectors in limited or oligopolistic markets. Ten theoretical propositions are presented in this chapter, to help us discuss PCP contracts. The literature review will include servitisation, complex performance models and discuss innovation strategies in the context of limited markets. Lessons learnt from the case, and guidelines for enhancing innovation are presented.