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Predicts 2014: Manufacturer R&D Gets Smarter

About Innovation in the Digitalized Era
Published: 2 December 2013

Analyst(s): Michael Shanler, Marc Halpern

New smart technologies, and an emerging digitally connected R&D

ecosystem, offer opportunities to accelerate manufacturing R&D and
develop innovations to create novel customer experiences.

Key Findings

The cost for a vast array of sensor technologies continues to drop in volume while demand
ramps up machine-to-machine interfaces to create new value in data.

The majority of products already have software elements built into their value ecosystems;
however, attaining a product systems connectivity remains an infrastructure challenge.

Neither IT organizations nor commercial software vendors are fulfilling the needs for scientists
and engineers to share discoveries, knowledge and content efficiently due to inadequate XaaS.

R&D groups are increasingly looking to nontraditional industries to seek out innovations that
can add value; however, efforts are often hindered by legacy processes and technology
collaboration hurdles.

Recommendations

Prioritize R&D IT investments that can create a more system-centric environment for enterpriseand technical-level system engineering, rather than a series of traditional product engineering
environments that cater to specific disciplines. Avoid stand-alone solutions for discrete
projects, if possible.

Embrace new applications and tools that can reduce big data complexity into digestible
components that are relevant to R&D domain issues, rather than just adopting enterprise tools.

R&D should invest in tools to search, organize, analyze and present data collected from smart
objects in manners that identify new business opportunities.

Adopt ideation and collaboration technologies that foster cultivation of R&D findings and
technologies across industries.

Elevate technologies that will enable R&D collaboration on a grander scale, and focus on
enabling a hyperlevel of collaboration to connect any skill set, application or data on demand.

Table of Contents
Strategic Planning Assumptions............................................................................................................. 2
Analysis.................................................................................................................................................. 2
What You Need to Know.................................................................................................................. 2
Strategic Planning Assumptions....................................................................................................... 3
Gartner Recommended Reading.......................................................................................................... 12

Strategic Planning Assumptions

By 2016, 75% of disruptive product innovation will be inspired from outside the innovator's industry.
By 2016, 40% of the products under development will include embedded sensors that monitor and
communicate customer usage data that leverages the Internet of Things.
By 2017, 80% of workflows in electronic laboratory notebooks will underperform due to changing
R&D needs and unsustainable service models, requiring replacement or overhauls.
By 2017, 20% of organizations will heavily rely on XaaS in R&D to support externalized R&D
activities.
Through 2017, only 25% of PLM implementations will be able to carry R&D design insights into
production.

Analysis
Manufacturers that depend heavily on R&D to compete, such as medical device and pharmaceutical
companies, seek new opportunities to rapidly define, deliver and service innovative new products.
While there are many opportunities to leverage new technologies and processes to transform R&D,
many of the technologies are hyped or unproven, and it is paramount to employ best practices
when evaluating them to see if the new technology or idea has tangible value. These challenges will
test IT's ability to deliver value into the new product development (NPD) environment.

What You Need to Know

R&D groups are continually expanding the footprint of knowledge, and almost every industry sector
is leveraging new product technologies from outside their traditional spaces. The very nature of
product development has changed, and now involves new resources from beyond the firewall and
NPD groups. R&D groups need to improve ideas and reduce the technical risks of adapting them to
NPD programs and product pipelines. While every company R&D executive wishes to develop
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disruptive groundbreaking products, most IT infrastructures only prove able to support modest
incremental innovations (see "Business Model Innovation Everywhere"). The priorities of
manufacturer R&D groups and potentials for the application of new technologies shape the
predictions and recommendations in this research.

Strategic Planning Assumptions

Strategic Planning Assumption: By 2016, 75% of disruptive product innovation will be inspired
from outside the innovator's industry.
Analysis by: Michael Shanler
Key Findings:

Many organizations are actively scouting technologies from outside sectors to add value.

The increase in open innovation and crowdsourcing technologies are bringing together diverse
scientific, engineering and software disciplines.

While every company R&D executive wishes for selective "master innovation" capabilities, most
IT infrastructures for R&D only prove able to support incremental innovations or subtle product
improvements.

Market Implications:
Creativity is often based on an unorthodox recombination of knowledge, and approximately 80% of
1

all innovations use given knowledge and put it into a new combination. Already, many R&D groups
are looking for "lateral innovation" or inspiration from other industries (see "Introducing the Gartner
Business Model Framework"). We've witnessed athletic retailers begin to launch health product
lines and wearable devices inspired by mobility and smartphone technology. BMW's iDrive system
and user interface were inspired by the gaming industry. The delineation between telephone, game
console, personal assistant and computer has been permanently erased.
While most industries had been able to provide incremental innovations using technologies and
partners that were well-established within industries, the true disruptive innovations are increasingly
being inspired by technology providers in other sectors. Many leaders are looking to combine
unconventional ideas from other sectors with new seemingly unrelated technologies. This is often
called "cross-industry innovation."
A Gartner client in the consumer goods industry recently suggested that, before 2000, only 5% of
its disruptive innovations were inspired by outside industries. However, by 2010, almost 25% of its
disruptive innovations were inspired by outside industries. The trajectory continues, with software
and data management becoming critical elements of product functionality.
Of the Consumer Electronics Association (CEA) Consumer Electronic Show (CES) "Best of
Innovations" awards, an upward trend in cross-industry innovation is apparent. (Examples of past
honorees include the Microsoft Kinect for Xbox 360, Nest Learning's "smart" Thermostat, Recon

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Instruments' ski goggles with GPS technologies and Moneual's Touch Table PC.) In 2009, 14%
(four of 28) of honorees showed strong design elements and technologies from cross-industries. In
2011, this rate nearly doubled to 37% (10 of 27) and jumped to 46% in 2013 (12 of 26). Granted,
winning design and innovation awards do not translate to commercial success; however, the trend
is undeniable.
By 2020, so many industry lines will have been blurred for R&D groups that some industries will
need to be redefined. Connecting different skill sets and technologies will be central to developing
innovative products. Gartner is also predicting that by 2018, 20% of the top 100 manufacturers'
revenue will come from innovations that are the result of new, cross-industry value experiences.
Recommendations:
R&D IT leaders:

Develop a task force for focusing on cross-industry innovation with clear mapping toward the
business strategy, with IT as an enabler for creating the platform to combine technology, skills
and support ideation. Determine the objectives and business problems that need to be solved
by new technology.

Use IT as a platform to enable R&D to seek innovation opportunities and develop partnerships
supported by effective technology scouting and licensing.

Support collaboration activities beyond the firewall.

Adopt ideation and collaboration technologies that foster "cultivation" of R&D findings and
technologies across industries.

Related Research:
"Business Model Innovation Everywhere"
"Masters of Innovation: What CIOs Can Learn From the World's Best Innovators"
"Top Industries Predicts 2014: The Pressure for Fundamental Transformation Continues to
Accelerate"
"Maverick* Research: How Technology Is Ending the Automotive Industry's Century-Old Business
Model"
"Bank of the Future: Using Innovations From Unrelated Industries to Transform the Business"
Strategic Planning Assumption: By 2016, 40% of the products under development will include
embedded sensors that monitor and communicate customer usage data that leverages the Internet
of Things.
Analysis by: Michael Shanler

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Key Findings:

Consumers increasingly view sensors, miniaturization and automation technologies as desirable

value-adds for products, and these requirements are finding their way into product
specifications at the concept phase of NPD.

The growth in smart objects with sensors that do more than track equipment will provide the
foundation for a broad range of new business opportunities, exploiting six dimensions of
Gartner's business model framework around the Internet of Things (IoT): ideate, create, engage,
offer, monetize and adapt (see "The Internet of Things Will Support a Wide Range of Business
Models").

Many sensor-filled smart objects will enable more than one business goal for example, by
directly enabling a business opportunity and by providing data that can be analyzed to discover
new opportunities.

Manufacturers and service providers in almost every industry are exploring new business
models that will leverage the IoT to create new value streams.

Market Implications:
The IoT is a concept that describes how the Internet will expand as physical items such as
consumer devices and physical assets are connected. More and more sensors and computing
devices are being designed to be embedded into physical items at time of manufacture. Key
enabling technologies include embedded sensors, image recognition technologies, GPS, cellular
communications and Near Field Communication (NFC). The important strategic implication is that
the IoT will enable a wide range of new applications and services for enterprises and consumers.
Manufacturers are excited about the opportunities on the near horizon for monetizing data services
around advertising for "connected vehicles," integrating wireless smart appliances in "connected
homes," and integrating electronic pill dispensers and prescription information for "connected
patients" to drive compliance. Already, 10% to 20% of items costing more than $100 have sensors
embedded in them. Products will see a drastic increase in the number of sensors as the costs and
infrastructures for engineering-in these sensors and smart technology evolve.
We expect to see increased R&D activities around creating products that come with
transformational IoT capabilities. "Mobile no longer" refers only to the use of cellular handsets or
tablets. Connectivity technology is being embedded in many new types of devices, including
pharmaceutical containers and automobiles. Smartphones and other intelligent devices don't just
use the cellular network, they communicate via NFC, Bluetooth LE and Wi-Fi to a wide range of
devices and peripherals, such as wristwatch displays, healthcare sensors, smart posters and home
entertainment systems. The IoT will enable a wide range of new applications and services while
raising many new challenges and creating new intellectual property (IP).
Recommendations:
R&D IT leaders:

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R&D strategists must prioritize adding sensors to equipment, products or infrastructure, along
with communications and control features that can facilitate business innovation. For example,
align sensors with measurable areas that have clear monetization paths (e.g., product safety,
efficiency, performance, customer engagement and so on).

R&D must invest in tools to search, organize, analyze and present data collected from smart
objects in manners that identify new business opportunities while bearing in mind privacy
requirements.

R&D groups must explore the business opportunities that the IoT presents, and prioritize
technology evaluation, capability planning and corresponding due diligence activities for IP.

Related Research:
"The Internet of Things Will Support a Wide Range of Business Models"
"Hype Cycle for Emerging Technologies, 2013"
"Smart Machines Mean Big Impacts: Benefits, Risks and Massive Disruption"
Strategic Planning Assumption: By 2017, 80% of workflows in electronic laboratory notebooks
will underperform due to changing R&D needs and unsustainable service models, requiring
replacement or overhauls.
Analysis by: Michael Shanler
Key Findings:

High-priced electronic laboratory notebooks (ELNs) have been relegated to systems of record in
more than 80% of the instances for capturing intellectual property, and many could be replaced
by alternative technologies.

The vast majority of Gartner clients report that the way ELNs are used is contributing to "dark
data" data that is not searchable or findable and that complicated scientific unstructured
data is rarely repurposed.

Leading laboratory information management system (LIMS) vendors have begun to build in
capabilities that can replace ELNs used for template and workflow automation, especially in
late-stage development. However, LIMSs still lack scientific support and collaboration tools
required for earlier-stage research innovation.

Scientific and experimental big data is not being effectively integrated within the ELNs, as
promised. This complex data is increasingly being handled by more-technically advanced
analytics platforms.

While some ELN companies have dabbled in the compliant manufacturing space, resulting in
successful client projects, there have been an equal number of catastrophic failures, resulting in
strategic re-evaluation.

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Few R&D groups realize the full value of these custom workflows, because the very nature of
R&D is fast-paced change, hence a short life cycle and high total cost of ownership (TCO). Most
organizations see a higher true cost per user than what was originally planned.

Market Implications:
ELN technologies were in vogue for about a decade, as enterprises attempted to build better
scientific decision-making tools for the laboratory. However, most of these systems were installed
with relatively little IT oversight or governance, which is now creating some major problems for R&D
IT organizations. In the future, many legacy ELN systems will need to be heavily customized with
custom workflow automation or templates on top of the base product to stay relevant.
There is already a large separation between capabilities and execution among the top-tier vendors
and the smaller ones. Many Gartner clients, however, are unsure about the ability of even the toptier vendors to support the existing R&D processes; nevertheless, new workflows are on the
horizon. Integration and service firms that cater to the industry will see increased difficulty in
reproducing workflows between client sites because the scientific questions and answers will
increase in complexity. Either internal R&D IT resources or outside service firms will need to be
engaged at a higher rate to adapt these systems to create R&D ROI. While some groups are
currently able to use ELNs with high performance and create insights and analytics, the vast
majority are increasingly being used as systems of record, but are capturing low-quality "dark" data.
Clients and vendors have created this environment through massive amounts of uncontrolled
customization and lack of "guardrails" from a process perspective. It will be important to focus on
improving guidelines for use with internal users to better capture data and metadata on these
systems.
Meanwhile, forces are brewing that will negatively impact the ability of ELN providers, and will
require end users to change their approaches to implementation and management:

The pharmaceutical industry, the primary ELN "growth engine," will curb spending on ELNs.
This will require R&D groups to evaluate technologies and share user community practices
across industry boundaries.

ELN vendors will attempt to make up revenue shortfalls in other industries where they have little
domain knowledge, which will dilute their industry vertical-specific capabilities. Users will need
to plan extra internal or "shadow IT" resourcing to support future change control.

Many ELN vendors still sell "vaporware" and cannot deliver on past promises, and these
reputations will catch up with many of the problematic vendors. As this trend continues, end
users will need to seek expertise elsewhere, especially as it relates to integration.

Low-cost collaborative technology platforms, new methods for recording and sharing IP and
LIMS expansions will soon offer alternatives to the previously best-of-breed ELN technology
space. This will create opportunities for new platforms to displace existing solutions.

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The previous best-of-breed systems will become more "utility" in nature. The "advanced"
capabilities (e.g., analytics, knowledge management), however, will still require a focused and
intense IT spend.

Licensing structures are beginning to erode the revenue base for most of the ELN vendors,
which, in turn, will cause ELN vendors to scramble and push more services (which will
ultimately create more complexity if clients allow it.)

Many stand-alone quality-assurance/quality-control-oriented ELNs used in manufacturing will

be displaced by more suitable and advanced method execution technologies provided by
predominantly LIMS vendors, some of which have introduced ELN modules or capabilities.

While the ELN industry is not dead, the revenue has certainly slowed down. For this reason, many
vendors are headed for "life support" and some key companies will see an exodus of brain power
and services talent in the next 12 to 18 months. This is an important trend to watch. Many
enterprises rely on the vendors to provide services that these organizations lack or for which they
do not have the internal skill sets or shadow IT capabilities needed to sustain the changes required
for their workflows. Gartner has observed the overall level of execution has dropped, and we predict
accelerated erosion for the next two to three years.
Recommendations:
R&D IT leaders:

Only invest in ELN technologies if there is clear value along the lines of innovation (e.g.,
scientific modeling, IP capture), quality (reducing errors, enforcing compliance) and operational
effectiveness (improving laboratory operations and turn-around time).

Identify the "template champions" in R&D, and work with them to build better justifications for
adding more customizations.

As current on-premises ELNs reach end of life, consider replacing them with lower-cost cloudbased solutions or using alternative technologies to reduce the TCO.

For structured workflows and processes, especially for later-stage development, consider using
a LIMS instead. LIMSs offer a better track record for execution and have some method
execution and ELN capabilities. Also, watch for LIMS companies to make key investments that
enable better scientific and experiment-centric data handling.

Related Research:
"Manufacturers Must Consider Scientific Domain Expertise During ELN Selection"
"Product Innovation Requires Laboratory Informatics Systems to Transcend Phases"
"Convergence of Lab Informatics Creates Opportunities for Manufacturer Innovation"
Strategic Planning Assumption: By 2017, 20% of organizations will heavily rely on XaaS in R&D to
support externalized R&D activities.

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Analysis by: Michael Shanler

Key Findings:

The majority of R&D organizations are increasing the number of engagements with outside firms
to perform innovation work for solving complex scientific, engineering and software problems.

The importance and visibility of system-centric approaches to R&D are growing. However, most
internal R&D groups do not have the internal skill sets or technical capabilities to support the
trend.

Antiquated and on-premises NPD applications and R&D platforms are difficult to extend to
outside providers. Many SaaS platforms are not configurable enough to satisfy R&D
stakeholders, requiring changes to platform and infrastructure.

An ever-increasing virtual R&D network requires IT groups to think about connecting skills, data
and applications beyond the firewall; however, existing capabilities for on-demand collaboration
environment elements are lacking for most organizations.

Social tools to enable more-efficient development of more-exclusive research communities

have, for the most part, been deployed at the enterprise level; however, R&D communities, for
the most part, have been neglected.

Recent renewal of organizations' software infrastructures has left IT better prepared to initiate
virtualization and cloud-based services with the management and security tools necessary to
ensure success.

Many organizations had duplicated parts of their infrastructures and applications to assist with
the migration of engineering and scientific data between external parties; however, this
approach is wasteful and difficult to sustain as the number of collaborators increases.

Most collaborations to date involve more asynchronous and document-centric sharing.

Market Implications:
NPD activities driven by R&D organizations have tended to use internal and on-premises systems
and applications, even as workforces have become more distributed. As companies change their
innovation models and start to use more external resources, the legacy architectures are rapidly
becoming obsolete. It is imperative not only to connect internal resources more effectively, but also
to determine how to best engage talent beyond the firewall using cloud and distributed
environments. Given the growing need for external parties to improve connections, collaborative
process of R&D will be efficient only if XaaS (anything as a service) is used to stabilize and support
internal and external processes.
R&D IT will now need to lay the groundwork for shared XaaS with external collaborators. Service
providers, applications vendors and integration firms are beginning to create purposeful technology
stacks for the different subsectors of science, engineering, and process development. Accessing
these stacks will be critical for rapid collaboration.

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R&D problems are becoming more complex, and with a desire to make data-driven decisions,
collaborative R&D groups will increasingly encounter big data problems as it relates to volume,
velocity variety and complexity. Due to this data deluge, especially as it relates to collecting
information in the new IoT world, new collaboration methodologies as they relates to performing
advanced analytics will require a shift away from document-centric and sequential collaboration
environments. Businesses will require collaboration models to be more supportive of synchronous
and data-centric activities in the future.
Recommendations:
R&D IT leaders:

Work with R&D groups to significantly improve the understanding of XaaS opportunities and
gaps along business, operating and technology rules.

Identify areas where current systems are end of life or will not meet expectations for connecting
a globalized and distributed R&D workforce.

Determine where it makes sense to partner and expand XaaS capabilities, and model the
expanded footprint as it relates to R&D business needs.

IT planning managers:

Understand the cost implications of cloud-based platforms. Early adopters have reported less
predictability in the costs because they fluctuate based on demand at the times needed.

Related Research:
"The Nexus of Forces in Consumer Goods Manufacturing: Accelerating Growth in a Connected
Industry"
"User Survey Analysis: Infrastructure Software Budget Remains Constant as Spending Starts Its
Move to the Cloud Through 2014"
Strategic Planning Assumption: Through 2017, only 25% of PLM implementations will be able to
carry R&D design insights into production.
Analysis by: Michael Shanler, Marc Halpern
Key Findings:

The majority of manufacturers dependent on R&D for innovation, particularly those producing
medical devices and pharmaceuticals, report a large gap in needed capabilities to infuse greater
R&D value into NPD.

Product life cycle management (PLM) systems largely lack the ideation capabilities for free-form
design and social elements required for effective collaboration.

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IT used for R&D lacks the scope of content search, capture, collaboration and control
capabilities needed to ensure that the best product ideas are pushed forward to product
development teams.

Software from MathWorks and spreadsheets are the most dominant tools used for scientific
calculations by R&D groups.

R&D groups prioritize access to scientific literature, search capabilities and social networking
across scientific communities.

Market Implications:
Since none of the major PLM vendors will be able to support end-to-end product innovation from
R&D through detailed design, manufacturers will still be manually orchestrating a variety of software
tools, perhaps supported by some interfaces to share data. MathWorks and spreadsheets will
continue to be dominant in technically detailed mathematics, simulations, and other scientific
calculations for R&D. External systems to PLM will continue to dominate scientific needs in
molecular modeling and biochemical simulation (e.g., Accelrys, Schrdinger, Chemical Computing
Group). This is also the case for experimental data acquisition systems, such as laboratory
information management systems (e.g., Labware, LabVantage) and ELNs (e.g., Accelrys, IDBS,
PerkinElmer).
Some PLM vendors, such as Dassault Systemes, will increasingly compete with MathWorks
(primarily MATLAB and Simulink) to perform R&D-related calculations. If serious MathWorks
competition evolves (in addition to Dassault Systemes) by 2017, it is likely to come from vendors
such as Wolfram Research or, perhaps, SAS. In the meantime, PLM vendors will continue to
provide interfaces to MathWorks applications as an attempt to address the gap. Proven search
engines and social tools catering to scientists will remain outside PLM offerings through 2014.
Recommendations:

R&D software strategists should differentiate the tools that scientists need from PLM
capabilities that product strategists, engineers, manufacturing specialists and service
specialists use.

IT managers seeking to improve sharing between scientists and engineers should prioritize
interfaces between PLM applications and scientific applications.

IT managers should enable search tools and social network environments as part of an
ecosystem that orchestrates scientific and engineering activities.

Related Research:
"Hype Cycle for Process Manufacturing and PLM, 2013"
"Hype Cycle for Discrete Manufacturing and PLM, 2013"

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"Four Best Practices When Manufacturers Select PLM Service Providers"

"PLM Drivers and Software Needs in Formulated Packaged Goods Industries"
"A Guide to PLM Providers for Formulated Packaged Goods Industries"

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.
"Gartner Top Predictions 2014: Plan for a Disruptive, but Constructive Future"
"The Disruptive Era of Smart Machines Is Upon Us"
"Hype Cycle for the Internet of Things, 2013"
"Innovation Insight: The 'Internet of Everything' Innovation Will Transform Business"
"Introducing the Gartner Business Model Framework"
Evidence
1

World Academy of Science, Engineering and Technology 74 2013.

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