Outsourcing: Matthew Heim, President of NineSigma (Part 4)

Sramana Mitra: Who is your typical buyer on the customer side? Is it the head of R&D?

Matthew Heim: Most cases, the chief technology officer or a direct report to the chief technology officer. We are starting to sell more to business unit leaders, presidents of business units and chief marketing officers for very early stage market research. In addition to the intermediary type services we do, we also do technology intelligence and develop technology intelligence landscapes for clients. That’s very appealing to senior management and CMOs, chief marketing officers, in our client organizations.

SM: So, you are facilitating outsourcing in the same way that an oDesk or an Elance is facilitating outsourcing through a global market lace. You are, in some ways, facilitating outsourcing through a global marketplace, although your focus is more on higher-end R&D kind of work. Is that an accurate description of your business?

MH: Some people might consider it outsourcing. There are organizations, client organizations of ours that have done away with upstream research, and they depend on open innovation for upstream research. Other organizations use us for problem solving where they have a complete R&D department, both research and development, and they will pull us in when they need an enabling technology that’s outside of their core competency. What they do is use NineSigma to accelerate their own innovation cycle as well as increase their overall capacity to innovate by having access to millions of minds out there that may have not only a solution but also a different way of looking at the problem.

Organizations that exercise open innovation over a period experience a cultural shift within, shifting from I have to be the first one to invent, to hey, let’s open it up to the outside world to be inspired by new thought, new perspectives, and perhaps somebody else has a solution. That causes organizations to change their reward systems, their metrics, and so forth so that they are open. But those who do look at it from a full systems perspective, their success rates are very high.

SM: It’s an interesting concept you are talking about. How much of this is going on in industry today? If you look at the open innovation space, for instance, what is the size of the industry today, and how much market share do you have?

MH: Well, if you look at the entire large enterprise sector of manufacturing companies, because that’s really where its started, there is probably right now about a 35% to 40% penetration rate, not from NineSigma but open innovation in general. A lot of companies will practice open innovation with their existing supply networks and their own ecosystem. Now, companies that still can’t find the solutions that they are looking for they tend to go to the outside and use a company like NineSigma.

Our market penetration in these companies is quite high. We work with probably, off and on, about 350 of the global 1000 companies. Again, that’s an approximation, but it’s pretty close I’m sure. We are starting to make inroads into the mid-market, mid-market is starting to recognize the value of open innovation and starting to invest in open innovation projects. It’s been slow in the uptake, but they are finally starting to get it. The service industry, as I mentioned before, is starting to look into and explore open innovation as an option for conceptual ideas and business model innovation. They are looking for ideas they can create new collaboration platforms to help launch new services within their organizations.

SM: You are about a $25 million company, right?

MH: Approximately, yes.

SM: What percentage of the open innovation market do you think you have? Fifty percent, 25%?

MH: Of the entire open innovation market? It’s very hard to determine because new open innovation service providers pop up every day.

SM: Approximately. Is this a $100 million market? Is it a $1 billion dollar market? What size do you think the market is?

MH: Today it’s probably close to $100 million, but it’s expanding. As open innovation penetrates the industry and more and more people become aware of open innovation, the pie is growing. It’s a moving target for us because it’s so novel.

This segment is part 4 in the series : Outsourcing: Matthew Heim, President of NineSigma
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