NineSigma: Nurturing 'Open Innovation'

Sometimes a company has to go outside its R&D department and tap outside experts. NineSigma CEO Paul Stiros describes how it works

by Jessie Scanlon

As our 10 cutting-edge designers demonstrate, the most exciting work tends to happen in the fertile ground where two or more disciplines overlap. Or where one intrepid designer or team simply decides to combine them. The same holds true in the related world of product innovation, where a company trying to develop, say, a tooth whitener might borrow from the bleaching experience of a laundry products expert. Or a team trying to develop a product that would keep a cotton shirt wrinkle-free might find the solution in the lab of a professor studying polymers related to the semiconductor industry.

The latter happened a couple of years ago at Procter & Gamble (PG). And while it might seem like a rare case of serendipity, finding the solution to an R&D problem in some far-flung field is not uncommon. At least that is the lesson of NineSigma. The Cleveland-based firm was founded in 2000 to help companies take advantage of "open innovation"—the practice of companies going outside of their own R&D departments and tapping the thousands of independent inventors, university researchers, and other knowledge holders for solutions.

In other words, NineSigma—like competitors InnoCentive (the Eli Lilly (LLY) spin-off) and YourEncore—is a broker in the business of sourcing ideas and, says President and Chief Executive Paul Stiros, a former director in P&G's Corporate Innovation & Knowledge Group, the "solutions come from places you'd never have imagined."

It was NineSigma that, by sending a request out to its network of 1.5 million experts (who are free to forward the request to still more experts), found the semiconductor expert who solved P&G's cotton wrinkling problem, and the company tackles similarly tough problems for companies such as Unilever (UN), General Mills (GIS), and Johnson Controls (JCI). "Many companies come to us out of frustration," he says.

BusinessWeek.com senior writer Jessie Scanlon sat down with Stiros at a conference in Boston in May to talk about the advantages—and potential stumbling blocks—of a cross-disciplinary approach to problem-solving. Edited excerpts of their conversation follow.

Why should a company pursue an open innovation strategy?

Here's one example of the benefits. We had a client who was selling laundry detergent in prepackaged pouches. The problem was that the plastic pellets holding the liquid detergent were leaking, staining the packaging, and so sales were tanking. The company had its packaging people working on it, the manufacturing people were working on it, the supplier of the plastic pellets was working on it, and no one could come up with a solution. Our search turned up a small, unheard-of company in Britain that was packaging agricultural concentrates—herbicides, pesticides, that kind of stuff—in a similar type of film. They had had, and solved, a similar problem along the way, and their solution could be adapted to our client's problem. So our client's solution came from a company that no one had heard of in an unrelated industry.

So after trying and trying to invent the solution, it turned out a solution was already out there, waiting to be found. Could the same be said for many of the problems that companies are spending millions to solve?

Yes. The world of knowledge is quite opaque: The people with the problem don't know where to look for the solution. So they spend a lot of money and time discovering something that's already available.