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Managing the Whitespace

Thinking out of the box seems to be the mantra for managers and business leaders these days. But how can companies act entrepreneurial when they are programmed to operate in environments with strict policies, focused strategy, and clear authority? In this excerpt from a recent article in the Harvard Business Review, Mark Maletz and Nitin Nohria explore that uncharted territory known as the whitespace.

Managing in the White

The wisdom of the day is that your business is doomed to fail if you don't overturn the status quo. You have to think outside the box, start a revolution, break all the rules — pick your own overheated rhetoric. The assumption is that new value in a company can be created only when people shed their suits, don khakis and Hawaiian shirts, and think and act like the most passionate entrepreneurs. The problem is, they're rarely told when it makes sense to do those things — or how to do them.

We recently conducted a unique research project that tried to fill in those gaps. The project focused on what we call the whitespace: the large but mostly unoccupied territory in every company where rules are vague, authority is fuzzy, budgets are nonexistent, and strategy is unclear — and where, as a consequence, entrepreneurial activity that helps reinvent and renew an organization takes place. The project worked on two levels: trained ethnographers shadowed entrepreneurial managers who were actually operating in the whitespace, while a steering committee of senior organization specialists met with top managers about their efforts to oversee whitespace activities.

As a result, we've seen when it's not only valuable but also imperative to operate in the whitespace — and when it's much wiser to stay in the traditional blackspace. We've also discovered how effective whitespace managers quietly, subtly, and resourcefully lead successful efforts, and how senior executives nurture whitespace projects by putting aside their traditional tools of planning, organizing, and controlling. Finally, we've examined the ultimate issue for any successful whitespace project: Should it be moved into the blackspace, kept in the whitespace indefinitely — or, despite its apparent success, killed off?

Whitespace exists in all companies, and enterprising people are everywhere testing the waters with unofficial efforts to boost the bottom line. The managers who operate in these uncharted seas are often the ones most successful at driving innovation, incubating new businesses, and finding new markets. The task for senior managers is to avoid letting whitespace efforts "just happen." Instead, they should actively support and monitor these activities, even as they keep them separate from the organization's formal work. If companies leave this valuable territory to the scattershot whims and talents of individual managers, they are likely to miss out on many of the opportunities that come from exploring the next frontier.

Moving into the Whitespace
The blackspace encompasses all the business opportunities that a company has formally targeted and organized itself to capture. The whitespace, then, contains all the opportunities that fall outside the scope of formal planning, budgeting, and management.

Whether you're an entrepreneurial middle manager or a senior executive trying to keep an eye on whitespace activities, the first challenge is knowing when it's appropriate to leave the blackspace. The simple truth is that most projects should be conceived, developed, and managed within the organization's formal structures: that's what they're there for. Managers, then, should consider shifting to the whitespace only if one or more of three conditions exists.

Great uncertainty over a recognizable business opportunity is the first condition. We don't mean the garden variety uncertainty that all managers grapple with; successful managers make a career of taking on tough problems, creating plans, building consensus, and moving forward through regular company channels. We're talking about the kind of uncertainty that surrounds, for example, e-commerce, where it's unclear who has the best idea, how it should be implemented, who should be in charge, which unit should house the opportunity — and if taking the time to figure all that out would mean the opportunity would vanish altogether.

The second condition has to do with organizational politics. Sometimes turf battles make it impossible to proceed in the blackspace. For example, we shadowed one manager who shifted to the whitespace to develop a digital version of a product after a powerful senior executive, whose authority derived from an analog version of the product, blocked all formal attempts to create a digital counterpart. At other times, the problem stems from the need to get resources from several groups that are generally uncooperative. In those situations, it's certainly not worth reorganizing around a new opportunity until it's proven viable. An entrepreneurial manager working in the whitespace can often bootstrap resources from competing groups without their formal involvement — and often, even without their explicit approval.

The third condition, linked to the first two, is that the company's blackspace operations are performing extremely well and would likely be profoundly disrupted by the opportunity at hand. In those circumstances, it's too risky to interfere with the existing business by formally redirecting resources. Instead, it makes sense to place some bets on the new opportunity in the whitespace and see what emerges.

Consider how those conditions were at play at a computer manufacturer. The company's senior managers knew they had to act quickly to enter the e-commerce space. But they couldn't agree on the details: which of several competing divisions should own the market, how conflicts over channels would be resolved, how prices would be set, and so on. In addition to these internal questions, the company also faced a high degree of external uncertainty: the market was so new that it offered little evidence about the merits of particular business models.

Managers recognized, too, that blackspace pursuit of e-commerce would most likely get stalled in a battle between the product division and the sales and marketing division. Numerous previous attempts to make peace between these two armies had failed, and many business opportunities had been sacrificed in the process.

Despite these reservations, the managers made one stab at a blackspace effort: they commissioned a task force to study e-commerce opportunities. The task force was quickly bogged down by infighting and conflict. It disbanded several months later after producing a short paper indicating that any e-commerce initiatives at the company would be premature.

The senior executives rejected that response, but rather than try to force a fit between the core business and the new opportunity, they made it clear that people could experiment with e-commerce models in the whitespace. Several managers took up the challenge and began to orchestrate pilot projects. We shadowed one manager who eventually succeeded in becoming the owner of e-commerce in the whitespace.

The computer manufacturer's blackspace operations were designed to sell its boxes indirectly through distributors and retailers. The whitespace manager decided to turn that model on its head by selling bundled products — which included hardware, software, maintenance, and online access — to small and midsize businesses directly through the Web.

Along the way, the manager made several decisions that enabled his new business model to get moving and to reach new customers. Among other things, he won over the product group by selling a significant number of new boxes along with the bundled software and services. And he won over the sales and marketing team by sharing sales credits with it and by agreeing to set the price of the products on the high side, even though that made his own job harder. In the end, the heads of those two groups lauded the whitespace manager for introducing an e-commerce model that did not jeopardize the indirect channel. Moreover, the head of corporate strategy praised him for "saving the company's share of the small and midsize business market, which we were on the verge of exiting."

Knowing when to leave the blackspace is an important first step, but the actual leap to whitespace can be hazardous. It's unfamiliar ground for most managers, and it requires a different way of thinking about how work gets completed, measured, and recognized. The next step is understanding the particular challenges of operating in the whitespace and how to meet them.

Managing in the Whitespace
Although navigating in the whitespace requires a new compass, the rewards from successful voyages can be great. Consider the following examples.

  • An executive at a major global bank developed a virtual trust business that managed assets of more than $1 billion without even appearing on top management's (or financial control's) radar screen. She designed and assembled products and services that had been manufactured for her by the bank's asset management division and sold for her by the bank's retail-banking division. The bank's organization chart indicated that the executive was a bit player without P&L responsibility or staff. And yet she was responsible for the trust business's P&L, and more than 70 people throughout the bank looked to her as their informal leader.
  • At a highly centralized gas and electric utility company, an entrepreneurial executive identified a segment of the utility's clients — mainly universities and hospitals — that needed local fiber-optic networks. Although the company had begun thinking about ways to broaden its business portfolio, fiber-optic networks hadn't even made it onto a brainstorming chart. The executive knew that the company would take months, and in some cases years, to come to any decisions about new products. By leveraging his personal relationships, he managed to pool resources both from key managers across the organization and from a web of external vendors. Over a period of 18 months, he built a $200 million business that used the existing electricity distribution network as the backbone for the fiber-optic networks his clients needed.

Through examples like these and many others, we have identified four challenges faced by managers operating in the whitespace: establishing legitimacy, mobilizing resources, building momentum, and measuring results. The first challenge is peculiar to the whitespace; the remaining three also play out in the blackspace but much differently.

Establishing Legitimacy. Blackspace projects begin with a formal launch, a process that confers automatic legitimacy on them. Whitespace activities don't have that benefit; their managers must work to actively establish their legitimacy at the start if they are to get off the ground. We observed managers using a variety of techniques to show others in the organization that they deserved support.

Some traded on their superior technical skills, which made them appear uniquely qualified to lead an informal project. At a software company, one manager launched a whitespace project designed to enhance a product by allowing it to incorporate images without damaging its performance. The project gained almost immediate legitimacy because the manager was seen as the expert on image compression; whenever questions came up in meetings, senior executives always turned to him for answers. His visible reputation as an expert gave him the clout he needed to lead in the whitespace: senior managers trusted that the new product wouldn't hurt performance, and junior software developers lined up outside his door to work with him.

Other managers established legitimacy by advocating causes at the core of the organization's mission. We saw this at an industrial components supplier that was working to increase its customer focus and become more entrepreneurial. Some whitespace managers there took it upon themselves to introduce lower-end products in a way that would not cannibalize the company's usual high-end share of the market. As they talked about their efforts, they made it clear that they had listened carefully to customers and were working to cut through the company's bureaucracy. In doing so, they occupied the strategic high ground and made it difficult for others to oppose them. A senior manager who became a champion of this new initiative said the team's "willingness to take considerable personal risk by working on something that was important to customers but not yet embraced by management convinced me to support them."

Depending on how whitespace efforts emerge, managers have to walk a fine line in communicating their existence to the rest of the organization and the outside world. Invisibility can protect whitespace managers while they wrestle with how best to operate, but it also makes it more difficult to mobilize needed resources.

Mobilizing Resources. Possessing a degree of legitimacy — even if it is informal — allows whitespace managers to move on to the next task: gathering the resources they'll need to move projects forward. Managers in the blackspace have a clear sense of their budgets and other resources at their disposal; the whitespace managers in our study had to beg, borrow, and steal to get what they needed.

Like fund-raisers at college telethons or on National Public Radio, effective whitespace managers recognize that you can raise a fair amount of money by asking a lot of people for a little at a time. Once people have contributed a little and been embraced as co-owners, they're likely to give again.

The manager who created a virtual trust organization was probably the most ingenious person we observed at bootstrapping resources. Her formal employer, the asset management division, paid her salary. But she obtained the trust's annual budget from a senior manager in the retail-banking division, and she persuaded managers from other units to let her "borrow" 70 full-time people.

She procured all these resources incrementally, getting a part-time person to work on a project here, another there, until she was able to create some value, which she then leveraged to get even more resources and to convert part-timers into full-timers. She spent a good deal of her time mentoring these people, and as a result they became loyal soldiers of the virtual trust. And that wasn't all: the manager also found quick ways to generate revenue on the periphery of her organization by, for example, selling back-office services to units within the bank that were straining in the face of staff reductions.

Managers can bootstrap resources in many ways, but several characteristics are necessary regardless of one's approach: persistence, creativity, and a willingness to work with what you can get rather than what you think you need.

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Excerpted from the article "Managing in the Whitespace" in the Harvard Business Review, February 2001.

[ Order the full article ]

Nitin Nohria is a professor at Harvard Business School.

Mark C. Maletz is a professor at Babson College in Wellesley, Massachusetts.

Welcome to the Whitespace

There are no user manuals for operating in the whitespace. Most managers have to develop their whitespace skills on the job, but we worked with one bank manager to create a set of guidelines for a new hire:

"Welcome to the virtual trust company, Bob. We're delighted to have someone with your experience; it will be an enormous help in pushing things through the 'machine.' To succeed here, you will have to become a citizen of the trust company, the retail bank, and the asset management business. Imagine that you are a watch with the retail bank's face, the asset management's wristband, and the trust company's gears. Here are a few guidelines to help you."

1. Try not to give out more information than is necessary.

2. Leverage your technical expertise whenever possible; offer to take problems off people's hands. If you do, you'll gain control over training, staffing, and target setting.

3. Every time you deal with the retail bank, make them believe they're getting more than they're giving. Keep in mind that the retail bank faces two main problems that I want you to approach as a white knight. First, they have no centralized organization, so they are often in chaos over training, marketing, and productivity goals. If you present them with a plan and offer to pay for these functions, you will gain control of the content, as well as their undying gratitude. Second, their technology is Jurassic. They'll be grateful for any tech upgrades, so we should design and fund a client-profiling system for them.

4. Befriend the retail bank's finance staff. The retail-bank executives hate to make decisions — you know this. They are particularly cautious about decisions whose financial implications are unclear. So use the finance staff to ensure that you are on solid ground regarding the financial aspects of your proposals.

5. Know your financials and have facts at your fingertips. Memorized data will help you in negotiation talks. Always be more prepared than the person across the table.

6. Make yourself highly visible throughout the retail bank. Your levers are expertise in the area of trust, capital, and personal persuasion. Accordingly, most of your day should be spent on the telephone answering questions, doing temperature checks on the staff, and building bridges with VPs and branch managers.

7. Never ask for cooperation; offer people the 'opportunity to participate' in a transaction that will leave them better off.

8. Authority is a weapon of last resort. If you are doing your job correctly, others should be convinced by self-interest. If they resist, examine the situation for communication errors and try again.

"Follow these guidelines, Bob, and you'll succeed both in the blackspace of the bank and, more important, in building an unparalleled virtual trust company in the whitespace."