Lateral Sands Managerial Operation and Challenges Therein – Business
Executive Summary: Scott Goodheart, The CEO of Lateral Sands was interviewed in regard to managerial operations within the company. With much experience under his belt he was able to explain many intricacies of the present and future of the company. Lateral Sands, an engineering
services company, has been in operation for approximately 5 years and have reached a stable point where enough business is supporting the company. Although there are always challenges to be overcome, they are planning to expand to meet future market needs.
Expansion opened many doors and mindset that need to be considered. Scott, having done much research in the area has contemplated opening a research centre in India. After much consideration, Scott and his upper level management, they plan to have the centre operational by the end of next year. The expansion will enable most of the ‘grunt’ work to be done via cheaper Indian engineering and will enable higher-level engineering and project management to be effectively utilized. Being the CEO of the company, Scott has had to contemplate the pros and cons of this expansion. From our conversations, I feel that they may expand from a services company and jump into product manufacturing. Although I do not foresee it in the immediate future, I think it is very much a possibility.
Scott manages the business in a very peculiar way. By keeping his employee base as happy as possible (within reason of course) and by treating them as equals with encouragement on their self-management, he is able to successfully operate. By keeping his employees happy, he is able to extend the time they stay with Lateral Sands, and in turn this increases productivity (people know each other and work well together) and efficiency. Overall, the environment he tries to create is his way of creating boundaries while encouraging innovation.
Lateral Sands, an engineering services company, founded in 1999 by a group of highly experienced professionals in hardware, software and technology management, was the company of my choice for this case study. Scott Goodheart, as depicted in Figure 1, is the Chief Executive Officer for the company and the interviewee. A BEc and MBA graduate has led to an extensive financial and project management background, with experience ranging from corporate banking (NAB – National Australia Bank) and smaller corporate consultancies. Scott considers himself a jack-of-all-trades but doesn’t have the engineering background (no technical background). Tony Costa is the 2nd in charge at Lateral Sands. He is in control of project management and markets the business, as it needs to be done from a technical point of view. Any other really experienced engineers donate 20% of their time to different managerial tasks. In California, the once had a senior person who did things specifically, but the ridiculous amounts of money they were paying (American Dollars) meant they had to bring him back down and now they only use him when they need him.
Figure 1 – Scott Goodheart CEO Lateral Sands
Lateral Sands has its corporate head office here in Perth, with a sales office in California as shown in Figure 2. Even though the company consists of more than 20 people (including California), I would consider it a medium sized business due to the size of the projects (monetary values) that are involved. As the company has established itself quite well over its 5 year operating time, a number of changes have become possibilities for future expansion. As with any company, there are a number of challenges to be overcome for the construction of a successful business. Lateral Sands had had a fairly short operational life, but has still been faced with many difficulties internally and externally. The macro and micro issues in the specific industry will be analysed, as well as their earlier challenges, and how knowledge and past experiences has influenced decision-making.
Figure 2 – Lateral Sands Current Global Locations
Lateral Sands has some macro and micro issues (challenges) that are dictating how the business should be operated at present. There location on Earth has led to much difficulty in marketing the business and recruiting personnel. The market success of the business in the Silicon Valley is dependent on the people they need to recruit and integrate into their operations. Time differences are also an issue between America and Australia. The contemplation of opening a research department in India or any other cheaper area is also ‘on the books’.
Micro issues include their project managing setup and abilities – how the business runs for a project. Staff happiness is also a critical factor in the future affluence of the company. Scott sees staff as the most valuable asset Lateral Sands has. As they are the biggest cost the company has at present, their happiness and integration is the company’s operational efficiency and source of income. These plus more issues will be looked at in more depth during this case study.
During the interview with Scott, we discussed much about how he feels management and employees should interact. Although I agree with his methods at present, with future growth of the company and expansion, new hierarchies will need to be established for correct business functionality.
There are many areas of interest that I could investigate for this assignment. The first I will look at is staff. Scott Goodheart stressed more and more just how valuable staff members are at Lateral Sands. The have recently relocated the company from West Perth to Subiaco. He feels that Subiaco has much more to offer his employees in comparison to West Perth. The culture and life within Subiaco is the environment he is looking for. Cafes and restaurants, theatre and social hubs are the environment he would like to have close to his working environment. The signing of a 3-year lease shows just how much he believes his employees can benefit from Subiaco in comparison to West Perth. He very much wants a very broad skilled employee, and the sociality of Subiaco enables engineers to become less robotic and more human. Subiaco is not a cheap suburb to house a business, and if cost effectiveness were the main issue of relocation then Balcatta or Tech Park (Curtin area) would be more appropriate. company recruitment. As I mentioned earlier, staff are the biggest overhead that Lateral Sands has at present. Reducing the number of non-income producing staff and the quality of staff that are kept can dramatically increase profitability for the business.
Scott mentioned that Lateral Sands ability to recruit in Australia is becoming a huge problem. They are after experienced hardware designers, which are nowhere to be found. The solution to this problem has been the hiring of students to fill these spots. Although not experienced, with correct integration a successful employee can be moulded to suit the company’s needs. Training then becomes the main issue for student recruitment. A benefit to Lateral Sands from my point of view would be the mixture of young and older engineers. To broaden and diversify your workforce can (if managed correctly) be better overall for the business. A younger engineer will (more likely) stay in the business for a long time, and with the aid and shared experience of the more experienced, older engineers; future experienced engineers can be developed.
When recruiting Scott takes much consideration into the abilities of potential employees and how they will integrate into the business. He very much encourages self-management (within boundaries of the company) and innovation. Engineers at Lateral Sands directly converse with their clientele in the Silicon Valley or elsewhere. Because of this all the engineering employees need to have very good interpersonal skills. Scott mentioned how different cultural backgrounds make communication between nations more fragile but not impossible. Any wrong moves can easily lead to clientele alienation etc and can become a big problem when the company tries to acquire more business in the future.
Another challenge for Lateral Sands is its remote location. Being based in Perth and having clientele worldwide (mostly in the Silicon Valley) has lead to the opening of the Californian sales office. The time differences are a constant challenge for the company as in the Silicon Valley they tend to work late and finish later. So from about 9am till noon in Perth they are able to contact their clients, which is 4pm – 8pm in California. This limited contact time only hinders but does not stop perfect communication and they have had little problems with the difference due to correct project managing. Communication and non-documentation has lead to some rather sticky situations for Lateral Sands. Some of the management situations in other companies (e.g. 60 employees) have been quite shocking for Scott. These situations have been quite frenetic and to quote Scott – “its like an organism that has just grown very, very quickly and is almost out of control. Its organised chaos and they do work towards an endpoint, and quite often we are trying to help them with their project management, verification of documentation or even incorrect specs.” These are all serious issues for a services company as with Lateral Sands. The fact that they are contracted to do a specific task in a certain time does not get helped by incorrect specifications or documentation errors or the lack there of. The job is not made impossible with errors but only more time and fund consuming then originally estimated.
Remote marketing is a serious problem, which only seems to get harder. Scott has had to market Lateral Sands to Americans and as he puts it they always want to see physical evidence that the company has handled the task previously. The difficulty comes in convincing the Americans that they can port other knowledge across and apply it to a project successfully. The 100% success rate on projects (as mentioned on their website) is a fact that would be a valuable marketing tool when dealing with the Americans. He also mentions that we are culturally different to the Americans in the way that we are educated. We are adaptive and creative, and effective sidestepping has been needed in the past. Some convincing and a good track record have won over some American companies to hire Lateral Sands and the fact that they are cheaper (Australian Dollars) doesn’t hurt much either. Also to organise marketing it requires that somebody be there (in America). Also, choosing marketing strategies and amounts to spend is quite difficult. A marketing strategy for Lateral Sands could be advertising, word of mouth, or to “press the flesh” (face to face to make them comfortable with Lateral Sands and the concept of who we are and what we offer). Either way it takes people to be in America and to pay Americans in $US, becomes very costly ($US and living in the Silicon Valley is expensive and they expect a little more). As the other option, Scott could pay an Australian to fly over there to organise marketing. I asked Scott if he would consider hiring an Indian worker (in the future Indian research centre they plan on starting). He responded very abruptly with a no. The Perth office will handle most issues and the Indian centre will only be for research purposes due to the low costs involved.
Lateral Sands is a services business as I mentioned earlier. Scott mentioned that they have considered expanding into manufacturing actual products. However this would lead to stock control etc issues that they at present don’t really have anything to do with. Macro-wise they just focus on getting the money in and keeping employees happy. He estimated that 70% of the overhead at Lateral Sands is staffing costs. He also gave an example that if they had a 10 Million turnover then approximately 7 Million would be outgoings. But if they went down the Indian isle, then recruitment becomes a major expense. For example he mentioned India, where the turnover of employees approximates to about one third of your workforce every twelve months.
A micro issue or challenge the company faces in the future and currently is the main point of how you are managing you projects and you staff. He looks at the individual and the company cumulatively as a group. The same goes for when dealing with a client as an individual and collectively. Scott suggests that is really the trick involved with the services business, and it is this reason why managing a services company or in the way Scott manages Lateral Sands becomes less complex. The biggest management decision for the company at present but looking towards the future is expansion worldwide. He and upper level management have to decide the viability of expanding into a production and services company. Venture capitalists are hesitant about financing a large jump like that. It is not very often that a services company can successfully jump into a products business. There will be problems left right and centre. There will have to be a different technology strategy (e.g. research in India etc), there will be different expectations of salaries, different amounts of hours to be worked, and then other issues like documentations issues of their own. Basically a total company management restructuring would be in order. Their expansion into India could be the first step in that direction. Scott mentioned that other companies they deal with say venture capitalists are now demanding that at least some of the design process is done offshore (India or Romania where its cheaper). A lot of money will be invested into research, and Scott mentioned that architecturally if they can handle it here (Perth) and get the grunt work done in India (or a cheaper company of your choice) then why wouldn’t you? I agreed with most of what Scott had mentioned and he portrayed the image that he had done much research into the expansion of Lateral Sands.
Scott vented to us, some issues flowing through his mind about expansion into India. Some pros and cons about the expansion were mentioned to David and I. India is an old colonial ex British enclave with similarities between code of laws and company structuring. Being able to intricately understand the operations within the country of expansion is critical. Cons for the expansion had also been mentioned. If expanding into Bangalore (Figure 3), there are many infrastructure problems; traffic is a major problem, power outages very often (3-4hrs between generally). With all this in mind and the very emotive subject of company expansion I will quote directly from Scott his feeling on expansion. “There is a lot of compelling evidence for us not to be in Bangalore, but I couldn’t give a rat’s arse about where we are as long as it’s cheap!”
Figure 3 – Bangalore the capital of Karnataka, India
Lateral Sands is about to jump into a new, exciting era that would be great to become a part of. The successes and failures of the business are going to be greatly affected by the managerial decisions made within the next couple of years. Presently they are facing challenges in relation to obtaining business and new clientele. Market changes are forcing them to expand into India to meet current cost effectiveness. By opening a research centre of around 40 people (the same as 15 Australian wages) there are many possibilities of expansion into the production industry and not just the services industry.
Restructuring of the company will have to take place before changing industries, let alone acquiring the finance necessary to establish a firm foothold in the industry. However, Scott is quite confident that the company as a whole, with the employees that have been trained and grown with the company, will be able to overcome any obstacle they may encounter. Financial withdrawal of a project by another company has only been an issue once for Scott, but once again he is quite confident they will bounce back again.
The issue of remote marketing appears that it will always be of concern due to the remote location of Perth. If I were to have owned Lateral Sands I most likely would have established a similar setup to what they have at present. The main, well established head office in a fairly cheap area to operate in (namely Perth) and sales office in any place where new business is a high possibility (Silicon Valley). I would see that the trick is to have the head office in a stable country where you are economically and politically safe, and expand (or venture if you will) into any areas of immediate or future benefit to the company. India’s advancement technologically has been a fast one, and moving to join in the growth may or may not be a wise move at present, but the cost benefit ratio seems fairly stable at present, even with natural disasters becoming more and more frequent in the world today.
Scott’s viewpoints on recruitment and employee relationships are quite understandable. If in his position, I would employ a similar technique. Staff turnover is always a problem for a stable, more in depth business as with engineering. As the skill needed for a particular task or jobs are developed over time, a new recruit is unable to perform at the level a CEO would wish (at least not straight away). By appealing to his staff members needs, he is able to create a more stable working environment. Scott believes that a workers environment can dictate his/her actions in today’s world, and having had some experience with non-conformist employees his experience and strict recruiting shows this to be a fact. A friendly, peaceful, hard-working and innovative workspace is the final result.