Cisco quietly downsizing through outsourcing

When Cisco celebrated the fifth anniversary of its New England Development Center last year - a ceremony attended by Massachusetts Congresswoman Niki Tsongas and a representative from Gov. Deval Patrick’s office - the company was quietly preparing to move several jobs from there and other locations to contractors in India and elsewhere, mostly in the company's Network Management Technology Group (NMTG).

In Cisco parlance, a "limited restructuring" was underway, under the radar.

These "LRs," as Cisco sources call them, are a way for the company to cut costs by reducing workforce in small, incremental moves without having to publicly announce or disclose the actions in compliance with U.S. Department of Labor regulations, like the Worker Adjustment and Retraining Notification Act (WARN). These specific NMTG LRs are separate from the planned reduction of 1,500 to 2,000 positions Cisco announced during its earnings call last month, which, the company says, complied fully with WARN and other federal labor regulations.

Enacted in 1989, WARN requires most employers with 100 or more employees to provide 60-day advance notice of plant closings and mass layoff of employees. Exemptions to WARN notifications include a plant closing or layoff that results in fewer than 50 workers losing their jobs at a single employment site; or if the number of employees losing their jobs is less than 33 percent of the employer's total workforce at a single employment site.

Cisco says it filed two WARN notifications in the past six months for actions at its San Jose headquarters and another for operations in Richardson, Texas. IBM reportedly skirted WARN notifications while incrementally reducing its North American workforce by over 4,000 employees.

Cisco says it has been restructuring the NMTG for up to a year. Sources within Cisco say as many as 128 positions from NEDC, Research Triangle Park, and Scotland were outsourced to Tech Mahindra in India during that time.

Cisco says the actual number is roughly 40 percent less.

"Cisco is constantly evaluating its business priorities, resources and overall employee alignment as part of our normal business process," the spokesman stated in an e-mail. "The restructuring activity in our Network Management Technology Group in November 2008 was part of an ongoing realignment of resources. The NMTG restructuring impacted less than 10 percent of the unit's workforce and was not part of the company's broader realignment and restructuring plans that were discussed on our fiscal second quarter 2009 earnings call on February 4, 2009."

Sources say Cisco vanquished another 87 positions at the NEDC that were involved in IOS software regression testing, development and maintenance of the 10000 series routers, and the new ASR 9000 router. Cisco claims less than half of those positions were impacted, and that none were outsourced -- the remainder were shifted to Cisco India and other company locations.

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"I wonder what Cisco sees as the difference between 'outsourcing' and a reorg that sent work to Cisco India and other areas," asks one Cisco source. "Aren't they one and the same thing? The bottom line is American engineers lost their jobs which were moved to India and other places because the other areas offered cheaper labor."

Adds another Cisco source: "A whole lot of US-based jobs were lost that you are not hearing about from Cisco."

The Cisco spokesman replied, "As a global company, Cisco focuses on building business competencies in different geographies, but Cisco is not currently planning on moving US job roles offshore as a part of this (February 4) restructuring plan."

History of NEDC/NMTG

Cisco at one time planned to employ as many as 5,000 at NEDC, which is comprised of several sites around Boston in addition to Boxborough. The company scaled that back to 2,400 when the Boxborough NEDC opened in 2003, but currently less that 2,000 are employed at the facility.

Plans for the NMTG outsourcing were started in February, 2008. Staffers were notified last November by NMTG Vice President and General Manager Steve Nye, in a meeting with four of the groups he manages.

Nye announced that the work being performed by those four groups -- one in Scotland, two in Boxborough, and one in RTP -- would be outsourced to Tech Mahindra in India. The two NMTG groups in Boxborough are called the Broadband Access Center (BAC) and the Cisco Network Registrar (CNR) groups.

CNR is in use at Merrill Lynch, Washington Mutual, Johns Hopkins University, Time Warner Cable, and CableVision, among others, sources say. BAC is in use at Canadian MSOs, Comcast, Charter, and several Japanese and Korean operators, they say.

"I believe there is going to be a big shakeup in the way that some of these products are developed," one source says.

There was also a Technical Publications group, consisting of around 16 employees, that worked on BAC and CNR documentation. Sources say 12-16 of these workers were outsourced but Cisco says the actual number is less than 10.

Once notified, there is a four-month "Transfer of Information" (TOI) period for affected NMTG employees, after which they would be offered a severance package on April 1, 2009. During the TOI period, the affected employees are free to look within and outside of Cisco for another job. The Cisco organization they are leaving will also pay for relocation if employees are able to find a job at an alternate Cisco location.

If they find another job during this time, they would forgo the Cisco severance package and 10 percent of their salary accrued during the TOI periods.

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The Cisco severance package includes giving affected employees 60 days to find a job within Cisco. If the employees cannot find a job within Cisco during that period, they will then receive a separation package consisting of four months salary, COBRA insurance paid for by Cisco during those four months and any accrued vacation time.

If they choose, employees can just take a severance package and separate from Cisco immediately rather than look for work during the first 60 days. When the employees separate from Cisco, they must sign a release agreeing not to sue Cisco for any reason or discuss the outsourcing/termination with anybody, in order to get the severance package.

A small number of affected NMTG engineers will be kept for another six months starting April 1, for an extended TOI period. After the extended TOI period, this group of engineers will also be offered the standard Cisco severance package.

Cisco's net management challenges

That Cisco is outsourcing or contracting out a large chunk of NMTG work may not be surprising. Network management has long been a struggle for Cisco -- even lamented by CEO John Chambers -- as might be expected for any company that averages eight or more acquisitions a year.

"It sort of makes you wonder what the role of NMTG is and its long-term future at Cisco," says Yankee Group analyst Zeus Kerravala.

Cisco might take issue with that, despite the recent outsourcing. The company six months ago tapped Jesper Andersen, a former Oracle application development executive, to head up NMTG.

"I think we have some great opportunities around areas like troubleshooting, performance management, diagnostics," Andersen says. "Those are really some of the areas where I think we have some great opportunities to further strengthen our portfolio of products."

IT systems and service management are also "exciting" areas for NMTG, Andersen says, especially with Cisco's broadening ambitions and focus in the data center. NMTG has five top priorities for this year and beyond, according to Andersen, including:

o Maintaining customer commitments.

o Reducing product overlap by reusing code and capabilities across product areas.

o Better, more "open" integration with broader systems management products.

o More consistent look and feel for management applications.

o Improving internal operations between NMTG and Cisco's "hardware" business units.

Andersen says he's comfortable with the "balance" between how much of this work is done internally at Cisco vs. the amount done by outside contractors. He said that balance could change over time, but did not disclose what that balance is now nor what it might be later this year and beyond.

Specific to the NMTG outsourcing, Andersen was cut off by a Cisco spokesperson:

"Yes, Cisco is realigning and restructuring around our five company priorities -- but we will not go into any additional specifics."