16 Nov Merge offshoring jobs to "more cost-effective" workforce
Milwaukee, Wis. – Building the “Merge Healthcare of tomorrow,” as company president and CEO Kenneth Rardin explains, will mean offshoring 150 jobs to a “more cost effective workforce” in India.
The plan to reduce 28 percent of the financially troubled medical imaging software company’s workforce in the United States, Canada, and Japan to “regain the competitive edge” marks the centerpiece of a broader reorganization initiative euphemistically labeled “rightsizing.”
“We have a short-term need to better align our cost structure with our revenue-generating strategies,” Rardin said, noting that the management team has “identified several redundancies within the consolidated organization.”
Citing a need for Merge to become more flexible, global, and nimble, Rardin added, “This is not simply a headcount reduction.”
While many of the job cuts will be effective immediately, others will be transitioned over the next six months.
In conjunction with the job shifts, the company announced that it is forming a global software engineering and customer support center in Pune, India. The center, which will complement the company’s existing North American and China-based operations, is expected to grow to approximately 150 software development and customer support engineers by the end of February 2007, and to more than 200 by mid year.
“Long-term, I think we’re going to come out of this as a much stronger company, especially with our new initiative with our offshore business,” Rardin said during a Nov. 17 conference call. “We actually expect to improve and increase quality through this process because of the levels of maturity and software engineering we expect to acquire in the process.”
Having distributed approximately $3 to $5 million in severance payments and $1 to $2 million in stay bonuses and retention costs, the move will create cost savings of $13 to $16 million annually, the company said.
The reorganization plan, which includes promotions of several company executives to administer new and consolidated business units, and an expansion of its headquarters in Milwaukee, follows reported net losses of almost $227 million in the last two quarters.
This year, Merge has seen the resignations of several top executives, including company founder Bill Mortimore and former president and CEO Richard Linden, and faced delisting from the NASDAQ Stock Market in the wake of an internal investigation that uncovered improper financial reporting dating back to 2002.
The disclosure followed the filing of seven class action shareholder lawsuits claiming the company issued false statements in its 2005 purchase of Cedara Software for $325 million, and led to the restatement of hundreds of contracts and revenue periods, primarily in 2003 and 2004.
The company will close its offices in San Francisco, Calif. and Tokyo, Japan. It also will downsize operations in Burlington, Mass., Cleveland, Ohio, and Toronto, Canada.
“It was very, very hard to do,” Rardin said. “It’s one thing to say ‘cut 150 people.’ It’s another thing to put 550 people on a list, and put it in front of you, and pick names.”
Full consolidation of Merge eMed and Cedara Software, encompassing most administrative and operational functions, engineering, and product management, will increase the size of its headquarters in Milwaukee.
Rardin said the strategic decisions, and decisions to come, should ultimately reduce time to market and improve product delivery times, but added that the downsizing has affected all aspects of the business. Although he would not disclose specifics about where the cuts would came from, Rardin pointed out that significant reductions in both Cedara and in eMed were about equal on a pro rata basis.
“I think everybody, both at the management level and at least the people that are still here, really believe this had to happen,” Rardin said. “It’s a sad week for everybody. But I think next Monday we’re going to have people come back in with smiles on their faces, really believing in the company, knowing we did the right thing.”
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