Rackspace Lays Off 200 Locals in Companywide Cuts

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Just one of the many sections of desks at Rackspace. Photo by Scott Ball.

Scott Ball / Rivard Report

Inside Rackspace headquarters, also known as "The Castle."

Rackspace Hosting Inc. announced the largest downsizing in its 19-year history Tuesday, cutting its total U.S. workforce by 6% and eliminating the jobs of about 200 people at its Windcrest headquarters.

The cuts are part of an effort to reduce spending by 7% companywide in 2017 following Rackspace’s acquisition by New York-based private equity firm Apollo Global Management LLC last year. According to a Rackspace spokesperson, jobs are being eliminated in parts of the business where the workforce has grown more rapidly than revenue.

Management met one-on-one Tuesday with Rackspace employees whose jobs were being eliminated. They will remain on the payroll, though not in the office, for one month for the purposes of continuing healthcare benefits and will be offered outplacement services. CEO Taylor Rhodes began leading companywide meetings with groups of Rackers on Monday night.

Before the cuts, the managed-cloud provider employed 3,300 people in San Antonio, 500 in Austin, and about 2,300 in other U.S. cities and in London, Sydney, Hong Kong and Munich. Rackspace is reducing its workforce in nearly every office, but at smaller rates. This is the first layoff of this size for the company, which experienced smaller layoffs about this time the last two years.

According to a Rackspace spokesperson, the job cuts are “top down,” with positions at the vice president and director levels reduced at three times greater than other levels.

“We were very intent on preserving as many Racker positions as possible in our customer-facing roles, and we’re confident we are not going to affect fanatical support for our customers,” the spokesperson said.

Since being taken private, Rackspace has been working to trim its annual budget by 7%, or $100 million, according to documents filed with the Securities and Exchange Commission.

“We felt that was very manageable, and while it’s always painful, it was also necessary because we want to be able to invest in fast-growing areas,” the spokesperson said. “We told the world our plan, the numbers, and Apollo pretty much left it up to us how to accomplish that.”

About 4,000 employees work at Rackspace's "Castle," its headquarters in a small suburban city located on San Antonio’s far-northwest side.

Scott Ball / Rivard Report

“The Castle” is located in Windcrest, a small suburban city located on San Antonio’s far northeast side.

Rackspace formed a transformation management office, known as XMO, led by Rackspace leaders and consultants to determine where spending cuts could be made and identify savings before looking at workforce reductions.

While that effort shrank the potential number for layoffs, with Rackspace compensation costs at 60% of the budget, layoffs were inevitable.

In a blog post published on the company website today, Rhodes wrote, “In the months leading up to these layoffs, Rackers across our business worked persistently and creatively to trim as much spending as they could from areas other than headcount. I’ve been humbled to watch their efforts, and to see the personal warmth and practical help that all our Rackers are extending to our departing colleagues.”

City Manager Sheryl Sculley emailed the following response:

“The City of San Antonio is committed to assisting Rackspace with its Community Link program to retain the departing employees and keep their talents here in San Antonio. One of the lasting legacies of great companies like Rackspace is they bring top-notch talent to our community. The goal and challenge for us is to keep those bright minds in our city.”

County Kickstarts Chief Talent Officer

To help departing employees who want to stay in the community, Rackspace is offering outplacement support services that include Community Link, a partnership with LinkedIn, the City of San Antonio, and Bexar County. Rackspace is also partnering with local companies that hire IT engineers and support experts, and tech advocacy groups such as Tech Bloc in San Antonio.

Since last year, Tech Bloc CEO David Heard has been working to build public support for funding a chief talent officer position that would connect emerging tech companies with both homegrown and imported tech talent.

On Tuesday, Bexar County Commissioners approved his proposal for $20,000 in seed funding for the CTO position and program, a $300,000 initiative. The money will come from the County’s Innovation Fund.

“Our number one challenge in the tech industry is talent – recruiting talent, placing talent, locating good engineers, keeping them in San Antonio,” Heard told commissioners. “There are a lot of parts of our ecosystem that are important to building a tech sector, but the human capital is primary.

“Today’s investment is a quick-turn reaction to some near-term tactical corporate moves that are happening where we could see displaced workers and we see some opportunities to help link them to companies in town. That’s why we pulled for $20,000 in the overall project to get quick approval today so we could begin work immediately.”

TechBloc CEO David Heard

Scott Ball / Rivard Report

Tech Bloc CEO David Heard explains the role a chief talent officer will play in the local tech industry.

The program will provide recruitment, outreach, and a information clearinghouse for people looking for work and to learn who’s hiring.

“The CTO position is going to be key,” Heard said.

Rackspace executive Dan Goodgame, who talked to the Rivard Report Tuesday, said: “We have some terrific people who are leaving. Those of us who know them, it makes your heart sink. But there are some great folks available [after the layoffs]. We’re hoping some local companies will snatch them up.”

Goodgame described Rackspace, like other tech companies, as having to “re-platform” every five years or so, because technology advances and customer needs change.

“You end up with your rate of workforce growth increasing faster than your revenues in some areas, and in the meantime, you have new businesses growing by the double-digits that we can’t feed fast enough,” he said.

The company’s fastest-growing line of business is currently support for Amazon Web Services, Microsoft Azure, and Rackspace managed security, divisions that Jeff Cotten, a former senior vice president at Rackspace, began heading up his new role as company president on Feb. 1.

Rhodes said Rackspace is a “growing, profitable company with excellent prospects.” Its leaders and owners expect that within a few years Rackspace will be “significantly larger in revenue, profit and headcount.”

At publication time, there were 97 positions advertised at Rackspace.jobs, with 56 located in the U.S. and many in support of the company’s Amazon Web Services business.

 

6 thoughts on “Rackspace Lays Off 200 Locals in Companywide Cuts

  1. Unfortunately as one who received the news while on vacation in Maui, I noticed some of the technical positions like mine that were cut affect older Rackers who have devoted years to the company. I just celebrated 10 years in January, and I’m aware of quite a few others who exceed that who were also let go. It hasn’t fully sunk in yet, but waking up Monday with nowhere to go is something I’m not looking forward to. Guess I’ll hit up those out placement services just for something to do. This sucks.

    • Wish you the best! Don’t see why the company can’t take those 200 lay offs and rehire or retrain for some of the 97 open positions. From a company cost view, rehiring previous workers is cheaper than finding new workers which involves spending resources on training, and hoping they are loyal and capable long-term.

      Not familar with how this company tries to cut labor costs but some companies lay off their workforce, mostly the tech service side, and then hire lower labor cost H1B visa workers which is risky for long-term stability and gains, while reducing american jobs on the books (see Carnival Cruise for story). Executives try to make this work on short-term stock gains and bonuses but damages growth stability and talented workforce.
      Make no mistake work visas tie into recent events and some companies wanting cheap labor from all countries, the cheaper the better.

  2. So apparently they’re dropping Magento as well as everything else. Feel bad for the laid off staff – just read about it on Reddit. Smart move would be to migrate to Amazon Web Services imo.

  3. Hope their HR department was released as well. Rather insane application process. Sure glad I didn’t end up taking a job there. It felt unstable years ago. Surprised it took this long for the cards to start tumbling.

  4. The vast majority of layoffs happened at SVP/VP/Director/Sr.Mgr positions. Technical positions were the least cut. The few who did lose their technical position were in functional units that were shut.

  5. I’m disappointed that Rackspace has resorted to what every other mediocre company does when they want to reduce expenses-treat people like “costs”, “headcount”, and “colleagues”. Not once were these Rackers referred to as Rackers in Taylors post. And where I’m from only employees get laid off not friends and family. Maybe that’s what should be expected from a Venture capitalist leader and company.

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