Argosy Gaming Co. has made a significant turnaround in the last year. As of 1999’s first quarter earnings that ended March 31, it continues to see record profits. Argosy made a net income of $2.9 million in the first quarter of 1999, compared to lasts year’s net loss of $2.5 million. A lot of the turnaround is a result of its effort to have a lean corporate structure and to outsource functions that aren’t core to the operations, says Dale Black, vice president and CFO.
The idea to outsource came from the CEO who attended an Arthur Andersen conference last year. The CEO was so impressed by one of the key speaker’s presentation on outsourcing that he took it to heart.
“The idea that the presenter expressed was that there are some areas a company should focus on and there are some that a company should look at outsourcing,” Black says. “Basically, if the function is core and critical to the success of the business then a company should probably know how to do it, or it isn’t going to be in business very long. However, if it is an area that is important, but not part of a company’s core skill set, then it is an area that a company should consider outsourcing.”
The Search For A Vendor
Argosy immediately began looking at things from that perspective. They began to examine their business, to see where there were opportunities for the company to outsource. It settled on the accounting area.
It was Argosy’s intention to find a best-in-class provider. But there weren’t many to choose from, Black says. Ernst & Young was Argosy’s outside auditor so they were precluded from doing this type of service for the company. And another accounting firm that Argosy was interested in already had a contract with the Illinois Gaming Board. So it was prohibited from providing these types of services to casinos.
“Andersen was really the one that was focusing on this project as a practice area so we focused in on them,” he says. “We really didn’t do a whole lot of competitive bidding because after we listened to Arthur Andersen we were comfortable with what they had to offer.”
Arthur Andersen and Argosy entered into a three-year contract that began in April 1998. The primary function that Arthur Andersen provides is the corporate accounting department, which consists of consolidation work, SCC reporting, payroll, tax services and a portion of Argosy’s internal audit function.
Running The Corporate Accounting
Argosy owns five casinos at this point. They are located in Alton, Ill.; Sioux City, Iowa; Baton Rouge, La.; Lawrenceburg, Ind., and Riverside, Mo. For the casinos themselves, or what are called the operating companies, each one still has its own independent accounting departments. Argosy prefers to keep those accounting departments and their talent in-house because of regulatory and licensing issues. What Arthur Andersen does is from a corporate standpoint, things that can be centralized very easily such as cash management, and not necessarily the day to day operations.
All of the casinos run on the same computer system and all of the casino numbers go to the corporate office. So when the operating companies close their books, Arthur Andersen consolidates the casino’s numbers along with the numbers they have gathered from the corporate office themselves.
Getting The Value Added
The challenge was to get Arthur Andersen familiar with the company. From an auditing standpoint the accounting company audits more casinos than any company in the industry, however this process is a little different as far as coming in and taking over an accounting department.
Most of Black’s staff was trained by Arthur Andersen and are still working onsite at the corporate office, only now they work for Arthur Andersen. So that wasn’t really a problem, he says. But it was a challenge to bring the value-added ideas to Argosy, the services that the company needs from them and Arthur Andersen is world class at doing.
“We have to get them familiar enough with our business so they know what kinds of suggestions to bring to us,” he says. “So a large part of the first year was spent with the two companies trying to feel each other out and getting to know each other. This year the challenge for us is to really bring the value-added services and start to do the things that we all hoped the arrangement would ultimately accomplish.
“From our standpoint we need to fully turn over the reigns and allow Arthur Andersen to do what we hired them to do,” he continues. “And they need to become more comfortable with our expectations, while we need to all do a little better at understanding just what those expectations are. It’s all pretty well laid out in the contract, but there is always the little day to day things that what we ask them for is what we get and what they deliver is really what we are asking for.”
Having Arthur Andersen as Argosy’s best-in-class partner is an asset, he says. If Argosy needs a project done, the accounting firm has a really deep bench that Argosy can call on.
“They have people that can come out, spend the time to do the project and get it finished,” he says. “There people have to live with what they design and so it isn’t the typical consultant relationship where they come in and knock out a project, give you ideas and ride off into the sunset. They are always there.”
Lessons From The Outsourcing Primer
- Companies should be proficient at performing their core functions or they won’t be in business very long.
- A company should at least consider outsourcing functions that are not part of its core skill set.
- The accounting function is a good function to outsource because though it is important, it is not strategic.
- Getting a vendor familiar with what it is that the client wants without always having to tell them can be a challenge.
- It is sometimes difficult for a company to hand over total control of a function to the vendor.