Good morning.

Last year — 2009 — was a year in which many smaller companies learned that they could do more with less — fewer employees, lower inventory, reduced salaries and overtime. They could even withstand a drop in sales. Asked to make sacrifices, employees responded positively: there were no good alternatives.

Company owners and their senior managers, contemplating the economic cross-currents, just had to jump in. Having done so, most proved that they could keep their heads above water and get to the other side. The lesson for 2010: remember what it took to get there.

Best regards,

Abby was captivated. It was as if they were jumping right out of her favorite picture books. Spider monkeys, white-handed gibbons, ring-tailed lemurs, they were all there — each species on its own island. And she was in the front row of the catamaran.

It was New Year's Day, and we were cruising around the islands in the middle of "Lake Victoria." For all that 21-month-old Abby knew, we could have been in Central Africa rather than in the central section of the Naples (Florida) Zoo. The screeching and jabbering would establish an appropriate context for Grandma's bedtime stories that night.

Despite the cacophony of sound and the delights of sight, we picked up the guide's words: "We surround the monkey habitats by water so that they won't leave the Zoo. If they knew that they could swim, they'd be out of here in a minute. But they never try…"

Daughter Katie (Abby's mom) was the first to jump on the metaphor: "That's perfect for Howe's Bayou! Think how far some of your clients' employees could go if they just knew that they could swim," she said to me.

That was one way of thinking about it. For sure, I encounter a great many accounting and finance people who have never been empowered to venture beyond their own small islands. Given a bit of validation and encouragement (and maybe an amplifier), these folks often surprise themselves and their colleagues with their insights and their creative problem-solving.

But I was in a reflective mood last week, more inclined to think about what we had all learned from the challenges of navigating the biggest man-made financial swamp of our lives in 2009. How the heck did we make it through the bayous to dry land? And how do we avoid backsliding?

For company owners and senior managers in my experience, the most critical decisions were made around personnel. Whether you were in a manufacturing or a service business, retail or distribution, B-to-B or B-to-C, if you'd been around for a while, your corporate island likely had gotten overpopulated. Or perhaps the inhabitants had just received too much fruit for their labors.

In any event, after the decisions to cut back capital purchases, to eliminate discretionary expenses, to bring subcontracted work in house, to scale back travel in favor of conference calls, etc., the really tough choices involved people. Whether the discussion revolved around terminations, scaled-back work hours, forced vacations (paid or unpaid), salary reductions, or just elimination of bonuses, many owners and managers were uncertain of the consequences and very reluctant to jump in the water. Nevertheless, all but one of my clients cut total compensation last year. In every case, it was the right decision.

How do we know that? Because in every case revenue per direct labor dollar increased. In most cases, revenue per total payroll dollar (including overhead) increased. In service company clients, utilization rates (billed hours vs. total paid hours) went up vs. the first quarter. Surprisingly given staffing cutbacks, on-time delivery was at least as good, if not better, than in 2008.

There's no question but that a lot of people, worried about their job security, worked harder and more productively. This reversed the previous tendency of many employees to allow their work to expand "to fill the time allotted." Why? Because managers managed better, making increased use of revealing metrics to hold their people accountable and to improve their performance.

Some of the ways that my clients jumped in the water and "learned that they could swim:"

• Confronting performance issues — Three of the eight partners in a consulting business hadn't been pulling their weight for a while, either in selling or delivering work. Reviewing the weekly utilization reports, which were available to the whole staff, made it obvious to each of them that they had become dead weights. They all resigned.

• Establishing standards — Lillian produces 20 units an hour; Bob does only 18. Cost accounting starts with figuring out why Lillian is 11% more productive than Bob and then establishing benchmarks of performance for the work group. Behavioral change comes when management invokes the new standards and holds both the individual and the work group accountable.

• Pay for performance — Mary was a valuable player (not a partner) who ended up as the second-highest salaried person in the company after the partners cut their own base pay. At the end of the year, the partners agreed that a larger percentage of their compensation would continue to be at risk in 2010 than previously. Now it's time to bite the bullet with Mary: at her pay level, it can't be all guaranteed.

• Frequent feedback — They call it "banding," but it's really quarterly performance grades. The managers of a software development client assess individual performance four times a year, rating their employees on knowledge acquisition, initiative, creative problem-solving, and attitude, among other attributes. When a reduction in force was obvious, the decisions were also obvious.

• The Rites of Overtime — To a point, paying overtime can be less expensive than adding personnel. You have to do the math to determine where premium time exceeds the additional payroll overhead cost (usually at 50-55 hours per week). The best results come from tracking productivity daily to make sure there's no drop-off in hours nine and ten (or in hours seven and eight as a way of forcing your hand).

• Big Brother's watching out for you — Unless you first fill out your time slip from the previous day, our client's new software locks you out of your computer. Greater timeliness creates better data, which produces more reliable project costs and more informed pricing. The job you save may be your own.

"Facing a deadline to deliver software to a customer, Rockwell Collins Inc. manager Jenny Miller persuaded 20 engineers to work Thanksgiving weekend. Her only lures were free lunch and $100 gift cards.

"Ms. Miller's feat is part of a daily struggle for managers now: figuring out how to squeeze more work from lean, recession-battered staffs…

"…managers are reaching deep into their toolbox to coax more productivity from salaried, nonovertime staffers. They're unleashing a bevy of cheap rewards, such as praise, thank-you notes and $25 gift cards. They're also scrutinizing employees' duties to nix unnecessary tasks, freeing staffers for higher-impact work.

"Some employees balk at working longer hours without extra pay. Ms. Miller has been able to give gift cards but not raises; Rockwell Collins had a salary freeze in effect until December. Ms. Miller tries to assure employees the extra hours are temporary and tells them 'when the market turns around we'll be better positioned because of the effort,' she says.

"The company decided against work on Thanksgiving Day itself, but Ms. Miller emailed the department seeking volunteers to work Friday — a company holiday — Saturday or Sunday. About 20 people signed up, despite not being paid overtime or getting any compensatory days off. They met the deadline, and got the $100 gift cards."

— The Wall Street Journal, January 4, 2010