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Philosophy, Policy And Procedure

November 25, 2009

Every growing business develops a need for rules and regulations. It might begin with customer problems, employees or suppliers, but before too long there will be a need in all of these areas for formal administrative procedures. I can’t say for sure where the threshold is, it may be when you have two employees or perhaps at 20, but as your business grows, so do the rules, regulations and restrictions.

This is a crucial transition period for any organization. Items such as normal working hours, vacation schedules, customer relations and salaries, all of which originally took care of themselves, now require some formality.

The new restrictions generally prove to be inadequate. The transition rarely goes smoothly as the first “rules” don’t make anybody happy. Exceptions will be made, more rules, more problems and more frustration will follow. It is at this time that founders and managers often become frustrated while others become confused.

Responding to problems with rules, regulations and restrictions, is a common trap for a growing business, a trap which many well established companies never escape. It doesn’t need to be that way. If a business takes the time to articulate its philosophy on the major issues that it will face, the problems can be resolved in an orderly and consistent manner.

Philosophy, policy and procedure hold the solution to this transition. Start with the articulation of your company’s philosophy, establish policies that embody those philosophies and implement procedures that will insure that your business operates consistent with your established policy.

It’s not uncommon for a company to make well intended statements about its philosophy. Unless these statements are well thought out, formalized and supported with consistent policies and procedures to insure their implementation however, they will cause more problems that they will solve.

There are many businesses that profess that their employees are their most important asset. Then they attempt to pay the employees as little as possible while buying expensive equipment for them to operate. It is clear which is the most important asset.

There is nothing wrong with a company that recognizes that its machinery is its most important asset. Actions must be consistent however. If the employees are the most important asset, personnel policies should reflect that importance.

A company’s philosophy should be articulated in a statement of purpose that contains a definition of the business that the company is in and its objectives for that business. It should include well thought out positions on all major elements of the business such as customers, employees, community and suppliers. It will form the basis for the logical development of company polices and procedures as it grows.

A company that believes their employees are their most important asset might go on to state that they will only employ above average performers and that they will endeavor to create an environment that will enable highly motivated individuals to contribute to the fullest extent of their abilities. Policies will need to be established to insure that the company operates consistent with that philosophy.

For example, if the company is committed to employing above average performers, it must be prepared to develop compensation programs that are above average. If your employees are truly your most important asset and your business philosophy is to employ the best, it would be inconsistent to have a low wage scale.

Once you establish a policy to compensate above average performers with above average wages, you must establish procedures to evaluate performance and to determine what above average compensation is in your area. Your evaluation system must provide reward for the achievers, assistance for those who would like to be achievers and an exit mechanism for those who don’t fit your requirements.

From a statement of philosophy concerning your relationship with employees, a natural progression towards the development of policies and procedures for salary administration, performance review, termination and other personnel related matters will evolve. Now isn’t that better than waiting until your most important assets are about to walk out the door. It’s the right way to handle all aspects of your business.

Because its your business, start with philosophy, policy and procedures in place of rules, regulations and restrictions.

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