"Incomplete or absent policies and procedures reduce efficiency, require individual attention to nearly every situation, and open the door to potentially devastating legal liability."

Business Scalability

Effective procedures and policies essential.

By Andy Brown

Joe started his marine parts business with high hopes; the market was ready and there was a definite supply need. He had sufficient capital and within a week he was taking orders. In a year, the company took off and he had to hire more people just to keep up with demand. He hired an administrative staff and still more employees. In year three he changed locations because he needed more space. His profits were solid and the outlook was great. Then in year four Joe noticed his margins were declining without apparent reason. There had been some turnover in personnel, but the overhead hadn't increased that much and the business model had remained essentially the same as when growth was fantastic. Joe conducted an audit and finances were in order but in spite of having more than 50 employees, he was not able to meet growing demand efficiently without incurring a higher cost per dollar. Looking at the trend, Joe saw that unless he could slow or stop the margin decline, growth would stop.

Scalability

Joe's problem is not new and is, in fact, a normal phase in business development. A great idea and solid business model are only some of the tools needed to build an efficient organization. The businesses that are able to move beyond the slump are those that can scale their companies to grow efficiently.

The term "scalability" is typically reserved for technology and refers to the ability to efficiently accommodate increased demand. However, the principle can be easily applied in the business sense as well.

Comparing technology scalability to business scalability is, like all metaphors, imperfect, but the similarities are striking. Non-scalable technology adversely affects the bottom line by drawing away valuable resources. Additional time, money and personnel are required to maintain functionality when a system is not scalable. Incomplete or absent policies and procedures reduce efficiency, require individual attention to nearly every situation, and open the door to potentially devastating legal liability.

Making your organization scalable by adding effective procedures and policies to your business allows you to maintain efficiency and minimize margin declines, as well as increasing predictability for employees and guidance for supervisors.

Procedures

Procedures define everything, and I mean everything, you do in your business. Whether or not you realize it, you have a procedure for everything from the methodology you use for bringing in new hires to supply chain management and picking up office supplies. If you get down to it, even bathroom breaks are covered by some type of procedure.

The problem is that many employers do not realize that a procedure even exists. Informal procedures like "we need paper so I'll order paper" are convenient when starting out but can cause problems later when you are creating seventeen copies of a 300-page proposal. The more you can standardize the procedures, the more efficient your office will be.

Effective procedures reduce confusion among employees and can identify problem areas that arise. Anyone who has worked in a relatively new company has probably had to deal with filing issues. What may have been a bad dream for a previous employee can quickly become a nightmare for a new hire wholly unfamiliar with a confusing filing system.

Years ago, I worked in a fast-paced office that had a large number of videotaped records. Since everyone hated to go into the room and since I was the low man on the totem pole, I became well acquainted with the black hole known as the tape room. I was told the tapes were filed chronologically, and I suppose that once upon a time they may have been, but that was long before my watch. After several frustrating trips to the tape room, I had enough and spent long hours on my own in that windowless room, questioning my sanity while labeling and cataloging the tapes. Those hours paid off many times over, however, and I gained the reputation as the kid who could find tape faster than anyone else. It was the procedure that allowed me to be more productive and allowed my successor to find tape nearly as fast as I.

Policies

Company policies are often overlooked or simply seen as a layer of bureaucracy that no one wants to add. In reality, good policies answer questions before they are asked. Do we have a dress code? Can I date that person is accounting? Is it OK if I take a second job? Good policies also act as a shield against legal liability - policies on harassment and discrimination are a must.

If you do not have company policies, you can create them yourself or outsource their writing. If you choose to create them in-house, have them reviewed by a qualified HR professional or labor attorney; it will save money in the long run.

Policies can adhere to any company goal, including energy consumption, recycling or carpooling, but it is important to remember no policy can take away protections granted by law. You can have a company policy that there is no overtime, but if an employee performs work for which overtime is authorized, no policy can take that away.

Likewise, enforcement of any given policy is essential or the policy is pointless. Having a dress code policy that no one follows and is not enforced is a waste of paper and could backfire. Imagine a company with a number of requisite policies like sexual harassment and nondiscrimination also has an anti-nepotism policy. In this company, an employee files a sexual harassment claim and during the
investigation, the Human Rights Commission finds the company just hired the son of one of the managers, in clear violation of the anti-nepotism policy. The Commission digs a little deeper and finds numerous violations of other policies. While these violations do not mean sexual harassment occurred, the lack of enforcement can lend credibility to the employee claiming harassment and nullifies the effect that having a policy would normally have.

In addition to enforcement, policies must be reviewed regularly to ensure compliance with new laws. Typically, an annual review is sufficient and, like a tune-up for your vehicle, regular reviews cost less than reviews spread out over many years.

People

The right people can make or break an office. Of course you want competent personnel, but what about that nebulous quality called "fit?" Even working in a terrible job can be tolerable if you enjoy your co-workers. The inverse is also true, a terrific job can be miserable if your co-workers are miserable. A toxic work environment can reduce productivity and increase turnover; both affect the bottom line.

Keeping good people in the workplace is problematic, however. Everyone has challenges in their personal lives and those challenges can carry over into the workplace. You can limit that carryover, however, through effective hiring. Take a long hard look at your hiring procedure or bring in a consultant to review it for you or even do the hiring. Spend your time in the hiring process and you will spend less time later clearing up problems.

An efficient business doesn't just rely on the capability of its employees, it gives those employees the tools to succeed. Policies and procedures create consistency, reduce waste and confusion and make a company scalable.


About the Author
Andy Brown, J.D., MPA, a labor and employment attorney who grew up in Alaska, left his law practice in the Lower 48 to return to Alaska as an HR consultant with The Growth Company. Brown has more than 16 years of broad-based human resource experience, including legal compliance, compensation, salary surveys and collective bargaining agreements. He has extensive investigative experience and worked as an investigator for both the U.S. Army and the State of Utah Department of Workforce Services. He currently lives in Eagle River with his wife and four children.