"Why," you may ask, "do I need a policies and practices strategy for my business?"

The simple answer is...because you have people working for you.

With human nature being what it is, employees will test limits and act "creatively" in workplace situations, so you need a strategy for developing, communicating and enforcing a set of policies and practices that reflect your standards of acceptable behavior.

But a successful policies and practices strategy does more than draw boundaries; it also recognizes and addresses people's needs.

There are many different types of people, and not surprisingly, they react differently to the need for policies and practices based on those differences. For example, some people prefer there be a written policy for everything, while others favor having no policies at all and would leave everything open to interpretation as situations arise. Neither of these extremes contributes to a work environment that's conducive to high productivity levels. The answer is found in between, with the right number and types of policies and practices that are focused on a primary goal--improving individual performance in the workplace.

When you get to the heart of the matter, performance improvement is really about the process of setting expectations and meeting them. The focus in business is not just about meeting specific goals, but also about how you achieve them. And the "how" affects the liabilities you create in the process.

So how can you make sure your employees have clear expectations and are treated fairly as they work to help build your company? The answer is found in the way you address four key elements related to the development and deployment of your policies and practices: roles, rules, consequences and tools.

Roles

People like to have a clear understanding of their role in a company as well as the roles of others. Every successful team has well-defined positions for its members: Everyone knows what he or she is to do, how to do it and how their performance can impact those around them. In business, this means you need to have clear reporting structures that spell out who's in charge and how tasks are to be accomplished in the organization.

This approach applies not only to intradepartmental structures, but also to company-wide or interdepartmental projects. In addition, role definition is a foundational part of establishing clear performance expectations for each employee.

Rules

Managers and employees need to share a clear understanding of what is and what is not acceptable behavior within the company. Unfortunately, in today's workplace, an employer can be held liable for the bad behavior of an employee, especially when that bad behavior affects other employees, clients or individuals. Having a clear set of behavioral expectations is critical to establishing that you're not contributing to that bad behavior as an employer.

Setting clear and specific behavioral standards in the form of rules establishes a framework for spotting and addressing violations of those standards. If you rely on loosely defined general standards that aren't properly documented, then violations become subjective and open to interpretation. The result of such ambiguousness is often litigation.

Consequences

It's important that you clearly state consequences for violations of your behavioral standards so that employees know what to expect and have fair warning of those expectations. In addition, clear consequences help to ensure that you aren't limited in your options for dealing with improper behaviors.

To establish these standards and violation consequences, sit down and think through the over-the-line behaviors that won't be permitted in your company. It's essential that you know ahead of time what employee actions require an immediate dismissal. Similarly, you want to know what performance issues may qualify for a more progressive disciplinary approach, and then define the steps involved in that approach.

By nature, people are complex beings who will confound you one minute and astound you the next. And except for violations that warrant immediate firings, it's usually a wise, compassionate and financially prudent course to help people strengthen their character by overcoming their weaknesses. Also, this approach provides you with a way to retain experienced employees and recover your investment in their training.

I've found that managers are often disappointed in an employee's performance even though the manager never clearly communicated his or her expectations to that employee. If you don't take steps to set clear expectations, the consequences you administer for failure to meet those expectations can seem unfair. This is extremely important because an employee who feels they've been treated unfairly can create a great deal of liability. In many cases, the key issue is not whether they were actually treated unfairly but whether the employee feels or perceives that they were treated unfairly.

And it doesn't stop with the affected employee. If you or your managers haven't clearly communicated your expectations to one employee, chances are you haven't done so with other employees as well and they can be quick to empathize with any affected workers. It's natural for employees to wonder, "What if that happened to me?" To avoid the negative effect such a chain-reaction can have on your workplace, be clear about your expectations with all employees at all times. Most employees will appreciate and respect your forthright clarity.

Building a great company has a lot to do with how people work together. Policies and practices can improve the way your employees interact, while minimizing the personnel obstacles that often arise in today's workplaces.

Tools

Tools address the question of how you support the people in your company who manage other employees. When faced with a specific personnel issue, what resources are available to them? Do they have an employee handbook or a policy guide? What about regular training in company policies and practices, coupled with simple, easy-to-use forms to guide them when dealing with particular issues? Are you giving them a clear directive on working with your human resources personnel or legal representatives? Are your resources available online?

Tools like these are vital not just to help avoid litigation, but also to minimize the time it takes for you to deal with productivity-draining people issues instead of core business matters. Because many small-business owners lack these resources and aren't sure where to turn for help, they may use attorneys and HR consultants on an a la carte basis to address such issues. Other businesses call on professional employer organizations like Administaff to provide the support of a full-service human resources department.

Whatever your approach, the key to success is to devote the time and resources it takes to develop a policies and practices strategy for your business before the need arises. It's an investment that can pay large dividends in increased productivity and minimized litigation. And it's an essential component of your comprehensive people strategy.

Paul Sarvadi is the "Human Resources" coach at Entrepreneur.com and is chairman of the board, CEO and co-founder of Administaff, one of the nation's leading Professional Employer Organizations (PEO), which serves as an outsourced full-service human resources department for small and medium-sized businesses throughout the United States.