Cost of conflict in the workplace
Conflict in the workplace, assuming it is an actual pitched battle between employees - fights on the loading dock for instance, or between supervisors who start malicious rumors about one another, is easy to see. Even so the dollar cost of such obvious conflict is rarely measured.
Other, much more subtle forms of conflict in workplace, such as intimidation or bullying are never measured. Not only does this sort of conduct often become "he said - he said" with the taking of sides the only result, it is usually not seen by management as conflict in the traditional sense, so not attempt to resolve it takes place. The powers that be wait patiently on the sidelines until it all blows over or until there is some other reason to step in and make a personnel decision. Workplace conflict resolution is applied, and applied sparingly I might add, often as a last resort - when it should have been the very first step.
No matter if your workplace looks like WWI, with everyone dug in to their own trenches firing volley's across a wasteland of desks, cubicles, warehouses, and fields, or if everyone is so polite to each other it's disgusting - while sniping behind their backs, one thing is clear. The behavior is wasting time, everyone's time, and time is money after all.
Since it's often impossible to tell how much or how little is going on inside someone's head, maybe your people are simply conflicted about their relationship at home. and that has caused them to 'shut down' - they look productive, but nothing is happening. The bottom line results are the same - they are wasting their time on the job and your money.
I am no accountant so ask yours how much actual money is erased directly from your organization's bottom line when two employees can't or won't work together cooperatively. There is the money you were paying them at the time they were not productive, that's a given.
What about the money you lose because the people who report to them can't complete their tasks because they have not received the results these two individuals are squabbling over. There are also all the indirect costs that account for another 30% of payroll or more. Then imagine a couple of these ongoing conflicts taking place somewhere with someone all the time.
As tough as business is right now I am amazed that you have not picked up on this and that your employees are not doing everything possible to work together effectively. I am flabbergasted by some of the stories I hear, people just unwilling to work together while their company is struggling to survive. And how supervisors and business owners are doing nothing to measure the actual cost of wasted time.
Be sure to tell your accountant that when calculating the organizational cost of wasted time, that they should be conservative with their estimates. A cost of conflict calculator will consider all the variables you input in order to generate its results. If they're not very conservative - their results will be so large as to be mind-blowing, and if you try to present them to your Board or your employees you will lose credibility. No one will believe the numbers.
When the numbers look too big your employees will either discount them as not being possible, just your accountant over reacting to the way things always are around here or they seem too big to actually do anything about. When that happens, getting buy-in for whatever corrective action you might want to take becomes even more difficult. When it come to the real financial cost of wasted time in the workplace, it’s an eye opening experience when you or your accountant measures it for the first time.
Reducing the cost of conflict
Reducing the Cost of Conflict
What can managers do to deal more effectively with conflict and reduce its cost?
Increase knowledge. Increased awareness and training are the first step. There are many books and workshops that describe conflict and the resolution strategies available. The Principled Negotiation process developed by Fisher and Ury is very effective and can be learned quickly. References are provided at the end of this article.
Develop sensitivity to chronic employee conflict. Look for major changes in employee behaviors. Be alert to passive-aggressive behaviors such as withholding important information, chronic oppositional attitudes, chronic tardiness and resistance to firm commitments. Note body language when employees interact, especially in tense situations.
Establish standard procedures for resolving conflicts when negotiation attempts have failed. With training, managers can learn how to act as arbitrators or mediators. Some organizations use peer mediation or conflict management committees. The manager’s role in conflict resolution requires a delicate balance. Attempting to manage the behavior of employees may be interpreted as controlling or manipulative. At the same time, consciously creating an environment that allows open and constructive exploration of conflict issues will empower and encourage employees to resolve disputes themselves, or with minimal management intervention. When disputants are directly involved in this process, they are much more invested in making the solution work.
Acknowledge conflict honestly. Conflict exists in many human interactions. Discuss the subject at staff meetings. Empower subordinates to use creative ways to address conflict and encourage them to learn resolution strategies.
Lewis A. Coser, in his book Functions of Social Conflict, said "far from being necessarily dysfunctional, a certain degree of conflict is an essential element in group formation and the persistence of group life". In fact, conflict can be a powerful force in the creation of ideas, novel solutions and group energy. It isn’t conflict itself that creates problems and increased cost, but rather an inability or unwillingness to address it in timely and intelligent ways. The impact of unresolved conflict extends far beyond our ability to quantify it.
Why Conflict is not addressed
Why Conflict Is Not Addressed
Why isn’t conflict effectively addressed in many organizations? For one thing, managers and executives often fail to recognize what constitutes real conflict in their organizations. Most managers have not had the benefit of training in conflict resolution and simply are not aware of the symptoms of conflict and the resolution strategies that are available to them. Because of a general discomfort in dealing with issues involving strong emotions, some managers won’t intervene unless situations go to extremes, or will ignore conflict (consciously or unconsciously) fearing that if they intervene, they assume responsibility for the resolution.
Without management intervention, disputants are unlikely to successfully resolve conflict on their own. Many disputants believe that addressing conflict requires some form of unpleasant confrontation that results in a win/lose outcome. Some employees fear that if they bring attention to conflict issues they will be labeled as hard to get along with or simply not "team players". Most disputants who have not developed career related negotiation skills (such as sales or purchasing) have little ability to negotiate effectively.
Effects of Unresolved Conflict
The Effects of Unresolved Conflict
First-Order Effects (quantifiable)
• Lost revenue as a result of missed deadlines, late deliveries, etc.
• Employee replacement costs, including termination costs, recruitment, etc.
• Increased expenditure resulting from quality problems (restocking, replacement orders, parts re-work, etc.)
Second-Order Effects (harder to quantify)
• Loss of market share as a result of "missed windows of opportunity"
• "Ramp-up" time required for replacement employees to become effective contributors
• Increased supervision or management activities
Third-Order Effects (impossible to truly quantify)
• Passive-aggressive behaviors exhibited by disgruntled employees
• Loss of effective management resulting from loss of credibility
• Miscommunication with other groups resulting from confusion
• Poor image within the industry or the marketplace
Disability costs
Disability Costs
"...depression and high stress were found to have the greatest impact on worker health care costs., increasing these costs more than obesity, smoking or high blood pressure. In fact, these cost were 46% higher for workers who felt they were under a lot of stress." (The Health Communication Unit [online], The Case for Comprehensive Workplace health Promotion: Making "Cents" of a Good Idea, date unknown.)
"Workplace stress and work-related conflict are among the top eight reasons why employees request counseling assistance." (Warren Shepel, Workplace Trends Linked to Mental Health Crisis in Canada, 2002)
"Job stress is a key driver of health care costs. According to the Journal of Occupational Environmental Medicine, health care expenditures are nearly 50 percent greater for workers reporting high levels of stress."(Corbitt Clark, Mary, [online], The Cost of Job Stress, mediate.com)
Absenteeism
Absenteeism
In a study of 50 000 Canadian employees nationwide Health Canada found that "the greater the number of sources of stress reported in the social environment at work, the greater the likelihood of reporting more than 10 days off as a result of ill health."(Health Canada, Workplace Health System, no.3, 1998)
"Employees who report the following sources of stress are more likely than others to be absent for six or more days...interpersonal relations; job control; and management practices" (Health Canada, Canadian Fitness and Lifestyle Research Institute. Workplace Health System, no.3.1998)
The cost of employee absence alone [in Canada] is approximately $8.6 billion. (The Health Communication Unit [online], The Case for Comprehensive Workplace health Promotion: Making "Cents" of a Good Idea, date unknown)
Other consequences of increased conflict-related stresses include greater incidence of substance abuse, heart problems, back problems, cancers, mental health problems, greater incidence of workplace injury and much higher incidence of interpersonal conflict. (Health Canada, Best Advice on Stress Risk Management in the Workplace, 2000).
"Bullied employees take, on average, seven days per year more sick leave than others." (Knight, Julian, Bullied workers suffer 'battle stress". BBC News Online, Tuesday Aug. 04)
Loss of productivity
Loss of Productivity/Wasted Time
"Tension and stress reduce motivation and disturb concentration. A loss of simple productivity of 25% (doing things other than work related activities, such as discussing the dispute, playing computer games, finding reasons to get out of the area) reduces an average work week to fewer than 20 hours...)" (Cram, James A. and MacWilliams, Richard K.[online] The Cost of Conflict in the Workplace, Cramby River Consultants, date unknown)
42% of a Manager's Time is spent addressing conflict in the workplace. (Watson, C & Hoffman, R, Managers as Negotiators, Leadership Quarterly 7(1), 1996)
"I've had CEOs and senior vice presidents tell me they can spend up to 70% of their time on conflict..." (Taylor, Robin,Workplace tiffs boosting demand for mediators. National Post Mar. 17/03)
"Fortune 500 Senior Executives spend 20% of their time in litigation related activities." (Levine, Stewart, The Many Costs of Conflict, Mediate.com website, 1998)
"Over 65% of performance problems result from strained relationships between employees, not from deficits in individual employee's skill or motivation." (Dana, Dan, [online] The Dana Measure of Financial Cost of Organizational Conflict, 2001)
Up to 30% of a typical managers time is spent dealing with conflict. (Thomas, K and Schmidt, W. A survey of managerial interests with respect to conflict. Academy of Management Journal, June 1976.)
A 1996 study demonstrated that 42% of a manager's time is spent on conflict related negotiations. (Watson, C and Hoffman, R, Managers as Negotiators, Leadership Quarterly 7 (1) 1996.)
Employee turnover
Employee loss / turnover
"Chronic unresolved conflict acts as a decisive factor in at least 50% of departures. Conflict accounts for up to 90% of involuntary departures, with the possible exception of staff reductions due to downsizing and restructuring." (Dana, Dan, [online] The Dana Measure of Financial Cost of Organizational Conflict, 2001)
"No matter what the cause, turnover has a number of undesirable implications for organizations, including the costs of losing an experienced worker, recruiting and retraining a successor (retraining is estimated to cost 1.5 times the employee's annual salary), the lower productivity of a new worker, and secondary morale effects on managers, peers and subordinates." (Duxbury & Higgins, Work-Life Conflict in Canada in the New Millenium: A status Report, 2003)
The turnover costs for an employee is anywhere between 75% and 150% of the annual salary. (Phillips, D.T. The Price Tag of Turnover. Personnel Journal, Dec. 1990, at p 58, 1990)
"A team-member's commitment to the team and the team mission can decrease if intra-team conflict remains unresolved. ...if unhealthy conflict goes unresolved for too long, team members are likely to leave the company or use valuable time to search for alternatives." (Barnes-Slater, Synthia and Ford, John,[online] MGH Consulting,Measuring Conflict: Both The Hidden Costs and the Benefits of Cofnlict Management Interventions, LawMemo.com, 2005)
Grievance & Litigation
Grievances/Litigation
"The number of employees seeking help for harassment has almost tripled from 1999 to 2001." (WarrenShepel [online], Health & Wellness Research Database, 2005)
"The math isn't complicated. A complaint that escalates to a lawsuit can easily cost $50 000 to $100 000 and take three to five years to settle. It doesn't stop there. (Taylor, Robin,Workplace tiffs boosting demand for mediators. National Post Mar. 17/03)
"In the case of harassment, the number of employees seeking help almost tripled between 1999 and 2001. Add absenteeism, employee theft, sabotage, not to mention the cost of employee turnover (estimated to be as much as 75% to 150% of base salary) and it is understandable why companies are paying attention."(Taylor, Robin,Workplace tiffs boosting demand for mediators. National Post Mar. 17/03)
A 2005 UK survey of managers by Roffey Park found that "52% have experienced harassment." (Roffey Park [online], Failure to manage change heightens stress, harassment and conflict at work, survey reveals, Jan. 05)
"Sexual harassment is associated with more conflict in work teams, less cohesion and less success in meeting financial goals, " (Kleiman, Carol, Harrassment bad for bottom line, study finds. The Ottawa Citizen: Wednesday Sept. 7/05)
"According to a nationwide study, the average jury verdict in wrongful termination cases is over $600 00 and companies lose 64% of the cases." (Bureau of National Affairs, Without Just Cause: An Employer's Practical Guide on Wrongful Discharge, 1998)
In the United States an average of 2 years are required for the Equal Employment Opportunity Commission to investigate most claims. (Busch, R II, The Conundrum: Conflict - The Solution: Designing Effective Conflict Management Systems, 16 Preventative L. Rep. 1997)
"Corporations that have developed collaborative conflict management systems report significant litigation cost savings: Brown and Root reported and 80% reduction in outside litigation costs, Motorola reported a 75% reduction over a period of six years, NCR reported a 50% reduction and a drop of pending lawsuits from 263 in 1984 to 28 in 1993" (Ford, John, Workplace Conflict: Facts and Figures, [online] Mediate.com website, July 2000)
Stress at work
Mental Health / Stress
"Unresolved conflict represents the largest reducible cost in many businesses, yet it remains largely unrecognized." (Dana, Daniel (1999). Measuring the Financial Cost of Organizational Conflict. MTI Publications and Slaikev, K. and Hasson, R. (1998). Controlling the Cost of Conflict. Jossey-Bass)
"Employees in high pressure/low control situations or high effort/low reward situations have much greater risks to their physical and mental well being. (Tangri, Ravi, Stress Costs - Stress Cures: How to recover productivity lost to stress, 2003.)
"The number of employees seeking help for work-related conflict has increased from 23 percent in 1999 to close to 30 percent in 2001." (WarrenShepel, Workplace Trends Linked to Mental Health Crisis in Canada, 2002)
A 2005 UK survey by Roffey Park found that "78% of managers are suffering from work-related stress, 52% have experienced harassment, 46% have seen an increase in conflict at work." (Roffey Park [online], Failure to manage change heightens stress, harassment and conflict at work, survey reveals, Jan. 05)
"The total value of lost work time due to stress is estimated to be $1.7 billion. (WarrenShepel [online], Health & Wellness Research Database, 2005)
"Employees who rate their managers as "sensitive" miss an estimated 3.7 days of work, wheras employees whose managers are rates as "non-sensitive" miss approximately 6.2 days of work. (MacBriade-King, J.L., and Bachmann, K. Solutions for the stressed-out worker. The Conference Board of Canada,1999)
An estimated 16% of employees feel that poor interpersonal relations are a source of stress at work. (WarrenShepel [online],Health & Wellness Research Database, 2005)
Disengaged staff
What does ‘disengaged staff’ mean?
Staff that are at work but not actively busy with work related matters are referred to as ‘disengaged staff’. A study done in 2009 found that 70% of all staff are disengaged at any given time. Be it internal conflict amongst staff, personal issues at home distracting you at work or a general inability to focus on your goals.
This is a troubling number. Look at how much you are getting done with only 30% of your employees actively engaged. Think how much more you could accomplish if you raise that number to 50% or 70%? There is an enormous pool of untapped potential in the 70% of your workforce that are not giving you their all. The question is how you get them engaged.
The financial impact on your company is astounding. A survey done in America established the cost to companies of keeping actively disengaged employees due to decreased productivity and performance’ at around $300 BILLION annually!
Internal conflict and tension cost the American economy $336billion last year alone. What is the cost to your company? A cost that you are not even aware of until you are made aware of it.
At any given time an average of 70% of your staff are ‘disengaged’ in their performance. What is 70% of your total wage bill per month? Imagine if this percentage drops to 50% or less, what would your business look like then?
This does not include:
- labour law & legal costs
- staff turnover & HR related costs (sick leave)
- loss of business due to client withdrawal
Consequences of Unresolved Conflict
Consequences of Unresolved Conflict
Unresolved conflict can create serious and quite varied consequences. For example, employee conflicts often create project delays that can result in missed market opportunities. Customer relations can be damaged when conflict results in confused communication or inconsistent information. The development of effective work groups and teams can fail as a consequence of disputes between members. Companies with chronic conflict often find it difficult to attract and keep good people.
Consequences of Unresolved Conflict in the Workplace
o Excessive employee turnover
o Low morale
o Reduced productivity
o Quality problems
o Delayed and missed deadlines
o Increased supervision overhead
o Increased stress
o Reduced collaboration
o Fractionated activities
o Passive/aggressive behavior
o Abusive behavior
o Damaged management credibility
o Decreased customer satisfaction
o Negative upward attention
o Split alliances (factions & cliques)
o Distrust
Given the wide variety of possible consequences, it’s appropriate to further define the effects of unresolved conflict and quantify them where possible. In this article, we divide the consequences into three categories, consisting of first, second and third-order effects.
First-Order Effects. At the most basic level, there are consequences that are readily determined to be the result of a particular conflict situation, and are fairly easy to quantify. We call these first order effects. For example, as a result of poorly managed conflict, one of the disputants may leave the organization. If a disputant doesn’t leave, then there is a possibility that peers will escape the tension and stress by leaving. The first-order effect in this case would be the direct replacement costs for the employee who has left (usually termination costs, recruitment expense and training for the new hire).
Second-Order Effects. However, when a new employee joins a project team, how long will it be before that person is a productive member? Assessing the effect of a new hire on team effectiveness may be difficult. Likewise, trying to quantify a change in team productivity can be very difficult. This is an example of a second-order effect, in that the consequence might not be viewed as a result of the original conflict, and because it is not specific to a known problem (any new hire might have problems becoming integrated), it is harder to quantify.
Third-Order Effects. When conflict occurs frequently in an organization the effects often become "enculturated". This leads to a generally unpleasant work environment, in which issues are not discussed (much less resolved) and where fear, distrust and passive-aggressive behavior become the norm. Such situations may affect the organization’s reputation, resulting in lost business and making it difficult to hire or retain good people. These consequences, which we classify as third-order effects, are difficult or impossible to quantify, and can be true "business killers"
W. Edward Deming said that it is impossible to predict the long-term consequences of poor quality. The same can be said of unresolved conflict. For example, when a major project has been seriously undermined and delayed as a result of festering disputes among project members, it may be easy to measure the cost of increased expenditures of resources and the cost of the extended time to completion. In the product (or service) development world, it is also possible to measure the loss of revenue and profit resulting from a delayed completion. But it is much more difficult to measure the cost of missed windows of opportunity, lost market dominance, damaged customer relations or the continued poor productivity of a "team" that doesn’t function well.
A reduction in productivity of disputants and their peers is one of the more serious consequences of unresolved conflict. Tension and stress reduce motivation and disturb concentration. A loss of simple productivity of 25% (doing things other than work related activities, such as discussing the dispute, playing computer games, finding reasons to get out of the area) reduces an average work week to fewer than 20 hours, based on an annualized, valid time off adjusted basis.
Besides suffering increased supervisory overhead, the conflict saddled manager is in danger of losing credibility in the eyes of peers, subordinates and superiors. Subordinates feel a sense of disappointment when conflicts are allowed to continue. Peer managers may begin to look at the disputing group as badly managed and uncooperative, both higher order effects.
An exercise in determining the cost of conflict by calculating first order and estimating higher order effects can be sobering. Even a crude estimate can be an eye-opener for management.