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The Financial Toll of Workplace Conflict

The Financial Toll of Workplace Conflict



 We all know that conflict can exact an emotional toll on us. Whether it’s a spat with our spouse, a heated exchange with a friend, or a difference of opinion with our boss or co-worker, we can be consumed with anger, guilt, regret, confusion, frustration … a whole host of emotions that can be overwhelming and debilitating.

But when conflict erupts in the workplace there are also very real, very tangible financial implications that can have a significant impact on a company’s bottom line.

Take, for example, a recent conflict between two departments (we’ll call them Department A and B) at a mid-size insurance company. No one knew how it all started, but Department A and Department B didn’t like each other. It may be that it started out as healthy competition around productivity. It may have started because the two department managers were from different generations and had different management styles. Or it may have started between Jennifer and Laura who were best friends for years and worked together in Department A. They had some kind of personal falling out and Laura moved to Department B because, as she put it, she “couldn’t stand to see Jennifer’s lying, cheating face every morning when she came to work.” Whatever the cause, these two departments were at odds. Consequently, the managers never spoke to each other. Department members were openly discouraged from fraternizing with individuals from the other department. No one in Department A had any idea what Department B was doing and vice versa.

Although the conflict between these two departments seemed childish at times and made some people at the company uncomfortable, it wasn’t until an audit uncovered the fact that the departments had made duplicate purchases on software programs that the company decided the situation needed to be addressed. “If these two departments were communicating and working together our company would have saved over $400,000 in duplicate software purchases.” stated the company’s President.

Another example of the cost of conflict comes from the experience of Elizabeth (not her real name) at a large manufacturing company. Elizabeth had repeated run-ins with her supervisor, Max. Elizabeth felt that Max didn’t trust her and was always second-guessing her decisions. If Max had done so in a respectful and appropriate way it would have been tolerable, but Max was loud, abrasive and rude. Elizabeth was increasingly upset by the situation. On the advice of her doctor, Elizabeth went on extended stress leave. In the end, Elizabeth was away from the job for almost 2 years before she felt able to return. Because of Elizabeth’s specialized skills, the company had to hire two new people to cover her responsibilities while she was gone. The cost of this conflict? Just considering the continued pay Elizabeth received while on leave and the cost of onboarding 2 new employees, this situation cost the company over $500,000.

Then there’s ABC Development. Jeff was considered a top performer and quickly moved up through the ranks. But those who worked with Jeff complained about his poor people skills. His manner was seen as condescending and demanding. If he didn’t get what he wanted from a colleague or subordinate they were given the silent treatment. At one point, a number of employees in Jeff’s team threatened to sue Jeff and ABC Development for subjecting them to a harassing and unsafe work environment. In an effort to protect Jeff, one of their top performers, the company chose to settle out of court with the complainants. The cost? Over a million dollars.

The costs identified in these examples are really only part of the total price tag incurred from the conflicts present in these companies. To calculate the financial toll of workplace conflict it is important to consider what happens when individuals are not getting along.

At the earliest stages of conflict, communication between disputing parties breaks down. Information is not shared. Gossip increases. Complaints increase. This results in a great deal of paid hours where little or no real work is produced. In a recent study on workplace conflict, it was reported that the average employee spends 2.1 hours per week dealing with conflict. Mid-level managers reportedly spend upwards of 10% of their work time dealing with workplace conflict. And Human Resources staff report spending upwards of 20% of their time addressing conflict in the workplace.

The impact of unshared information is a little harder to put an exact dollar figure on. However, I am reminded of a company who called us for help when two of their VP’s were not talking to each other. The company President had done some calculations and said that he believed the company was losing, at minimum, a quarter of a million dollars each day that these two VPs were not talking. He cited the slow down on projects, the lack of direction to the senior management team, lack of information to suppliers, as well as missed deadlines all resulting from the breakdown of that working relationship and all costing the company a great deal of money.

Attempting to avoid conflict is a prevalent reaction to difficult situations in the workplace. Approximately two-thirds of employees report that they have gone out of their way to avoid a colleague because of a disagreement. This avoidance takes on all kinds of forms – all the way from coming in the back door so that they don’t have to walk past so-and-so’s workstation, to changing their work hours, to failing to attend meetings.

As a conflict continues and grows, employee morale decreases.  Co-workers take sides. When the conflict is allowed to fester, disputing parties may look for opportunities to hurt each other physically, emotionally, or financially. This can result in physical violence, work sabotage, property damage and theft. Many organizations find themselves restructuring job descriptions, reporting structures and physical workspaces to address conflict at this stage. We have seen numerous examples of the expense of conflict at this stage – some that the company didn’t even realize were a result of conflict. For example, there was the sales team that was experiencing a great deal of negative and unhealthy competition due to longstanding conflict. Every few of years the sales team was issued upgraded phones and laptops for their work. A few months after the new equipment was issued, two new members joined the sales team. When these two new employees received their phones and laptops, they weren’t the same as everyone else’s. They received more recently upgraded versions that hadn’t been available previously. The rest of the sales team complained loud and vociferously – how dare the company give these new employees an unfair advantage with better equipment? The uproar was so significant that the company felt compelled to purchase the same upgraded phones and laptops for the entire team – even though the equipment they had was only a few months old. It was a significant expense for the company that they had not budgeted for. And, unfortunately, it did not ultimately resolve the conflict because it wasn’t really about the equipment – that was just a by-product or symptom of a larger problem.

When conflict is unresolved and/or managed poorly, the individuals involved (this includes the disputants as well as colleagues who are around the disputants on a daily basis) may get physically ill, emotionally exhausted, and stressed.  Costs associated with conflict at this point include extended stress and/or sick leaves as well as related health benefits such as EAP and counselling. Some employees will leave the company permanently due to the unsatisfactory resolution of a conflict. And when an employee leaves a company the turnover costs are somewhere between 75% and 150% of the annual salary of that position.

Companies may also find themselves facing potential lawsuits due to conflict in the workplace. The most common lawsuits filed by employees include complaints of harassment, discrimination, and wrongful termination (frequently as retaliation for a complaint). Many of these lawsuits could be avoided if conflicts in the workplace were addressed at earlier stages. But, once the complaint has escalated to a lawsuit it can easily cost upwards of $100,000 and take up to 5 years to settle.

There are other very real costs of workplace conflict that, while more difficult to measure, impact the bottom line in a significant way. When conflict is left unchecked in a company, clients and customers notice. The result is increased client complaints and loss of customers. And the creative ideas, quality decisions, and productive teamwork that are lost because of unresolved conflict is impossible to put a price tag on yet can ultimately lead to the total destruction of a company.

Faced with the high cost of workplace conflict, many companies ask how they can avoid it however it is virtually impossible to avoid. Whenever there are individuals working together there will be conflict. Conflict is a reality of differing personalities and work styles not to mention organizational factors such as roles and responsibilities, reporting structures, and change management. The high financial toll however, is not because conflict exists in the organization – the high costs come with conflict that is unresolved or poorly managed.

So how can companies reduce the financial toll of conflict?

An important place to start is with company policy. While more and more companies recognize the need for a conflict management policy, there are still a significant number of organizations that do not clearly spell out the options that employees have for dealing with conflict in the workplace. Developing a conflict management policy not only outlines what employees can do or where they can go to get assistance in addressing conflict situations, it identifies the responsibility that everyone in the organization has in addressing conflict. Further, it is a clear indication that the company is committed to addressing and resolving workplace conflict.

Beyond a policy, however, there is the reality that, if all employees have a responsibility for addressing conflict, they must learn to put it into practice. Developing skills in managing conflict is critical – first in identifying it and then in addressing it. Far too often, conflicts are left brewing because they are seen as too insignificant to address. Yet this is exactly the point at which to address them. Left unchecked they will grow and fester. So, even if the issue seems relatively small and unimportant, deal with it.

Having difficult conversations around conflict issues are exactly that – difficult. For many, the thought of confronting a colleague about a conflictual situation will tie their stomach in knots. The more companies train their employees in how to manage conflict and have those conversations, the more they will be prepared. However, in our experience, even with significant training, most employees feel a great deal of anxiety around addressing conflict head-on. Like many difficult things, the anticipation is generally worse than the actual event. Taking that first step truly is the most difficult one. Companies that have identified conflict management champions or coaches have noted significant improvement in addressing conflict in the organization. These individuals serve as a resource and support for others – an opportunity to plan the conversation, get feedback, even practice before confronting their colleague.

The Human Resources department is the most likely place for employees to turn for help with workplace conflict. So building conflict management capacity in the HR department just makes sense. Not only can HR personnel serve as the conflict management champions or coaches referred to above, they can become skilled in assessing and addressing conflict situations for individuals and teams in the organization. This is a specialized skill that requires some specialized training. But organizations would be wise to invest in the training and development of their HR department as a starting point for developing a conflict competent corporate culture.

Leadership is the final key component of reducing the financial toll of conflict. Leaders cannot afford to ignore conflict. Leaders must be role models in acknowledging the reality of conflict, recognizing that it exists, and looking for ways to manage and resolve it. Not all leaders will be great mediators, able to get in the middle of conflict and help the parties resolve the situation. But all leaders need to recognize the value of the work that is required to resolve conflict. Leaders must know where to turn for assistance in addressing conflict – whether that is the HR Department or external consultants.

Learn More:

Learn how you can become a certified Conflict Management Practitioner and resolve workplace conflict effectively, click HERE.

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