The Cost of Conflict
What happens in a workplace where conflict is constantly present?
We answered this question with the first article of this generational series, titled The Largest Hidden Cost in Your Business.
There, we looked at some of the consequences of conflict stress at work, lack of engagement, presenteeism and absenteeism which ultimately result in high employee turnover and damaged company reputation.
If that sounds like bad news for your company, wait until you hear the worst part: all this conflict has a serious impact on your business's bottom line.
But how much exactly?
Surprisingly, a lot. If we add it all up, it turns out that conflict can easily and quickly slow your organization down, significantly reduce your capacity, and more than double your costs.
Next, let's look into the dollar amounts behind conflict and its cost to your organization.
The Money Behind Conflict
The first negative effect from conflict at work is usually stress.
According to the American Institute of Stress, conflict alone is the reason behind 30% of workplace stress.
But how does this translate to actual cost?
The American Psychological Association says that stress at work costs U.S. businesses roughly $300 billion a year.
If that's not enough to make you think about the real cost of conflict, The National Institute for Occupational Safety and Health reports that an estimated one million employees miss work each day because of stress and this costs companies an average of $702 per employee per year.
Now, $702 might not break the budget, but what if you have 1,000 employees? Or 10,000? The cost becomes significant.
Sounds like a huge reducible cost, right?
Unfortunately, the cost of stress is minor compared to the cost of lost engagement caused by conflict.
McLean & Company found that a disengaged employee costs an organization approximately $3,400 for every $10,000 in annual salary.
Whoa! That's 34% of an employee's annual salary more than a third. Even the Internal Revenue Service (IRS) doesn't take that much from most peoples' pay.
For an employee making $40,000 a year, that takes $13,600 annually from your bottom line, just for that one employee. Add that figure up for all your employees and you'd better be sitting down when you see the number.
This amount can make any manager start paying attention to conflict.
And that number grows even more if it affects the performance of high paid senior managers. Unfortunately, conflict hits their work even harder.
As mentioned in the last article, according to a study of practicing managers published in Leadership Quarterly, 42% of managers' time is spent dealing with conflict.
Not only are personnel costs increased significantly, but managers' productivity drops almost by half because of conflict. Ouch!
So, how does this translate into measurable costs?
If the productivity of one manager with an average annual salary of $85,000 is eroded by 42% due to ongoing conflict, your organization has lost a shocking $35,700 to conflict over a year.
And what is really worrying is that, in my experience, conflict often stays hidden in plain sight for years while the costs of lost productivity and disengagement keep accumulating unnoticed.
Honestly, I'd prefer to spend even half this money (still a big number) helping to reduce conflict and creating a happier work environment. Everyone would be a lot more content, and the business would be a lot more profitable.
Now, if we fail to take action at an early stage, conflict and the stress it creates can quickly turn into presenteeism and costs will continue to pile up.
The reason presenteeism is undervalued and overlooked is that it's difficult to detect and measure.
But, it still attracts some attention because of its devastating effect. During the American Productivity Audit, the research team calculated that the total cost of presenteeism in the United States is more than $150 billion per year.
Surveyed respondents report that their productivity is eroded by 25% due to presenteeism. While the exact cost per employee is still to be researched in depth, we need to be aware that an employee's presence at work doesn't mean he or she is doing anything productive.
But there's more. Although conflict strongly contributes to presenteeism, after a while, coworkers who have to deal with strained relationships at work for even short periods of time will avoid working together and worse, often choose not to come into work at all.
And, when presenteeism turns into absenteeism and people finally start finding excuses to skip work because of the ongoing conflict, the problem becomes more measurable.
Research shows that, for large companies, absenteeism could mean a loss of as much as $3.5 million annually or, more specifically, $602 per employee each year.
And the worst is yet to come.
Conflict turns into a real burden for your business when it becomes reason enough for employees to leave, resulting in high turnover.
According to the Society for Human Resource Management (SHRM), direct replacement costs can reach as high as 50%-60% of an employee's annual pay.
Unfortunately, It All Adds Up
So, what do we end up with after all this conflict?
Well, if you add all this up $702 here, $13,600 there, $35,700 over there, etc. it turns out that conflict might cost you more than half an employee's full salary each year and that doesn't even include having to replace the employee if he or she leaves.
And we haven't even touched on the indirect and long-term effect of conflict on a company's employer reputation. Once that goes down, attracting any employee forget the good ones becomes a monumental task and an expensive one too.
The Bottom Line
As you can see, the cost of conflict is enormous!
If I were asked what the one thing is I would recommend to any business to make it immensely more profitable, I would immediately say, Reduce the conflict in your organization!
Reducing conflict is the largest tool you have to boost profits. Period.
So, how do we reduce it and stop this enormous financial burden?
The first step to reducing conflict was identifying its hidden faces which we have done in this and the previous article.
Now we need to understand it better, measure it, and find out what causes it.
As business guru Peter Drucker says:
"You can't manage what you don't measure."
And anyone who knows me knows that I couldn't agree more.
To start managing and resolving conflict, we need to be able to recognize what triggers and feeds it.
Throughout our research, we found that conflicts are usually triggered unconsciously because of our personal biases and the beliefs they create.
In the next article in this series, we'll talk about what these unconscious biases can be and how to recognize them which is a very solid first step toward preventing conflict at work.
Until next time,