Does Workplace Conflict Yield Measurable, Dollars & Cents Costs To Your Business?

Business owners constantly come to us with complaints regarding the behaviour of employees.

By far the biggest complaint is that good employees can't get along.

We often recommend that they invest in some sort of conflict neutralization training, whether it be our Law of Cooperative Action™ Professional Mastery Program or some other program.

However, when we do, our recommendation often meets with resistance because these business owners, who are very conscious of every dollar they spend, have trouble recognizing the business case for making such an investment

They have trouble connecting the dots between the inability of employees to get along and their business's performance and profitability.

To this we explain that there are very real dollar and cents costs to their staff's behaviour and every day this behaviour continues, the business owner is losing money because of it.

Why Owners & CEOs Hesitate

When a business owner faces the decision of whether to invest in new projects or equipment, they can use any one of the available capital budgeting methods commonly used by financial professionals.

These calculations derive a rate of return or net present value that can provide them with the critical information they need to determine which course of action to take. The numbers, after all, don’t lie.

Perhaps this is why many businesses have yet to incorporate a comprehensive workplace conflict management system into their daily operations.

How do you calculate the ROI of such an initiative?

Alternately, how do you calculate the cost of not implementing such a system? Does workplace conflict have a traditional dollar and cent cost to a business?

This makes it really difficult to implement a company-wide initiative to resolve and prevent incidents of workplace conflict, bullying, and harassment because one of the first questions asked by advisors and business colleagues would be, "what is the return on investment?"

Nothing kills a great initiative faster than the sound of crickets as a response! Let's face it, in many businesses, dollars and cents remain the ultimate litmus test for whether an initiative is implemented or not, regardless of the non-financial benefits that initiative may yield.

So, how do you quantify the financial burden of conflict to your organization?

The Empirical Data Says...

Most of us are too busy to go around and ask each employee how many hours a week he or she spends arguing with coworkers or spreading office gossip. Fortunately, numerous studies have been conducted on the various effects that conflict has on companies and their employees.

While many of these studies are somewhat disjointed and dated, (many were conducted in the late 1990s and early 2000s), their findings are as valid and readily quoted today as they were a decade ago.

By focusing on just three of these statistical findings that focus on lost productivity, any business owner can calculate a defensible, albeit incomplete, estimate of the financial costs to them resulting from productivity-interfering employee conflict.

1. Loss of Productivity Among Non-Management Employees

According to a 2008 study commissioned by CPP Inc., the average employee spends 2.1 hours every single week dealing with workplace conflict in some way. The study also found that for workplaces with more severe conflict issues this average may be as high as 6 hours per week per employee.

So, to arrive at a simple estimate of the financial hit your company is experiencing as the result of lower employee productivity due to workplace conflict, take the total number of non-management employees in your organization and multiply by 105 (assuming 2 weeks of vacation per employee).

This is the total number of productive employee hours per year lost due to workplace conflict (that you still pays for.)

Then, if you take these hours and multiply them by your company's average employee hourly rate, you will end up with a reasonable estimate of the dollars and cents loss because Billy and Suzy can't get along with the company sandbox.

2. The Allocation of Time & Resources of Middle Management

Almost two decades after appearing in a 1996 article in Leadership Quarterly, the average percentage of time middle managers spend addressing workplace conflict that continues to be a standard is 42%.

This means that a typical middle manager spends almost half of their time dealing with issues related to uncivil or inappropriate employee behaviour, staff disagreements, office gossip, and claims of employee bullying and harassment. (Included is the time managers allocate to investigating complaints and monitoring employees to ensure previous incidents are not repeated.)

Looking at this a different way, out of every dollar you pay your managers, $0.42 is for time spent dealing with conflict.

This means that, on average, only $0.58 of every dollar you pay is converted into management activities directly related to the effective use of resources that contribute to the achievement of your business's performance goals and objectives.

Calculating how much your company is paying its managers to address workplace conflict can be accomplished by multiplying the sum of your management salaries and wages by 0.42.

Once again, this basic calculation provides you with a reasonable dollars and cents estimate of the cost of conflict, at the management level, resulting from incidents between employees, employees and management, and even employees and customers.

3. The Cost of Senior Management’s (Your) Time

Consider the time, effort, and expense involved in recruiting senior managers.

You take an tremendous amount of care to hire someone with the right combination of knowledge, experience, and interpersonal skills.

Find the right person and the company can prosper. Find the wrong one and the company can perish.

Yet, in the presence of workplace conflict much of the benefit that should be derived from such conscientious recruitment efforts are neutralized as senior managers are forced to divert their attention away from moving the company towards goal achievement and, instead, focus on resolving incidents of conflict.

One of the most commonly referred to and widely accepted statistics used to illustrate this first appeared in a 2003 National Post article entitled, “Workplace tiffs boosting demand for mediators”.

The article stated that senior managers and Chief Officers regularly spend up to 70% of their time on workplace conflict-related activities. For senior managers, this tends to include addressing labour relations issues, breakdowns in collective bargaining, and litigation launched by existing or former employees.

So, if you are thinking that your new VP Finance is going to work miracles to move your company back into the black over the next six months, you may want to think again.

Chances are that he or she will be spending over two-thirds of their time either dealing with the fallout from breakdowns in critical workplace relationships or attempting to mend fences following previous breakdowns.

Either way, your business is, on average, receiving only thirty cents on the dollar in effort towards implementing new systems, ideas, or projects aimed at improving corporate performance. The other $0.70 is being spent on fixing what never should have broken in the first place.

To revisit the question asked above, “is there a way to calculate the dollar and cents cost of productivity losses caused by workplace conflict?” Absolutely.

While these statistics may not provide a 100% degree of accuracy due to the use of averages, they will provide you with a verifiable estimate of how much money you may be spending (or losing) unnecessarily due to not having the right skills to neutralize employee conflict.

It Is Up To You

As the business owner, it is up to you to Invest in yourself and your ability to minimize conflict among your employees.

Unless you and your business are in the glorious position of being so profitable that losing out on tens of thousands of dollars is inconsequential, it is time to realize that learning how to properly deal with conflict is no longer merely a “nice thing to do”.

It is time that you started taking seriously the effect that conflict has on your employees and your business in the form of lower productivity, stunted performance, and real dollars and cents being unnecessarily left on the table.