The Hidden Costs of Workplace Conflict

Conflict is an inevitable aspect of any organization’s existence.  As Dr. Dan Dana of the Dana Mediation Institute points out, workplace conflict follows a predictable, retaliatory path when two or more task interdependent employees find fault with the other and utilize perceptions and behaviors that end up causing a business problem. Dana estimates that 65% of all employee performance problems are due to bad relationships, not bad employees. Ask yourself as a manager who has a conflict with a fellow employee…do you regularly speak more or less to that person during the business day? If less, what effect does that have on business productivity?

Rather than treat the cost of conflict as a strategic line-item entry on the annual budget, most organizations are simply unprepared to acknowledge, let alone quantify, the real costs of workplace conflict.  Fact is, most executives simply ignore conflict as they do not have the tools and/or mechanisms to deal with it. But once such costs are calculated and brought to management’s attention, it can be an eye-opening, if not startling experience.  Surveys by The Center for Creative Leadership and Eckerd College in St. Petersburg, Florida indicate that managers spend between 20 and 40 percent of their time dealing with conflict. As we shall see, the cost of such conflict in both human terms and organizational profitability can be dramatic.

As Dana explains, various indirect factors go into calculating the real (hidden) costs of workplace conflict. In addition to wasted time and opportunity costs, employees impacted by conflict have lowered job performance, motivation and productivity. Conflict can lead to absenteeism, vandalism, degraded decisional quality and often, a loss of investment in a skilled employee that suffers from the “I don’t care anymore” attitude. Often, conflict can lead to false whistleblowing allegations, lawsuits and of course, employees leaving the organization for other opportunities.

In addition, the direct costs of conflict are generally observable, measurable and accrue over time. Let’s take the following example of the cost of losing a single mid-level employee due to conflict within a hypothetical organization, applying the Dana Cost Calculator from figures generated by HR Magazine in February 2003:  1) employee’s annual salary: $80,000; 2) multiply by 1.4 (140%) as the investment you have in the employee: $112,000; 3) multiply by 1.5 (150%) as the cost of replacing the employee: $168,000; 4) multiply by .6 (60%) average role of conflict in voluntary terminations: $100,800. Now, multiply times the number of voluntary terminations in your organization annually. Say you have a 10% turnover rate in a company of 100 employees that’s 10 employees. 10 X $100,800 = $1,008,000. 

Conflict in the above hypothetical organization of 100 employees is costing the organization over a million dollars a year! What other line-item loss in an essential corporate process would be treated so cavalierly by management?

Executive management can however, effectively manage workplace conflict and considerably lessen the costs of such conflict to their organization by providing managers with generally accepted training tools which break the retaliatory cycle and replaces it with conciliatory gestures; a change of perspective; and ultimately a breakthrough, wherein the conflict is no longer driving employee relationships and causing a business problem.  By employing such tried and true behavioral methodologies as the Dana approach and those set forth by the Center for Conflict Dynamics, managers can be taught core leadership conflict competencies, which will provide them with the skills necessary to manage daily workplace conflicts before they escalate to the point of becoming a serious business problem and a costly item to the organization’s bottom line.

An old Chinese proverb states: “If we don’t change the direction we’re going, we are likely to end up where we are heading.” Changing direction in how your organization approaches workplace conflict may be just the solution to improved work processes, productivity and of course, profits. The organizational costs associated with poorly handled conflict are simply too high to ignore. Competency in dealing with organizational conflict has become a hallmark of effective leaders and crucial to organizational success.  

                        author

Steve McGuire

Steve McGuire is a native of Louisville and a graduate of the University of Kentucky. He had a 30 year career in the federal government serving as an attorney and federal judge in Washington, DC. He retired in 2008 as Chief Judge of the Federal Trade Commission where he presided… MORE >

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