How Unmanaged Workplace Conflict Leads to Financial Strain
Conflict in the workplace isn’t just uncomfortable – it’s costly. There are hard and soft costs associated with unresolved workplace conflict, each more severe but preventable with the right mentality, resources, and genuine desire to practice conflict resolution management in the workplace.
This article will explain the impact of unresolved workplace conflict and why a professional third-party mediator, investigator, facilitator, and resolution expert is the best option for conflict resolutions and organizational resilience.
Cost of conflict
Canada – According to a Morneau Shepell study, conflict costs the average business owner two billion dollars a year. Furthermore, according to a study by the Conference Board of Canada, absenteeism costs the Canadian economy over $16 billion a year.
USA – According to a CPP study, conflict costs $359 billion in paid hours – that totals 2.8 hours per week wasted on conflict.
UK – Acas released a report that estimated the cost of conflict in the UK totals £28.5 billion per year, averaging £1,000 per employee.
Common causes of workplace conflict
Task system causes
- Unclear roles
- Undefined goals
- The ranking system
- Competition for scarce resources
- Unrealistic deadlines or expectations
- Changing processes and procedures
- Unclear decision-making authority
- Inadequate stopping or inappropriate assignments
- Undefined accountabilities
- Organizational structures
Interpersonal causes
- Different approaches or methods
- Different priorities
- Values differences
- Personality differences
- Workstyle differences
- Lack of cooperation
- Misunderstanding/false assumptions
- Cultural differences
- Age and generational differences
- Personal prejudice and conditioning
Cost of workplace conflict categorized
Visible costs
Visible costs are the most obvious, and you likely have access to this type of quantitative data. These are issues like how much time management wastes on formal procedures and the correlating costs related to finances and productivity. Other related issues that lead to clear visible costs are Sick leave, mental health leave, staff turnover, legal fees related to conflict and tribunal fees. Lastly, third-party expenses such as mediation, investigation, and resolution are factored into visible costs of conflict.
Hidden costs
Hidden costs are more challenging to measure and have a range of approaches. Issues like how conflict impacts the employee experience, decreases productivity and negatively impacts client satisfaction and retention all fall under this category.
Intangible costs
Intangible costs represent the human costs of conflict and can be challenging to quantify. Stress, burnout, lowered morale, a sense of trust, a sense of purpose, presenteeism, and general perception of employer reputation all fall under intangible costs.
First-order impacts
- Delayed/missed deadlines
- Communication lapses
- Recycling / rework
- Leadership distraction, e.g., handling
- Complaints, putting out fires
- Rumours and innuendos
- Lack of focus on quality
- Safety inattentions
Second-order impacts
- Employee turnover
- Loss of institutional memory
- Increased management scrutiny
- Split alliances – factions and cliques
- Reduced collaboration and lowered trust
- Lower morale and employee commitment
Third-order impacts
- Loss of confidence in supervisor and/or upper management
- Loss of senior management support
- A toxic culture exists
- Overall cynicism and distrust
- Difficulty in recruitment and retention of personnel
- Dissatisfied customers and/or stakeholders
Direct Risks of unresolved conflict
Absenteeism
Absenteeism can be defined by an employee’s negative attitude towards their work and intentional neglect of their duties, typically without formal reason. This goes beyond standard sick days, vacation days, personal time off, or other approved time off. When an employee doesn’t show up to work unexpectedly for an extended period of time or if they’ve frequently taken days off with little to no notice, they are demonstrating absenteeism.
High turnover
High rates of unresolved conflicts typically lead to high turnover rates across all levels within an organization. It’s no surprise that when employees feel like their psychological safety is infringed upon or like a toxic workplace is the norm; they will typically look for a more positive workplace that is conducive to their morals, values, and work-life balance.
The financial impact of high employee turnover can be categorized into the following:
- Lost productivity costs
- Severance costs
- Recruiting, interviewing, and onboarding costs
- Training and professional development costs
- Benefits costs
Employee turnover is standard, but proactively resolving conflict can retain people’s jobs and alter the attitude and environment in the workplace – making it a better place that employees actually want to work at.
The cost to search, onboard, and train a replacement can often exceed the annual salary of the individual they are replacing. Overall, it costs a lot less to resolve conflict than to let it fester, causing employees to get frustrated, disengaged, and tender their resignation.
Presenteeism
When employees have a sense of ambivalence or show disdain for their workplace, they are not fully engaged in their work, causing major issues in workload and production across other departments and roles within the organization. This leads to low morale and a toxic environment.
Loss of productivity
How much time does your leadership team waste on conflict? The typical manager spends up to 42% of their time dealing with – not managing or resolving – conflict. To follow this, the average employee spends over 2.5 hours per week just on unresolved conflict alone. Look at these statistics in financial value, an organization with just 20 staff could be losing upwards of $52,000 annually on unresolved conflict.
This is time your employees could be spending on day-to-day operations, generating new business, or sparking innovative ideas to propel the organization forward.
Health and safety
A study conducted by the Health and Wellness Research Database revealed that unresolved conflict has significant, far-reaching costs for businesses. The report found that stress leads to $1.7 billion in lost annual revenue.
Health care costs are almost doubled for employees who report high-stress levels, according to the Journal of Occupational and Environmental Medicine.
Interpersonal conflict on the job is one of the top occupational stressors strongly linked to a reduction in worker health, according to the National Institute for Occupational Safety and Health (NIOSH) located in the USA.
Opportunity costs
It’s incredibly difficult to quantify the loss of opportunity that can be found from innovation, new services, new or optimized products, new customers, streamlined production, and higher profit margins. That being said, it’s clear that unresolved conflict can be damaging your organization and negatively impacting your bottom line, considering these possible realities.
- How much time are key decision-makers spending on unresolved conflicts?
- How much time are your employees wasting on unresolved conflict?
- Is your organization losing experienced and skilled employees because of conflict?
- Is your organization losing customers because of conflict?
Lack of motivation
Disengaged employees demonstrate signs of low morale and, more notably, a lack of motivation. When employees feel that their problems or the glaring problems around them in a toxic environment will not be adequately addressed, they feel that there is no purpose in their role and no sense of putting effort into their responsibilities.
Employee engagement can be driven by the following:
- The employee’s relationship with their direct supervisor
- The employee’s trust in senior leadership
- The employee’s sense of purpose and pride in their work and the company they work for
Workplace bullying, violence, theft, damage
Workplace bullying, violence, theft, and property damage are prevalent across all industries ranging from the federal government and healthcare facilities to education organizations and retail. No organization is immune to these physical damages in the event that conflict goes unresolved.
Toxic environments foster disengaged employees, which then leads to the intention to waste company time, taking extended breaks, and being absent from work often and for no apparent reason. In more severe cases, employees whose conflict is not addressed are led to feel that their issues are not important or that they have been mistreated are more prone to lash out in various ways that are physically harmful to the organization, employees, and the individual themself.
Employees may destroy company property out of frustration, they may start an altercation with a fellow employee or a supervisor, or in more severe cases, conflicts can escalate to workplace violence or even death. According to the National Safety Council, two million American workers are victims of workplace violence each year. These attacks are categorized as criminal intent, customer or client violence, employee-on-employee violence, and personal relationship.
Risk of lawsuits
Arguably the most financially impactful consequence of unresolved conflict is the potential for legal action. The employee’s desire to sue is not typically focused on financial means, rather sending a message and taking control after feeling like they have not been treated justly. Employers are at risk of facing lawsuits if their employees perceive the company as negligent or indifferent, particularly when it comes to taking appropriate action – or lack thereof – to resolve conflict.
When employers focus on conflict resolution in a clear, swift, fair manner, they significantly reduce the risk for unnecessary, costly lawsuits. However, if issues are ignored or inappropriately handled, the conflict can manifest in other harmful ways (as outlined above) and can require third-party intervention leading to more time, resources, effort, and cost.
To avoid costly lawsuits, it’s crucial to address workplace conflict in a timely, productive, un-biased manner that ensures all parties feel heard in a neutral environment. Professional mediation and investigation services are intended to listen to each side, gather data and evidence, and report on findings.
These services will also provide comprehensive solutions and recommendations intended to help all participants to move forward and continue to contribute positively in a post-investigation workplace environment.
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The Takeaway
This information is not intended to scare leaders and employers into arbitrarily managing their glaring issues in the workplace. It is meant to help you understand the realities and impact of conflict when it is not appropriately addressed, managed, and resolved.
Determine what trends or patterns of dysfunction there are in your team, department, or organization as a whole. Identify the need for intervention and what that intervention may look like – is it one-on-one meetings? A team discussion? Or perhaps is the need for a professional mediator – whatever your needs are, it’s important to pinpoint the strategy required for effectively managing conflict going forward.
The bottom line is that the time and dedication that goes into training and conflict resolution is far less than the cost of unresolved conflict.
If your organization is experiencing conflict, consulting with a neutral third-party facilitator will resolve distracting, challenging situations and empower all participants involved to settle on an agreeable solution and continue being productive within the organization.
At Global Mindful Solutions, we have established a process that aims to provide insightful, comprehensive solutions with a compassionate and unbiased approach. This allows all participants to focus on getting back to work and continue making a positive contribution to their organization while leading a fulfilling role in their careers.
Contact Global Mindful Solutions to get started with neutral, knowledgeable, and effective investigation, mediation and facilitation services.
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