Hidden Costs of Organizational Conflict

Conflict in organizations is not a problem. Well managed conflict contributes to creativity, strategic initiative, more effective systems and communication, stronger workplace relationships and greater commitment to the organization. Organizations shouldn’t attempt to prevent conflict, but should instead focus energy on preventing unresolved or destructive conflict.

Left unresolved or escalating destructively, conflict is expensive, both in financial and human terms. Some conflict costs are easily measured, such as legal fees and losses associated with theft and sabotage. Conflict that escalates so far as to damage an organization’s reputation is measurable in terms of lower earnings or diminished market share. The hidden costs of conflict can be more significant to the bottom line and the overall health of the organization:

Time and salary loss — Studies over the last decade suggest that between 30% and 40% of a manager’s time is spent dealing with employee conflict and helping employees reach agreement. In a study I conducted in 2000, managers’ time on conflict ranged more commonly from 40% to 50% of work hours. The total amount of time spent on a conflict and away from other work typically includes the time of the employees involved, the manager to whom those employees report, and in larger organizations, the human resources manager and legal counsel. It adds up quickly.

Attrition — Research reported in the late 1990s showed that workplace conflict left unresolved for too long leads to team members leaving the company or using valuable work time searching for alternative employment. Employee turnover due to conflict results in severance costs, recruitment costs, training and development costs, and loss of productivity during that period.

Absenteeism and health care expenditures — The Journal of Occupational and Environmental Medicine has reported that health care costs are nearly 50% greater for workers who report high levels of stress. Stress as a reason for absenteeism increased 316% between 1995 and 1999 and studies suggest that it is a common byproduct of unhealthy workplace conflict.

Grievances and related complaints — Between 1992 and 1998, annual monetary benefits for EEOC sexual harassment cases increased from $12.7 to $34.5 million. Annual monetary benefits for EEOC-handled ADA cases increased from $200,000 to $49.1 million during the same period. Neither of these figures includes monetary benefits obtained through litigation.

Other conflict research reveals the following root causes of unhealthy workplace conflict and increased organizational costs:

Lack of information — Even with email, newsletters, reports, and staff and company meetings, conflict arises from lack of information or knowledge in how to use it effectively. It no longer surprises me how frequently in workplace mediations I hear the phrase, "Why didn’t anybody give me that information before now?"

Skill deficits — Most of us were didn’t learn the "Fourth R" in school. We learned reading, writing and arithmetic, but were not formally educated in relationship. Building relational skills, such as those associated with effective negotiation, interpersonal communication, and collaborative problem solving increases employees’ ability to navigate conflict before it becomes destructive.

Ineffective organizational systems — System problems can masquerade as interpersonal conflicts. As I work with parties to peel back the layers of a conflict, it’s not uncommon to uncover ways the organization’s systems are pressing upon one or more of the individuals involved and directly influencing their behavior. These system problems may be invisible until the overt conflict begins.

Ineffective conflict management systems — The informal system of organizational culture (as in the ways employees and leaders show through word and action that "this is how we deal with conflict here") and formal intervention systems can have a profound influence on whether or not conflict unfolds in a healthy or destructive way.

Ineffective use of ADR — While the increasing commitment to Alternative Dispute Resolution (ADR) in organizations is a positive step, it’s often used too late in a conflict, confuses mediation and arbitration, or imposes a process unhelpfully on an unwitting or ill-informed employee. Effective conflict resolution systems, even in very small organizations, create opportunities for conflict to be identified and addressed early and constructively. Effective processes should emphasize collaboration and consensus-building early in the dispute, the use of mediation before grievances or litigation harden positions further, conflict resolution coaching by educated managers, and staff training that supports real behavior change.

Copyright © 2004 by Tammy Lenski. All rights reserved.