Putting a price tag on workplace conflict

Allowed to fester, conflict can lead to turnover, lawsuits, stress leaves and property damage
By Nabil and Gayle Oudeh
|Canadian HR Reporter|Last Updated: 07/18/2011

We all know conflict can exact an emotional toll. Whether it’s a spat with a spouse, a heated exchange with a friend or a difference of opinion with a boss or co-worker, we can be consumed with anger, guilt, regret, confusion, frustration… a whole host of emotions that can be overwhelming and debilitating.

But when conflict erupts in the workplace, there are also very real, tangible financial implications that can have a significant impact on a company’s bottom line.

Take, for example, a recent conflict between two departments (we’ll call them departments A and B) at a mid-size insurance company. No one knew how it all started but the departments didn’t like each other. It may have started out as healthy competition around productivity or because the two department managers were from different generations and had different management styles. Or two friends who were co-workers may have had a falling out.

Whatever the cause, the managers never spoke to each other. Department members were openly discouraged from fraternizing with individuals from the other department. No one in either department had any idea what the other was doing.

Although the conflict between these departments seemed childish and made some people uncomfortable, it wasn’t until an audit revealed the departments had made duplicate purchases of expensive software programs that the company decided the situation needed to be addressed.

Another example of the cost of conflict comes from the experience of Elizabeth (not her real name) at a large manufacturing company. Elizabeth had repeated run-ins with her supervisor, Max. Elizabeth felt Max didn’t trust her and was always second-guessing her. If Max had done so in a respectful and appropriate way, it would have been tolerable, but Max was loud, abrasive and rude.

Elizabeth was increasingly upset by the situation. On the advice of her doctor, she went on extended stress leave. In the end, Elizabeth was away from the job for nearly two years before she felt able to return. Because of Elizabeth’s specialized skills, the company had to hire two new people to cover her responsibilities during her absence. The final bill for the company was hefty, considering the continued pay Elizabeth received while on leave and the cost of onboarding two new employees.

One more example: Jeff was considered a top performer and quickly moved up in the ranks. But those who worked with Jeff complained about his poor people skills — his manner was seen as condescending and demanding. If he didn’t get what he wanted from a colleague or subordinate, he gave them the silent treatment. At one point, a number of employees in Jeff’s team threatened to sue Jeff and the company for subjecting them to a harassing and unsafe work environment. In an effort to protect Jeff, a top performer, the company chose to settle out of court.

Understanding conflict reveals costs

Conflict has hidden costs beyond those identified in the three examples above. To fully calculate the financial toll of workplace conflict, it is important to understand what happens when individuals are not getting along.

At the earliest stages of conflict, communication between disputing parties breaks down. Information is not shared and gossip and complaints increase. This results in a great deal of paid hours where little or no real work is done. The average employee spends 2.1 hours per week dealing with conflict, according to a 2008 study commissioned by CPP Group. In the United States, this amounts to about US$359 billion in paid hours.

As a conflict continues and grows, employee morale decreases and co-workers take sides. When the conflict is allowed to fester, disputing parties may look for opportunities to hurt each other physically, emotionally or financially. This can result in physical violence, work sabotage, property damage or theft.

Many organizations are forced to restructure job descriptions, reporting structures and physical work spaces to address conflict at this stage. Companies may also face potential lawsuits that can cost hundreds of thousands of dollars and take up to five years to settle.

When conflict is unresolved or poorly managed, the individuals involved (this includes the disputants as well as colleagues) may become physically ill, emotionally exhausted or stressed. Costs associated with conflict at this point include extended stress or sick leaves as well as related health benefits such as employee assistance programs (EAPs) and counselling.

The total value of lost work time due to stress in Canada is in the neighborhood of $1.7 billion annually, according to a 2005 study by WarrenShepell. Some employees will leave a company permanently due to the unsatisfactory resolution of a conflict. And when that happens, the turnover costs are somewhere between 75 per cent and 150 per cent of the position’s annual salary.

There are other very real costs of workplace conflict that, while more difficult to measure, impact the bottom line in a significant way. When conflict is left unchecked at a company, clients and customers notice. The result is increased client complaints and loss of customers. And while it’s hard to put a price tag on the loss of creative ideas, quality decisions and productive teamwork because of unresolved conflict, these could ultimately lead to the total destruction of a company.

Faced with the high cost of workplace conflict, many companies want to know how to avoid it. But it’s virtually impossible to avoid conflict in the workplace. The high financial toll, however, does not come with the existence of conflict in the workplace — it comes with conflict that is unresolved.

Conflicts that are allowed to grow and fester have the greatest emotional effect on employees and significant financial implications for an organization. Finding ways to manage and resolve conflict in the workplace as quickly as possible will limit both the emotional and financial impacts.

Nabil and Gayle Oudeh are conflict management experts and principals of the Centre for Conflict Resolution International in Ottawa, providing conflict management training and intervention services. They specialize in restoring workplaces to maximum productivity and functional harmony following workplace crises and organizational change. For more information, visit www.conflictatwork.com.