The Largest Hidden Cost in Your Business

What do you think is the largest hidden cost in your business?

Let me give you a hint it's not something you'd usually think of, like the cost of inventory, marketing or overpaying for goods or services.

Sure, all of these can have a serious impact on your bottom line, but seldom are any one of them the biggest drain on a business.

So, what is this mysterious cost? Surprisingly, it's the cost of conflict.

And when I say conflict, I don't mean obvious conflict like your boss shouting at interns or screaming matches between colleagues. The conflict I'm talking about looks a lot more like strained relationships.

According to Forbes magazine, a shocking 60%-80% of all organizational challenges come from strained relationships between employees.

Also, a study of practicing managers published in Leadership Quarterly found that 42% of managers' time is spent dealing with conflict.

Wow, that equals more than two days per week! What's even worse is that all this conflict involves more than just managers.

This means your business is losing productivity on multiple levels.

I don't know about your organization, but mine can't afford that much wasted time.

Think about how much more productive and profitable your business would be if you could prevent or reduce conflict.

I hear the cash register going cha-ching already.

But, before we can reduce conflict, we need to learn to recognize it.

The Faces of Conflict

What does conflict in the workplace look like?

It turns out that conflict has many faces...and they are usually hidden in plain sight.

One of these faces is stress at work.

There are many surveys and reports, such as the Working Dynamics Report, that identify interpersonal conflicts between co-workers as one of the main causes of workplace stress.

It's understandable why many people state that daily interpersonal conflict at work is one of the most stressful parts of their jobs.

We would all become exhausted if we had to regularly work under stress. In fact, according to the Global Human Capital Report, more than 20% of employees feel demotivated by ongoing conflict.

And when demotivation takes over, employees stop being engaged in their jobs and productivity levels go down the drain.

This lack of engagement quickly turns into presenteeism people being physically present but mentally absent. In other words, the lights are on, but nobody's home. Employees spend a lot of time figuring out how to deal with ongoing conflict and discussing it with co-workers, instead of doing actual work.

Can any organization afford to pay people for work they never deliver?

I don't think so ... at least not for long.

When conflict remains unresolved, presenteeism and lack of engagement result in absenteeism.

Employees become not only mentally, but also physically absent from work. They feel that the only way to deal with conflict is to avoid it, so they show up a lot less regularly.

In the end, when strained relationships take their final toll, it often causes people to resign.

Why work on resolving conflict when you can do meaningful work in another organization where there is much less conflict?

This is how conflict leads to high employee turnover, which has direct impact on hiring, training, and overall personnel costs.

When I think of all the money wasted to hire those replacements, I feel sick to my stomach.

Not to mention that a new employee might take more than a year or two to reach the productivity level of the former employee and that's a lot of time that could have been better spent on improving a business!

When good employees start leaving, this can also potentially damage the reputation of our business and make it difficult to maintain a stable workforce.

Let's face it, people won't be too eager to apply for the next job opening at a company if they see employees coming and going all the time.

If we look at all the faces of conflict at work lack of engagement, presenteeism, absenteeism, high employee turnover and damaged employer reputation it becomes crystal clear that conflict can be a huge financial drain on our business.

Now, let's look at what we can do about it.

Reducing Conflict

Before we go further, it is important to understand that conflict can't simply be avoided seriously, we're dealing with people here, and where there are people, there is going to be conflict.

The key then is not avoiding it, but learning to reduce it.

Fortunately, when we do manage to minimize conflict in our business, we're reducing stress while increasing engagement.

As engagement levels rise, presenteeism and absenteeism decrease, which helps us minimize employee turnover.

Guess what? Your employees become focused and engaged, performance levels become higher than ever before, and costs are reduced.

Also, lowered stress levels make your employees genuinely happy to work for you.

And a happy employee is a productive employee.

This way, your team gets more work done in a shorter time span while you're saving money.

Further, by reducing the costs that go hand in hand with conflict, we create a competitive advantage for our business and our organization becomes a talent magnet.

But, what if we don't reduce conflict? How much does conflict cost an organization in real numbers?

You might be surprised.

As mentioned earlier, conflict and its many faces affects your business in so many ways, from low engagement and lack of productivity to recruitment, retention and training costs.

When you put those together, they make a huge financial difference.

Not convinced?

Just wait until our next article when I examine the cost of conflict and attach real dollar amounts to it. I think you'll be quite surprised at the size of the figures.

Until next time,

Ken