Controlling the costs of conflict

Opportunity to Gain a Competitive Edge

January 16, 2003
By: Tom Oswald

Success in business depends on several issues, a key one being cost control. Yet many business people are oblivious to the negative impact that the costs of conflict can have on their bottom line. Many even think that they need not be concerned about conflict costs because, for instance, they don't have to deal with unionized labor.

Lately, however, more forward-thinking and success-oriented business professionals are realizing a significant opportunity to contribute to their bottom line with proactive conflict cost management.

Investing in conflict management minimizes the time and money that's wasted in a haphazard, unmanaged manner on internal and external conflict. Designing and implementing an intelligent, integrated conflict-management strategy that includes policies and procedures suitable to the unique features of the business can make all the difference.


An Opportunity for Improvement

Business is a competitive activity, so it naturally breeds conflict. Conflict is the competition of interests. It is neither good nor bad—it just "is." Conflict represents an opportunity for improvement. It is not happenstance that the Chinese written character for conflict is composed of symbols for both danger and opportunity.

As managers and executives learn how uncontrolled conflict can adversely impact their bottom line, they gain an innovative, competitive edge that helps distance them from their competition. They begin to develop an environment in which conflicts are managed intelligently, and their business operation stops wasting substantial resources on unmanaged conflict.

Wasting Resources

When business people consider the conflict in their workplaces, they often think of the following four scenarios, usually in this order:

  1. Conflict between labor and management, which happens whether or not labor is organized formally.
  2. Conflict between supplier and customer.
  3. Conflict among personnel and departments.
  4. Conflict resulting in formalized conflict resolution methods such as mediation, arbitration, and litigation.

Each of these four tiers of conflict bears its own costs—some obvious and direct, and some less tangible. But anymoney and personnel hours expended dealing with conflict problems are being diverted from operations that increase the bottom line. The less time and money consumed by conflict, the more time and money can be devoted to running and expanding the business.

It can be difficult for managers to see how their business is impacted by conflict costs, especially since those costs are not expressed adequately in the financials. However, a business not paying attention to unmanaged conflict can be unwittingly hemorrhaging significant resources of time and money.

"A business not paying attention to unmanaged conflict can be unwittingly hemorrhaging significant resources of time and money."

Realizing the True Costs

The "off-balance-sheet" costs of conflict can be huge and the most difficult to quantify. It's like an iceberg, showing only a small part of its mass above the water. Cost intangibility does not mean that it doesn’t exist, only that it is difficult to identify and report.

Anything that takes employee focus away from work results in a loss to the company. Diffusion of focus due to the stress or anticipation of conflict robs an organization just the same as if the cash box were stolen. Unmanaged or improperly managed conflict drains your staff's time and attention and takes away from your bottom line.

For instance, consider the employee that spends one salaried hour talking to a headhunter because of job stability concerns stemming from mismanaged conflict. Had that hour of productivity not been wasted but instead applied to the advancement of the business, it could have led to the landing of a big account, the solution to a current problem, or the prevention of a future problem.

Let's attach some numbers to that hour spent on the phone with the headhunter. One hour is 12.5 percent of an eight-hour day. If the total cost to pay and logistically support the employee is $100,000 a year, then each hour lost costs the company $50.00. Adding $50.00 worth of lost value in terms of what the company might have earned had the employee performed the job for which he is being paid, the company is actually out $100 for that hour.

The costs of conflict might show up on the financial sheets as more money spent for attorneys, CPAs, and legal costs. Discernable problems and patterns in collecting receivables and disbursing payables can also indicate conflict costs. Rising insurance costs also can indicate problem areas.

Optimal Resolution
Managing conflict and developing positive relationships, whether inside the company or with outside contacts, requires:

  • Proactive reduction of conflict before it happens.
  • Dedication of processes and policies to the constructive expression and management of conflict as it occurs.
  • Creation of plans, procedures, and relationships to resolve conflict in the most mutually satisfying and economical manner.

Optimal resolution requires a more collaborative, less adversarial approach. Expanded communication enhanced by skilled facilitation, conflict skills training, and bottom-line oriented conflict management can save an organization unnecessary conflict costs.

In addition to boosting the tangible bottom line, proactive conflict cost management can transform an organization’s internal and external relationships. People working and doing business together comfortably and effectively, sharing common goals and respect, can maximize business success.

Tom Oswald is a commercial mediator and ADR consultant with Mediation Transformation LLC, 9225 Stover Lane, Cleveland, Ohio 44141 USA; Phone: 440-838-1435;

Tom Oswald

Contributing Writer