How much are team conflicts costing your business?

Conflict costs in companies are a significant but often underestimated cost factor. Especially in young companies and scale-ups. 

In start-ups or small companies, the cost of conflict per employee can be higher in relative terms, as the loss of a single person or the time spent on conflict resolution can account for a larger proportion of total working time and costs.

Conflict costs in the event of conflicts in founder or shareholder teams

Conflicts in founder or shareholder teams can be particularly costly as they directly affect the management level and therefore have a significant impact on company decisions and strategy. As the founders and managing directors are also shareholders and the exit option is not so easily available, the risk of protracting conflicts is particularly high. Last but not least, in 25% of insolvencies, the reason given is a dispute within the founding team.

• Professor Noam Wasserman writes in "The Founder's Dilemma" that 65% of high-potential start-ups fail due to unresolved tensions and conflicts between founders.
• A study by the Institute for SME Research (IfM) shows that around 20% of start-up failures are directly attributable to internal conflicts within the founding team.

The facts

I'll summarise the most important findings here, which can be found in various studies and sources. Unfortunately, the study situation is rather poor:

Amount of conflict costs

• According to a 2009 KPMG study, conflict costs in companies regularly amount to around 20% of personnel costs.
• 10-15% of working time in organisations is spent on conflict resolution.
• Managers spend 30-50% of their weekly working time directly or indirectly dealing with conflicts or the consequences of conflicts.
• Companies with up to 100 employees incur annual conflict costs of between 100,000 and 500,000 euros.
• Every second company surveyed spends at least 50,000 euros a year on failed or delayed projects, one in ten even spends more than 500,000 euros.

Specific cost factors

• Absenteeism due to workplace anxiety and bullying costs companies around 30 billion euros a year.
• The average cost per bullying case is estimated at just under 60,000 euros.
• Staff turnover costs, severance payments and downtime and health costs due to internal conflicts cost companies several billion euros every year.

Gallup Engagement Index

You may be wondering what the Gallup Engagement Index has to do with conflict costs. Conflicts within the team or company are a major influence on employees who have already resigned or are looking for a job. That's why I find it so interesting to look at the figures from the current Gallup Engagement Index Germany 2023. The figures for Germany are as follows:

• Only 14% of employees have a high emotional attachment to their employer and experience a working environment characterised by good leadership.
• 19% of employees have already resigned internally - the highest figure since 2012.
• 67% of employees are only marginally committed and work to rule.
• 45% of employees are either actively looking for a job or are open to new challenges.
• Only 53% of those surveyed still want to be secure with their current employer in a year's time.
• Only 40% are firmly convinced that they will still be working in their company in three years' time.
• Only 22% are completely satisfied with their direct manager.
• 40% of respondents have full confidence in the financial future of their employer.
• Only 25% believe that their management can successfully master future challenges.

Calculation models for conflict costs

Different studies have different approaches to calculating conflict costs:

• An Austrian study determined an average savings potential of 19% on the basis of the respective cost base through the positive handling of conflicts.
• Another study came to the conclusion that around 21% of working time is lost due to unresolved conflicts, resulting in costs of 7,360 euros per employee.
• In 2009, an entrepreneur in a medium-sized company with almost 1400 employees was able to save €300,000 a year by introducing a structured conflict management system.

Conflict costs in companies vary significantly  and can vary depending on the size of the company, but they always have a significant economic impact. The specific costs depend heavily on the type and extent of the conflicts and the effectiveness of conflict management.

With the Koru conflict cost calculator, I make these hidden costs tangible. It helps you to get a well-founded estimate that goes far beyond your gut feeling. Because as entrepreneurs, you know that estimates are often the first step towards greater clarity and better decisions.

Sources:

KPMG (ed.), Alexander Insam/Uwe Achterholt/Andreas Reimann, Konfliktkostenstudie - Die Kosten von Reibungsverlusten in Industrieunternehmen, 2009, p. 1 ff.
Unternehmerschaft Düsseldorf und Umgebung e.V. (ed.) with KPMG: Best Practice Conflict (Cost) Management 2012 - The true value of mediation
Noam Wasserman: The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, 2013
www.akasor.de
https://maluschka.com/blog/horror-studien-fuer-unternehmer-20-prozent-der-personalkosten-finanzieren-konflikte/
https://www.betriebsrat.de/news/verhandlung/konflikte-kosten-geld-20241
https://www.konfliktkostenrechner.de/
https://kultur-wandeln.de/konfliktkosten-in-unternehmen-ein-ueberblick/
https://www.andrea-von-graszouw.de/konfliktkosten-in-unternehmen