Mediation: The Cost of Conflict and the Value of Systems Design and Organizational Democracy

Mediation and the cost of conflict

Mediation and Arbitration:

The Costs of Conflict and the Value of Systems Design and Organizational Democracy Bennett Root Straus Institute, Pepperdine School of Law Final Paper, Systems Design, Course 2282 Professors Kenneth Cloke and Joan Goldsmith April 18, 2022

The Costs of Conflict and the Value of Systems Design and Organizational Democracy By Bennett Root Table of Contents 1. Introduction. 1 2. The Costs of Conflict—A Drag on Growth and Profitability. 3 2.1 Costs of Conflict, The View from 40,000 Feet 3 2.2 Model for Calculation of Subtractive Organizational Costs of Conflict. 5 2.3 Managing Unmanaged Conflict—Profits from the Recoverable Cost of Conflict 9 3. The Promise of Systems Design and Organizational Democracy. 12 3.1 Organizational Democracy and Internal Dispute Resolution as Alternatives to Directive Management 12 3.2 Bottom-up Decision Making—Doer Knows Best Organizational Democracy. 13 3.3 Other Elements of Systems Redesign as Alternatives to Directive Management 16 3.4 Costs and Limits of Organizational Redesign. 18 4. Using Conflict Analysis to Focus Organizational Design. 21 4.1 Conflict Assessment Diagnostic. 21 4.2 “Squeaky Wheels” and Redesign of Systems and Organizations. 22 4.3 Measurement and Reward of Results. 24 4.4 Metrics to Support Teams and Create Self-Correcting Systems. 24 5. Harvesting the Benefits of Organizational Design. 25 5.1 Where Organizational Design and Democratic Systems Work Well 26 5.2 Imagining a Hybrid Organization—Finding the Optimum Locus of Decision Making. 26 5.3 Implementing Solutions—Eating the Elephant One Bite at a Time. 27 6. Conclusions. 28 Appendix A. 30 Sample Conflict Assessment Diagnostic Questions. 30 Works Cited. 31

The Costs of Conflict

and the

Value of Systems Design and Organizational Democracy

1. Introduction

Conflict being endemic to human relationships, substantially all business organizations, and the systems comprising them, will experience conflicts throughout their lifetimes. Each conflict will burden the organization with costs: financial costs, opportunity costs, competitive costs, as examples, depending on specifics of the conflict. Some of these conflicts and their attendant conflict costs may provide a net benefit to the organization. I see these as additive conflict costs because they represent a net value-add to the organization. A good example would be conflicts which are associated with innovation of new products or processes (Hayes, Jeff, 2008, p. 2). Other conflicts are subtractive; their associated costs produce net losses which reduce profitability, and which may limit future growth.[1] Reducing an organization’s subtractive conflicts costs represents a potential net gain in EBITDA for the organization and may increase free cash flow, becoming a fresh pool of funds available to meet other organizational needs. Thus, if the costs of these subtractive conflicts are material, and if they can be affected or controlled by the organization, they will warrant the thoughtful attention of senior managers. Initially it is the magnitude or materiality of subtractive conflict costs upon which I wish to focus.

It is widely believed that the design of an organization and the strength of its leadership are significant factors in contributing to an organization’s costs of conflict (Cloke & Goldsmith, 2021, p. 228).[2] If follows, then, that organizational design (or redesign) may be an effective process through which organizational conflicts, and thus the overall costs of conflict to an organization, can be influenced. If an organization’s subtractive costs of conflict can be reduced or eliminated by organizational redesign, that too, will warrant thoughtful attention by senior managers.

For centuries, America’s businesses have been organized and operated, almost exclusively, with a top-down, directive management style, often as autocracies supported by a clearly established hierarchy. More recently, however, a few innovators have broken this historical paradigm, implementing alternative decision-making systems or processes driven by Deming’s principles or Six Sigma statistical analyses, alternative dispute resolution conflict management systems, or various forms of organizational democracy. Each of these alternatives to, or modifications of, a central authoritarian or directive management style has its success stories and its proponents. Each may reduce certain organizational conflict costs. Deming principles and Six Sigma systems are beyond the scope of this paper. Rather it is ADR conflict management systems and organizational democracy as modifications to a directive or authoritarian organizational design which I wish to explore. Specifically, I wish to consider how systems redesign, including organizational democracy, may serve as a modification of traditional directive management organizational design, reducing an organization’s subtractive costs of conflict and thus becoming a preferred design alternative to the directive style of management.

The principal questions, then, to be addressed in this paper are three: First, what does conflict cost an organization, particularly subtractive, non-productive conflict? Second, what net benefit(s) might system redesign and organizational democracy contribute in the form of reduced conflict costs and what value-adds might these processes bring to the organization? Third, how and where can the net benefits of organizational redesign, including introduction of democratic systems, be harvested by an organization?

2. The Costs of Conflict—A Drag on Growth and Profitability

2.1 Costs of Conflict, The View from 40,000 Feet

There is a broad consensus that conflicts are pervasive in business, an “integral dynamic” (Slaikea & Hasson, 1998, p. 5) within all groups, and that the costs of those conflicts are “high” (Baril, 2021). There is not, however, a similar consensus regarding how those essential conclusions are supported and what contributes most to those “high” costs. Rather, there is a large array of research data drawn from a broad sampling of businesses. Aggregating the data, one can reasonably infer that conflicts abound, and the costs of conflicts are indeed high. The good news buried in the data is that substantial amounts of those high costs can be managed down to a much smaller amount by application of one or more conflict management tools, often a form of alternative dispute resolution, especially mediation (Insam, 2012). But when one asks, “How much can conflict costs be managed down?” or “How exactly would I start to manage conflict costs down?” there is no one answer, or even a common technique. As is often the case with data drawn from many disparate sources, “It depends.” The devil is in the details.

As to the conclusion there is a high cost of workplace conflict, generally speaking, it is reported that up to 20% to 40% or more of management time[3] (and presumably the cost of employing such executives) is taken up by conflict management—time that might better be used doing the various jobs for which they were hired. Another study puts the average work time spent by all employees dealing with conflicts at between 5% to 7% of the normal workweek,[4] suggesting a substantial portion of the employer’s payroll cost is not spent producing product or rendering services, but “dealing with” conflicts (Ahrens, 2022). Those conflicts “waste time” in a multitude of ways (Lazan, The Financial Cost of Conflicts in Organizations, 2022). Wasting time tops the list of the costs of conflict (Hayes, Jeff, 2008) (Mediation Training Institute, Eckhard College, 2022). Beyond wasted time, these conflicts produce collateral damage such as stress in the workplace, the number two cost contributor; stress causes mistakes and drives up health care costs for employers (Mediation Training Institute, Eckhard College, 2022). Additionally, human resource data confirms that employee turnover represents a significant cost which is driven by the corrosive influence of workplace conflict (Center for Creative Leadership, 2022), leading to substantial additional costs for engaging and training replacement workers (Pollack Peacebuilding Systems, 2022). A study at Columbia University concluded that turn over at organizations with a poor corporate culture is about four times that of companies with a healthy corporate culture (Medina, 2012). Farther down the list of costs, perhaps because it is harder to measure, is loss of efficiencies. Studies confirm that the existence of workplace conflicts undermines good morale and undercuts essential efficiency in job performance, both for individuals and for teams (Hayes, Jeff, 2008) (Mediation Training Institute, Eckhard College, 2022). No math genius is needed; a simple review of this catalog of conflict-caused costs would indicate that, in total, these costs could be very substantial. As Professors Kenneth Cloke and Joan Goldsmith observe, “If you add up these costs, they are just overwhelming” (Cloke & Goldsmith, 2021, p. 229).

Importantly, these data also support the overall conclusion that substantial portions of workplace conflict costs can be managed down. Studies based on research at companies as diverse as Brown and Root and Motorola are regularly cited to show that outside litigation expense, that omni-present bad boy of conflict costs, could be reduced by 75% or more by implementation of ADR programs (Slaikea & Hasson, 1998). The Air Force reported the cost of settlement of 100 test cases involving fair employment conflicts could be reduced a whopping 50% by adopting mediation systems as part of the dispute resolution process (Slaikea & Hasson, 1998). [5] KPMG’s broad endorsement of mediation as part of companies’ systems rests on data that costs are substantially reduced by overall ADR conflict management, and implementation of internal mediative processes in particular (Insam, 2012). From these data, Professors Cloke and Goldsmith admonish us, “Massive costs are incurred as a result of conflict, and massive savings can occur as a result of conflict resolution” (Cloke & Goldsmith, 2021, p. 229).

Outside of the oft cited Brown and Root, Motorola, and Air Force studies referenced above, most reported data does not correlate specific types of conflicts with specific costs. Of course, macro data will not always be applicable in micro circumstances, so these costs may not be experienced in the amounts indicated by any specific company. But all data points to the conclusion that the costs of workplace conflicts are indeed very material and are very manageable.

These macro data also support the conclusion that the best tools to manage costs down would be establishment of an overall company culture and the use of ADR concepts and systems. And if ADR process can reduce costs substantially, as KPMG and others conclude, what greater gains might be attainable if democratic process at the source of conflicts could finesse or eliminate the conflicts in the first place? Hold that thought. Before I examine that tantalizing proposition, there is more to know from existing research regarding the costs of workplace conflict.

2.2 Model for Calculation of Subtractive Organizational Costs of Conflict.

An organization’s costs of conflict is an aggregate of a multitude of hard and soft costs. Dr. Daniel Dana, one of the first to consider the financial costs of organizational conflict, categorized eight types of conflict costs (Dana, 2006):

· Wasted Time

· Reduced Decision Quality

· Loss of Skilled Employees

· Restructuring

· Sabotage/Theft/Damage

· Lowered Job Motivation

· Lost Work Time

· Health Costs

KPMG followed with a slightly different categorization in its Circle of Conflicts, but, significantly, added external stakeholders’ costs, including loss of clients and vendors and loss of new business relationships (Insam, 2012). The Dana and KMPG foundational work has spawned a variety of public and proprietary on-line web posts[6] and “conflict cost calculators” most of which are offered by providers of conflict cost reduction services or consultancies. Among those I tried,[7] I found most too simplistic to offer much useful guidance for three reasons: (1) the wide variation of experience among organizations; (2) the importance of soft costs of conflict and the fact that soft cost are hard to quantify; and (3) the fact that on-line calculators start from known costs (or in many cases estimates or SWAGs), not costs developed from individual conflict analysis based on that organization’s actual experience and the segregation of additive costs (the ones that create value-adds) from subtractive value of those costs,[8] those resulting from conflicts that do not add value to the organization.

Unlike many “benchmark” costs that can be similar for entities in the same SIC or NAICS Code, cost of conflict can vary substantially from entities performing essentially the same business, but with different internal organization and operational systems, especially how isolated and directive senior management is, and how effective are downward and upward communications within the organization. This variability suggests that each organization should determine its own costs of conflict. Because organizational costs of conflict can be very material, and they are often very controllable, it will make sense to do the calculation multiple times, starting with overall guesstimates that might be completed in an afternoon by one knowledgeable in a business unit’s affairs, to one completed over several weeks or more by a team of financial and HR specialists, perhaps with the assistance of an external consultant specializing in cost of conflict analysis, such as one of those referenced earlier at Note 7.

For purposes of this paper, I have used the following groupings of costs as components of the overall costs of conflict:

Determining the Accessible Cost of Conflict

Cost Description

Sources of Cost Data

Notes

1. External conflict management and disposition costs, such as outside legal fees and costs; forensic accountings costs; expert and consultant costs resulting from conflicts, settlements costs, judgments costs and related costs.

These are hard costs, usually well documented, but sometimes hidden in overall legal or professional costs. Finance or legal should be able to report accurately.

It may be helpful to average these costs over several years as there can be large fluctuations in numbers if sizeable matters occur infrequently.

2. Internal conflict management costs, such as executive and supervisory time and expense associated with management and disposition of conflicts; human resources, inside counsel and employee time and expense devoted to conflict matters, including restructuring costs.

These are soft costs, harder to develop with precision, but internal surveys may help establish the quantity of time spent by various levels of management and supervision, and finance can establish rough costs of time lost from payroll records. Be sure to fully load payroll costs.

This could be a big number, so investing in determining individual costs can be valuable. If that proves too difficult, however, starting with the default time estimates in the CPP Report (Hayes, Jeff, 2008) but inserting organization’s specific payroll costs which can yield a rough estimate.

3. Indirect operational costs, such as stress costs causing absenteeism and added health and welfare costs; operating efficiencies sacrificed as a result of preoccupation of those involved with conflicts; employee turnover and retraining costs; and known sabotage, theft, and damage costs.

HR will be able to provide estimates of stress costs related to absenteeism, health insurance costs, and turnover (exit interviews will identify turnover associated with conflict matters) and retraining costs. Operating inefficiencies are harder to estimate and may require assessment of gaps between potential and actual productivity.

Productivity loss may be SWAGs, but they may be sufficient to provide an order of magnitude. Supervision may be able to provide more reliable estimates. If significant, an outside consultant may be justified to assess gaps, costs, and to offer remedial suggestions.

4. Opportunity Costs, Opportunities lost, or opportunities not pursued which could have been pursued had involved individuals been free of conflict related matters or distractions.

New areas for business development opportunities may be indicated where competitors are reaching out and embracing change in a different way than one’s organization. Are your business development teams distracted?

Michael Lazan at Arbinger.com suggests that a formula of 75% of the average manager’s salary for one of every six managers would be an estimate consistent with Dr. Dana’s research. (Lazan, The Financial Cost of Conflicts in Organizations, 2022)

5. Reputational Damage Costs. Such as brand equity losses, eroded competitive position, and market share slippage.

External data on market share change and changes in CAGR and other internal data may provide some measure of gains or losses in reputational equity. Some portion of any losses may be attributable to unmanaged conflict.

Social media posts sometimes are the harbinger of reputational loss in an organization’s product or service rankings. Other web studies and media posts can indicate loss of competitive position.

Securing baseline estimates for these five components of cost is certainly not a science, especially as one moves through the list. But making a serious estimate will provide a starting point. The aggregate number thus determined is the total cost of conflict for the organization at the end of the period for which the calculation is made, often the last fiscal year. This is the organization’s Accessible Cost of Conflict (“ACC”). Being derived from other costs being borne by the organization, it is the belief of the author, and the various researchers and commentators cited herein, that some of all of these costs could be eliminated and that amount eliminated from the Accessible Cost of Conflict would drop to the bottom line, that is become a profit to the organization.

Is the Accessible Cost of Conflict a big enough number that further investigation is warranted? If the ACC, less, say, an arbitrary 25% for costs to the organization for managing the conflict costs in the ACC, were added to the organization’s profits, how would the organization’s performance be measured?

2.3 Managing Unmanaged Conflict—Profits from the Recoverable Cost of Conflict

Despite disparate starting points and analyses of the costs of conflict, there is general agreement that, “If managed improperly, [organizational conflict will cause] businesses’ productivity, operational effectiveness, and morale [to] take a major hit” (Hayes, Jeff, 2008, p. 2). As observed by Dr. Dana, in his pioneering analysis of managing costs of conflict, “Unmanaged employee conflict is perhaps the largest reducible cost in organizations today—and probably the least recognized” (Dana, 2006, p. 13). In order to assess the validity of this proposition for any given organization, it is necessary to determine the organization’s accessible cost of conflict in the five categories discussed above. It is, then, necessary to adjust the numbers in each category to eliminate costs that the organization has no ability to manage. The result is the Recoverable Cost of Conflict (“RCC”). From experience with a manufacturing firm by which I am engaged to manage some of their conflicts, I estimated Recoverable Costs of Conflict for a hypothetical manufacturing company using the following analysis:

Recoverable Cost of ConflictACC CostRCC Adjustment FactorRCC Cost1. External conflict management and disposition costs50% of external conflict and disposition casts are manageable $11,000,00050.00%$5,500,0002. Internal conflict management costs25% of executive payroll and 6% of office and production payroll are caused by manageable conflict $12,500,00025.00%$3,125,000$50,000,0006.00%$3,000,000$20,000,0006.00%$1,200,000 $7,325,0003. Indirect operational costs33% of turnover and training; 10% of Worker's Compensation cost; 5% of Health Care cost; and 1% of blow the line expenses occur because of manageable conflict $5,000,00033.33%$1,666,500$10,000,00010.00%$1,000,000$20,000,0005.00%$1,000,000$150,000,0001.00%$1,500,000 $5,166,5004. Opportunity Costs12.5% of managerial payroll is due to conflict (75% of one in six salary) $12,500,00012.50%$1,561,875 5. Reputational Costs25% of lost CAGR in previous 3 years $25,000,0001.00%$250,000Recoverable Conflict Cost$19,803,375EBITDA$47,000,00010.44%Organizations Sales$450,000,0004.40%

For this company, there is almost $20M in Recoverable Cost of Conflict, or approximately 4.4% of the organization’s annual sales. Using Systems Redesign tools or implementing Organizational Democracy in certain operations could make a huge difference to this company’s profits and enterprise value. If half the success reported by Brown and Root/Motorola and the Air Force derived from following their path as referenced above, this organization’s profits and enterprise value could jump substantially. If one assumes a 25% cost for conflict reduction costs and one third of the gains were shared with employees (the Shared Recoverable Costs) profits would be increased almost $5M (10%) and the overall enterprise value could increase between $25M and $30M.

While each organization’s Recoverable Conflict Cost will be different depending on actual costs for that organization within each category of the Accessible Costs of Conflict and the Adjustment Amounts for each category derived from the research noted in Section 2.1, some rough estimates of potential RCC as a percentage of sales might be interpolated from payroll data for organizations in differing business verticals. My interpolation for various industry sectors follows:

SectorPayroll[9]RCC % SalesManufacturing18.00%4.40%Healthcare45.00%11.00%Insurance9.00%2.20%Construction20.00%4.89%Hospitality30.00%7.33%Retail15.00%3.67%Technology39.00%9.53%

The numbers set forth in the example used here are preliminary and may understate the Recoverable Costs of Conflict. For many enterprises with sales between $50M and $250M it is believed that the RCC as a percent of sales will be higher than those calculated above. More refined data regarding ACC and projected RCC will be province of a business white paper. Suffice it to say that for most companies, there is enough potential gain in profit and enterprise value to make it worth doing a thoughtful exploration of Accessible Costs of Conflict and Recoverable Costs of Conflict. Given this, what I will focus on for the balance of this paper is what might be done by way of Systems Redesign and implementation of Organizational Democracy to recapture some of the Recoverable Costs of Conflict.

3. The Promise of Systems Design and Organizational Democracy

Organizational and systems design are processes of restructuring and realigning the decision making, communications, and workflows of an organization or system to better accommodate the goals of the organization/system and the realities of circumstances in which the organization/system functions. These processes are available to all types of organizations, including businesses. If the goal of a business is to maximize profits available for distribution to owners and other stakeholders, reducing the Recoverable Costs of Conflict will meet that goal.

3.1 Organizational Democracy and Internal Dispute Resolution as Alternatives to Directive Management

Students of English and American history will recall that King John and King George III both learned that redesign of their organizations as they existed just before the Magna Carta in 1215 and the Declaration of Independence in 1776 were necessary to meet the established goals of the then dominant power within the organization and the realities of circumstances in which the organization functioned. In both cases, conflicts had built to a point where they could neither be avoided nor endured, and a change in the organizational system was required to meet the goals of those then controlling the organization. Ditto in Paris in 1789, in Saint Petersburg in 1917, and countless other examples. The learning from these examples is as reliable and broadly applicable as Newton’s Laws of Motion.

Including Detroit in 1909, when the dominant power, Henry Ford, issued perhaps the most famous of directive management’s dictates: “Any customer can have a car painted any color that he wants so long as it is black.” Fifteen million black Model T were produced, consistent with the organization’s goal of maximizing production and minimum unit cost. But in 1927, in response to new realities of customer demand and alternative products, the dominant power redesigned the systems to produce the Model A in four colors (including black). The same imperative is operational today; when the dominant power in the organization wants to reallocate the recoverable costs of conflict to profits available for stakeholders, it can redesign the organization to accomplish that objective. This is the wisdom to be derived from the experiences of pioneers in organizational redesign. Among the design alternatives is relocation of decision-making to working teams and creating self-managing systems. Other design alternatives are creating systems to internalize dispute resolution, including adopting collaborative processes. I will examine both of these alternative design elements as methods for moving Recoverable Costs of Conflict to bottom-line profits.

3.2 Bottom-up Decision Making—Doer Knows Best Organizational Democracy

As was discussed in our materials and in class in Sessions 1 and 2, within the hierarchal structure of most businesses today, the desires of top management may not be transmitted fully and accurately to the people designing and making the products or rendering the services (Cloke & Goldsmith, 2021, pp. 65-66, 86). And as least as likely, the needs of those doing the work are not accurately transmitted to the decisionmakers atop the organizational pyramid. This is an example of the first-grade telephone game recurring in real life. In this organizational system, communications are regularly distorted or not delivered at all. This will invariably lead to conflict as expectations of decision makers are not met and frustration by those doing the work trends towards apathy or departure for greener pastures. The costs of these conflicts are clearly within the Recoverable Costs of Conflict. Organizational or system redesign, specifically of the locus of certain decision-making functions, may reduce or eliminate these conflict costs. Voilà! System redesign meets the overriding organizational goal of greater profit.

Years ago, I represented a small pet food manufacturer located in Vernon. The total number of employees was modest, and even though the organization was very hierarchal, everyone knew everyone else, there was a sense of common cause, and the operation was very efficient. That efficiency led to an acquisition by an international concern, local management exited, and top-level decision making was removed to the East Coast. Soon enough ownership decided to try to replicate the profitability of the Vernon facility in a greenfield project east of the Mississippi River. About the same time, the efficient, profitable operation of the Vernon plant eroded in almost direct proportion to the inefficiencies of essential communications between the plant and the executive decision makers. Not wanting to import the declining results of the Vernon plant to the new greenfield operation, and not knowing how to build a pet food manufacturing plant, the owners hired some key employees from a famous competitor and told those new hires to figure out how to build a “better mousetrap” at the greenfield location. Given almost carte blanche regarding organizational design, these new hires designed a team-based operation—actually a web of interacting teams[10]—to build and operate a new dry food plant. Teams included those with direct operational experience and/or responsibility for a particular function.[11] Each team chose its own leader, and, additionally, liaisons to other teams. Within very broad parameters,[12] the teams assigned responsibilities within themselves, set their own work standards, and made and enforced their own rules. Production requirements were set remotely; if the plant met or exceeded such requirements, the teams were left to self-governance. If the plant exceeded requirements, excess profits were divided between remote ownership and local teams.

Remarkably, or perhaps not, the new facility was built on time and under budget. The first ten years of operations where I had direct involvement, production goals were routinely met or exceeded. Teams received bonus allocations and individuals were bonused based on team perceptions of contribution.[13] Total compensation was generally the highest received within the local community and work opportunities were very highly valued. The new greenfield plant significantly outperformed its sister operation in Vernon.[14]

The learning here was remarkable: Self-governing teams granted responsibility and authority to manage work related matters within their competence and experience could and would do so efficiently and more effectively than under hierarchical management [15] and traditional pattern collective bargaining agreements. With some success (but usually with deep suspicion), my office sought to replicate the pet food plant’s experience at other clients. We were able to achieve modest redesigns of work organizations towards democratic self-government within local bargaining units with the UAW, the Machinists, and for, local moving and storage units, with the Teamsters. Interestingly, the key to success in each case was not how self-government would be handled—that was left to the “governed”—but rather the scope of the responsibility and authority. And, I believe, whether the trust required to institute self-governance was extended by senior management to information and gain sharing. Though limited in scope, these experiences[16] consistently support the conclusion that proper delegation of self-governance opportunities more than pay for themselves and add significant net value to the business. As I discuss more in the Conclusions section of this paper, I expect one could replicate and even scale the experience of the greenfield plant in many other businesses.

3.3 Other Elements of Systems Redesign as Alternatives to Directive Management

In addition to the use of self-directed teams, the organizational designer has two powerful tools to recapture Recoverable Costs of Conflict: Reshaping the organizational culture to acknowledge and address conflict when and where it occurs, and the institutionalization of external mediation, ombuds or other dispute resolution services.

As was stated earlier, most businesses maintain the historic culture of top-down, directive management.[17] Within that organizational design, conflict was often ignored or swept under the rug. From the Thomas Kilmann model, avoidance was the conflict resolution strategy of choice. For many companies the complaint and dispute resolution system was the “open door policy” like Brown and Root’s, where, “[i]f you open that door, be prepared to walk out the other door without a job” (Slaikea & Hasson, 1998, p. 66). Within any organization, this system may succeed in reducing conflict, but it does so by suppressing, not resolving, conflict. An organization that adopts the styles of directive management and conflict avoidance can expect that the Resolvable Costs of Conflicts will be high, especially in categories 1, 3, 4, and 5.

Alternatively, a company could elect to create and maintain a culture and style in which management acknowledges and addresses conflict when and where it occurs. This style encourages discussion, including complaints, and empowers either peer resolution or direct-report resolution. It would do this by instituting and maintaining a program to educate all employees about the organization’s desire that issues, complaints, and conflicts be raised by direct discussion, and also by training management, supervision and possibly peer review institutions in methodologies for dispute resolution, including basic mediation skills. A number of external consultancies are equipped to train and assist organizations in establishing and maintaining such a culture and supporting dispute resolution institutions.[18]

Some organizations enhance their conflict resolution design by adding an ombuds function or other external, professional mediation-assist to address organizational conflict directly, in situ. Ombudsmen were initially seen in this country as compliance adjuncts to provide a neutral resource as an alternative to directive management (Volkov, 2022). More recently the ombuds concept has been imported and adapted for use by American organizations seeking to address and reduce conflict in the workplace. For this paper, I reviewed the experience of University of New Mexico and its Office of Ombuds Services for Staff, established to promote “constructive conflict management” (Ombuds Services for Staff, 2020). In a special report addressing the costs of conflict at UNM in 2017, the author concluded:

Conflict is inevitable, but many costs of conflict can be avoided. UNM Ombuds Services reduces the human and organizational costs of conflict by providing substantial costs savings to UNM in the areas of payroll efficiency, employee retention, litigation expenses, employee morale and productivity. The combined savings from these reported areas represent a total cost savings of almost $12.5 million (Yarrington, 2017).

In 2020, the Office of Ombuds Services addressed 236 matters directly, and supported 9 “facilitated conversions” (outside mediations). Cost and cost saving data is not yet available for 2020, but it appears the net benefits to the organization are substantial and pervasive. As noted in the Annual Report at p 11:

For the 5th year in a row, 100% of visitors stated that:

· The process seemed fair and impartial

· They felt heard

· They would recommend ombuds services to others

Interestingly, I found ombuds services widely available in colleges and universities, and available in some consumer facing governmental offices, but limited in use by private employers. In a time of tight employment markets and very high employment litigation costs and jury awards, I would expect greater usage of dispute resolution training for managers and supervisors, supplemented by use of ombuds services especially by large employers seeking to reduce Recoverable Costs of Conflict.

3.4 Costs and Limits of Organizational Redesign

While it is clear that some organizations have benefited in significant ways from modification of normal top-down directive management, such as implementation of self-governing teams and implementation of internal mediative processes like ombuds services, there are real costs to the organization. Culture change is hard, even when the top-down directive is to change the culture. Organizational culture is usually an embedded set of values and learned behaviors that are almost reflexive in nature. A top-down directive may express a desire for change, but old ways die hard, and saying something does not make it true (Cloke & Goldsmith, Resolving Conflicts at Work--Ten strategies for everyone on the job, 2011, pp. 2-17). The desired change must be clearly, and publicly, articulated, and then must be fully and unconditionally embraced by the organization’s leaders at all levels, both de facto and de jure leaders. Change must be reflected in the leaders’ behaviors and reinforced publicly. Skills training and behavioral coaching will certainly be beneficial and, in most cases, will be required. Outside assistance may be necessary before the training wheels can come off. Tolerance of learning-curve mistakes, and material disincentives for resistance must be part of the implementation strategy. Costs vary, but when compared to the costs of litigation,[19] distraction, and missed opportunities, fairly measured, implementation of a culture which acknowledges and addresses disputes with a goal of collaborating in finding solutions that produce mutually acceptable outcomes seems a bargain. It may take several years for a changed culture to take root and grow strong, but the time and expense of investing in this change seems warranted, especially where the addressable costs of conflict are high. In such cases, the net potential benefit is a material value-add.

Costs of implementing an ombuds service program would should be relatively minor, perhaps in the range of $25,000 to $40,000 hard cost per year for every 100 employees, plus some incidental administrative time, likely within the HR function, to publicize the availability and benefits of the program and track usage information. For a 500 person plant, the likely Recoverable Costs of Conflict would substantially exceed this cost. The harder question would be how to measure benefits from such a program, a question discussed in Section 4.3, below.

Costs and limits on the scope of organizational democracy are trickier to assess. Here I found some research that considered, “Is organizational democracy worth the effort?” (Freeman & Harrison, 2004). The authors cautioned:

A lot of risks and pitfalls are associated with democratic processes, while payoffs, from an economic perspective, are far from certain.... [Thus,] organizational democracy should be pursued only if there is some practical or economic rationale for doing so (Freeman & Harrison, 2004, p. 52).

This suggests that broad “works councils,” as one might find in the European Union, may not be a good place to start. However, smaller operating units--teams that operate lines or machines, or that collaborate to deliver service-based product--likely present both “practical” and “economic” benefits from team-based self-management. Critical production decisions can be made at the team level in real time without the delays inherent in communicating up and down a chain of command, there is less chance of making a wrong choice because of inaccurate or incomplete information, and the time actually spent on making the decision is likely less expensive time than senior management time. Yes, some time will need to be invested in establishing team leadership, usually by the team itself for best results, and in setting parameters of delegated decision making (Advantages of Self-Managed Teams in Your Business, 2022), but by making the scope of delegated decision making (not the concept of delegation) iterative—start with a little, add as experience indicates—the advantages of self-directed management can be implemented, with the prospect reducing Recoverable Costs of Conflict.[20]

4. Using Conflict Analysis to Focus Organizational Design

Because the research referenced above tells us that conflict in the workplace is both endemic and pervasive, and that the unmanaged costs of conflict are material and essentially rob an organization’s stakeholders of some of the fruits of their labors and investment, I believe the solutions discussed above are appropriate for most organizations. A policy of acknowledging and addressing conflict is the first step to recapturing the Reducible Costs of Conflict. Backing this policy with broad conflict resolution training and an ombuds or external mediation function will not only address the difficult matters but will likely make in situ dispute resolution more effective; it also serves as a deterrent to boneheaded management. Similarly, self-governing teams, especially within production, distribution, and creative functions where worker discretion is an important component of success, will likely improve functionality, reduce conflict, and eliminate some of the errors and problems resulting from poor communications.

Each of these systems, and various additional organizational design options, could be improved were they created and implemented with the benefit of specific knowledge of the types of conflict—especially chronic conflict—and the location of pockets of organizational conflict. To improve these conflict reduction tools, and more directly address the special needs of the specific organization, it will be beneficial to do a thorough Conflict Assessment Diagnostic, a broad review of the experience of conflict within the organization (Cloke & Goldsmith, 2021, pp. 230-232).

4.1 Conflict Assessment Diagnostic

The suggestion that an organization undergo a Conflict Assessment Diagnostic may be met with the same enthusiasm that the suggestion that it is time for a colonoscopy would be received. But each offers the same benefit—it will tell you things that are not known that can save your organization’s life (and it is not anywhere near as difficult). Usually, the Assessment is done by surveying employees about how conflicts might best be addressed, and proceeds in five steps:

1. Assess records of known conflicts to see areas of concentration and pattens that will reveal chronic issues and distinguish outliers which might be prominent, but not necessarily the most important conflicts.

2. Announce the survey, advising all employees of its purpose, confidentiality of survey responses, intended use of survey results, and a timetable for advising employees about survey results and expected organizational responses.

3. Select a survey team that includes representatives of all employees and adapt survey questions[21] to specific organizational characteristics and information needs.

4. Perform survey and tabulate results. Edit out personal identifying information and share survey data and recommendations with top management and then with the survey team. Discuss and decide on organizational response(s) to Conflict Assessment Diagnostic data.

5. Announce results, expected organizational responses, and oversee implementation of new organizational design systems and processes.

Done well, a Conflict Assessment Diagnostic can be an extremely powerful process that can provide benefits for years to come by (1) allowing an organization to schedule detailed organizational responses, (2) proactively resolve previously unknown conflicts which have been holding back successes, and (3) capitalize on enhanced employee engagement and increased employee morale that normally results from doing such an Assessment. Where conflicts cross departmental or functional lines, use of a Conflict History Map will allow easier saucing of conflict roots so appropriate responses can be fashioned (Cloke & Goldsmith, 2021, pp. 203-05, 225-36). To boot, reductions in the Recoverable Costs of Conflicts often far outpace costs of doing the Assessment, any specific conflict mapping, and redesign of organizational processes.[22]

4.2 “Squeaky Wheels” and Redesign of Systems and Organizations

Every organization has squeaky wheels. They are easy to locate because of the squeaking. They should also identify areas for significant opportunity to recapture of costs of conflicts--wasted time by those in conflict, collateral damage associated with those touched by the conflict, management time dealing with the conflict, etc. Addressing the conflict may also save legal and associated costs that often result from dealing ineffectively with squeaky wheels. If positions are set, and impasse reached, or nearly so, introduction of an outside mediator may help resolve the issue, often at a surprisingly low cost, and it brings the concurrent benefit of demonstrating the organization’s responsiveness and dedication to the goal of reducing conflict. Professionals note that when management makes open and obvious moves to reduce conflict, employees usually respond positively, and insertion of new systems becomes easier (Pollack, 2022). When the squeak is gone, positive momentum develops, and cultural change becomes possible. Real results; real gains for the organization.

Doing a thorough Conflict Assessment Diagnostic offers opportunities to the organization well beyond locating squeaky wheels needing attention. The Assessment will allow an organization to pinpoint both chronic conflict and nascent conflict which can be addressed at an early time, before things get squeaky, both reducing future costs and lifting the organization’s overall sense of well-being. Here, dispute resolution training for managers and employees starts to pay off (Lazan, PhD., 2022). It appears that addressing conflicts internally, when and where they develop, creates a virtuous circle, lifting spirits and lifting performance. Costs savings will often manifest as reduced stress, less replacement and retraining, and even better innovation and external stakeholder engagement.

Yet another benefit of a detailed Conflict Assessment Diagnostic is that it will set a series of benchmarks against which future organizational performance can be measured, through which the organization can measure actual recovery of costs of conflict and start to assess the value-adds that can be expected to accompany a continuing dedication to reducing organization conflict.

4.3 Measurement and Reward of Results

Measuring results of conflict reduction programs is always valuable, but not always easy. Measurement is often delayed and is rarely precise (Mark Baril, 2022). All professionals advise, however, not to shy away from measurement; the results are decidedly worth the effort.

Of the five categories used to measure Accessible Costs of Conflict in the first place, the first category, external costs, are easiest to quantify, but are lagging indicators, usually by six to twenty-four months. If costs here are high, the opportunity for gains (“massive savings” [23]) are palpable. The other four categories are harder to quantify, but qualitative measurement will likely produce reasonably accurate results, again as lagging indicators, with macro results manifesting in twelve to twenty-four months. The opportunity for gains here are also quite material.

Results of measurements are important beyond determining how many champagne corks should be popped. They will reveal what is working well and what needs more attention or perhaps system adjustment or replacement. Also very important, results can inform reward systems. Organizations that reward desired behaviors reinforce and strengthen desired behaviors. Again, a virtuous circle is possible. It is beyond the scope of this paper to look at monetary and psychic compensation in the workplace, but it is the author’s experience that sharing the gains from successful conflict management also has a powerful, almost exponential, rate of return. People love being associated with winners. When the data and the paycheck both reflect rewards for continuous improvement efforts, reduction of indirect costs of conflict and gains from reputational enhancement add substantial enterprise value to the organization.

4.4 Metrics to Support Teams and Create Self-Correcting Systems

Where self-managing teams were created, sharing of metrics and rewards through gain sharing, in my experience, was found to increase team members’ regularly assigned performance generally, but sharing metrics also produced improved results in unexpected ways. My experience at the pet food company referenced earlier was that production increased because self-managed teams optimized work tasks. That was the expected piece. But absenteeism and tardiness were also reduced; to get top results, all team members needed to be present and be on time, and the team (not the management or HR) made this happen. Days lost to industrial accidents were also reduced; when employees were more fully engaged, mistakes were reduced. Results in these areas were dramatically better than those in sister business entities with a more traditional organization structure. Teams have a way of securing cooperation of team members to reach team goals in ways hierarchical management structure do not. Additionally, team members were encouraged by their group to bring forward ideas that previously had no audience, and a number of significant improvements in processes and sourcing and handling of materials were implemented over the almost ten years I was working with the facility.

The concept of self-correcting teams is really embedded in self-management. The goal should be continuous improvement, and my anecdotal experience is that self-correction was viewed as part of continuous improvement and was part of the commitment made when the right of self-determination was granted. But the team is part of an integrated whole; it was, and I believe should be, held accountable by the management and the other teams within the organization to make the effort at maintaining optimum alignment, both internally and externally, with the organization’s goals. When a team fails to do this, I suggest it forfeits its right to self-management.

5. Harvesting the Benefits of Organizational Design

When I started the research for this paper, and again as I bring it to a close, I am struck by the fact that there is not more attention paid to reducing conflict as an untapped source of profit and available cash flow. Possibly the foundational research is wrong and there is no gold to find in this mine, but that is not my conclusion. Perhaps the costing models might miss the mark by a point or two quantitively, but I believe they are fundamentally sound. It would seem that the benefits available from managing costs of conflict, as Dr. Dana said, are the most “overlooked” of available organizational benefits (Dana, 2006, p. 13). In this section of this paper I would like to consider where the benefit of recapture of Recoverable Costs of Conflict may be greatest.

5.1 Where Organizational Design and Democratic Systems Work Well

In machine-paced businesses, there may indeed be little opportunity for recapture of conflict costs because the main driver of the business is set by machine speeds, not the ability of the owners or operators to influence the fortunes of the business.[24] In businesses embedded in another’s supply chain, the demands of the purchaser of goods or services may limit the supplier’s options, which in turn limits areas for conflict for suppliers beyond whether, or not, one wants to do business in the first place. But in businesses where there is room for discretion, judgment, creativity, originality, or where value can be created and where diversity of ideas can be harvested, there, the costs of conflict will be greatest, so opportunities for doing a better job will also be greatest. The less advance specifications constrain the product or service, the greater will be the gain which could be recaptured by elimination of subtractive conflict. Creative businesses, emerging businesses, disruptive businesses, for example, all would be better served by a workplace where subtractive conflict can be reduced, and the costs associated with subtractive conflict can be captured and redistributed fairly among stakeholders.

5.2 Imagining a Hybrid Organization—Finding the Optimum Locus of Decision Making

If the business goals are to maximize profitability and perhaps the psychic value of work (I feel good about going to work, empowered and free to do my best work…), the data on costs of conflict tell us that a hybrid organization composed of a top management that sets objectives and invites a network of self-managed teams to design ways to meet the stated objective will have the greatest ability to meet the stated goal (Cloke & Goldsmith, The End of Management and the Rise of Organizational Democracy, 2002, p. 12). With an interlocking web of teams, specialists can combine to deliver peak performance to each task. Conflict cannot be eliminated, of course, and additive conflict should not be muzzled. But subtractive conflict can be reduced by improving conflict resolution skill sets and empowering those involved to find acceptable solutions. Doing so frees up the organization to do what it was born to do and do it at its best.

Align interests compatibly to get the job done, and conflicts will be minimized. When conflict does occur, use ADR conflict management skills to find the best available solution that meets the parties’ interests. Acknowledge and address conflict as soon as it occurs. Use democratic systems in team organized into webs of association where possible. Directive management is not eliminated, but decision making is pushed down to the level where people managing the decision have the skills and knowledge to resolve any conflicts. The result is an organization of hybrid design, blending directive and self-management, with necessary self-correcting tools like those found on ombuds services.

When taken together, the data and experience tell us that this combination of actions will substantially reduce conflict and, correspondingly, the costs of conflict. This formula cannot assure business success, but it can guard against unnecessary failure or a drag on prospects of success.

5.3 Implementing Solutions—Eating the Elephant One Bite at a Time

One researcher considering the boundaries of organizational democracy stated that it was best established when a business was first founded (Freeman & Harrison, 2004, p. 52), implying the benefits of organization design, at least those deriving from organizational democracy, would not be available to established businesses. Case studies say otherwise. Consider the success of Hewlett Packard when it implemented democratic operational governance and created a profit bloom driven by innovation (Menke, Xu, & Gu, 2007).

It was also suggested that implementation of change needed to happen all at once, throughout the business (Freeman & Harrison, 2004). After years of inducing conflict management, I disagree. Such an approach would introduce so many variables and so many points of failure that the risk of negative momentum, and ultimately entropy, would swamp the intended promise of benefits.

A better approach, I suggest, is to cross the Rubicon and burn the boats. Commit to a policy of fairness and early conflict resolution. Enhance skill sets to include conflict management skills. Then do and rely on the Conflict Assessment Diagnostic. Look for pockets of conflict that can be addressed internally, or with the help of an ombuds services or a mediator and take steps to reduce the causes of conflict whenever possible. Let your good works speak to the organization and find another pocket of conflict to address. Simultaneously, look for areas of the business where teams can be established; train them up as needed and empower them to do their best work. Make them accountable and reward their successes. Publicize and repeat.

Eat the elephant one bite at a time, pausing to digest each bite. The task will be easier and the result more satisfying.

6. Conclusions

Concluding this project, I believe there is great value in organizational redesign of traditional business structures so that the autocratic, directive management style of doing business is modified to (1) assure a commitment of all to the principle of fairness; (2) encourage settlement of budding conflicts quickly, when and where they occur; (3) provide tools for mediative resolution of unresolved conflicts; and (4) institute organizational democracy wherever it would be reasonably likely to improve the speed and accuracy of decision-making for the team involved and foster creative resolution of issues. The interesting questions, then, are when and where will this general philosophy be applied appropriately, and how it can best be applied where it is determined to be appropriate. The tools to answer these questions are the Recoverable Conflict Cost calculation exercise and the Conflict Assessment Diagnostic, as discussed herein.

It is hardly news that there is great value in reducing conflicts and the costs of conflict by organizational (re)design with employee empowerment in democratic systems.

We all know the highly celebrated success stories such as Hewlett Packard and Lincoln Electric…. In those companies, increased employee participation and decision making led to high levels of innovation [Hewlett-Packard] or outstanding levels of efficiency [Lincoln Electric] (Freeman & Harrison, 2004, p. 49).

Yet, if asked whether there would be value in doing a systems redesign, including implementation of organizational democracy for any given client, my answer, considering the research cited and the discussion in this paper, would be, “Probably, but it depends.”

We do not, however, need to leave the question with such an ambiguous answer. We can use the Recoverable Costs of Conflict calculator to get a reasonable estimate of what that potential client has on the table, and then—if indeed, the potential recovery is substantial—we can use the Conflict Assessment Diagnostic to build a plan to put that client on an ascendant path to creating a stronger company with an improved workplace. This is no general panacea. Rather, it is a specific (if imperfect) diagnostic from actual data at a specific organization which generates a specific plan for reducing conflict and moving Recoverable Costs of Conflict from an expense to a net profit. Thus, we can put the owners and employee stakeholders on a path to harvest a truer value for their efforts in building their businesses.

-oo0oo-

Appendix A

Sample Conflict Assessment Diagnostic Questions[25]

1. How much money was spent on lawyers, forensic accountants, and experts due to conflicts which produce lawsuits or contested agency cases (EEOC, DOL/FLSA, OSHA, NRRB, etc.)?

2. How much time is spent by management managing, preparing for or responding to matters referred to in question No 1? How much time is spent by HR? By the internal legal department?

3.How much time was wasted or spent due to discussion, rumors, gossip, talk, lost productivity and reduced collaboration due to conflicts at work and matters referred to in question No. 1?

4. What is the impact on morale and motivation of conflicts and matters like those referred to in question No 1? How do conflicts affect creativity, desire to work or attendance at work?

5. How many conflicts recur or keep coming back because they are not fully resolved?

6. What opportunities or customers have been lost because of conflicts? What could or should be done that is not done because of conflicts and matters like those referred to in Question 1?

7. What do people do when they find themselves in conflict? Where do they go for help?

8. How does leadership respond to conflicts? How should they respond?

9. How satisfied are people about how the business resolves or responds to conflicts and issues?

10. How are negative behaviors or conflicts dealt with, punished, or rewarded?

11. What systems could be used to prevent, reduce, or help resolve conflicts?

12. What skills do leaders, managers and employees need to help resolve conflicts?

13. How satisfied are employees with how conflicts are handled?

14. What are the values, or principles or the business regarding conflicts and how they are handled?

15. What are the messages sent by the organizational culture regarding conflicts?

16. Do you think employee training about conflicts would help reduce them? What kind of training?

Works Cited

Advantages of Self-Managed Teams in Your Business. (2022, April 15). Retrieved from Outcomes.business: https://outcomes.business/2012/01/27/the-advantages-of-self-managed-teams-in-your-business/

Ahrens, O. (2022, April 9). Comprehension of Conflict. Retrieved from Reconciliare Business Mediation: https://www.konfliktkostenrechner.de/home#

Allen, S. (2022, April 15). Mediator. (B. Root, Interviewer)

Baril, M. B. (2021, February 16). The High Costs of Unmanaged Conflict in Your Organization. Forbes, p. 6.

Baril, M. B. (2022, April 6). Senior Practitioner. (B. Root, Interviewer)

Center for Creative Leadership. (2022, April 9). The 7 Costs of 'Conflict Incompetence". Retrieved from Center for Creative Leaders: https://www.ccl.org/articles/leading-effectively-articles/the-cost-of-conflict-incompetence/#:~:text=Employee%20turnover.&text=The%20cost%20of%20finding%2C%20training,t%20get%20frustrated%20and%20leave.

Cloke, K., & Goldsmith, J. (2002). The End of Management and the Rise of Organizational Democracy. San Francisco: Jossey-Bass.

Cloke, K., & Goldsmith, J. (2003). The Art of Waking People Up. San Francisco: Jossey-Bass.

Cloke, K., & Goldsmith, J. (2011). Resolving Conflicts at Work--Ten strategies for everyone on the job. San Francisco: Jossy-Bass.

Cloke, K., & Goldsmith, J. (2021). Resolving Orgaizational Conflict. Dallas, Texas: Good Media Press.

Dana, D. (2006). Managing Differences: How to Build Better Relationships at Work and Home (4th Ed.). Kansas: MTI Publcations.

Freeman, J. S., & Harrison, R. E. (2004). Is Organizational Democracy Worth the Effort? Academy of Management Executive, 49-53.

Fundsquire. (2022, March 27). How Much Does Payroll Cost Companies? Retrieved from fundsquire.com: https://fundsquire.ca/how-much-does-payroll-cost-companies-percentage-by-industry/

Hayes, Jeff. (2008). Workplace Conflict and How Businesses Can Harness It to Thrive. Mountain View, CA: CCP, Inc.

Insam, A. (2012). Best Practice Conflict (Cost) Management 2012 The true value of mediation. Düsseldorf: KPMG.

Lazan, M. (2022, April 13). PhD. (B. Root, Interviewer)

Lazan, M. (2022, April 9). The Financial Cost of Conflicts in Organizations. Retrieved from Arbinger.com: https://arbinger.com/whitepapers.html

Mediation Training Institute, Eckhard College. (2022, April 9). The Cost of Conflict. Retrieved from Mediation Training Institute Whitepaper: https://www.mediationworks.com/white-paper-cost-of-conflict/

Medina, E. (2012). Job Satisfaction and Employee Turnover Intention: What does Organizational Culture Have To Do With It? . New York: Columbia University.

Menke, M., Xu, Q., & Gu, l. (2007). An Analysis or Total Innovation--Case Study of Hewlett Packard. Kournal of Technology Transfer.

Ombuds Services for Staff. (2020). 2020 Annual Report. Albuquerque: University of New Mexico.

Pollack Peacebuilding Systems. (2022, April 9). Workplace Conflict Statistics. Retrieved from PollackPeacebuilding.com: https://pollackpeacebuilding.com/workplace-conflict-statistics/

Pollack, J. (2022, April 12). PhD. (B. Root, Interviewer)

Slaikea, K. L., & Hasson, R. H. (1998). Controlling the Costs of Conflict. San Francisco: Jossey-Bass Publishers.

Volkov, M. (2022, April 12). Corruption, Crime & Compliance. Retrieved from VolkovLaw.com: https://blog.volkovlaw.com/2013/03/the-benefits-of-a-corporate-ombudsman/#:~:text=An%20ombudsman%2C%20even%20if%20structured,and%20dissemination%20in%20an%20organization.

Waters, S. (2022, April 16). What Are Self-Managed Teams (and how can you create them)? Retrieved from BetterUp: https://www.betterup.com/blog/self-managed-teams

Yarrington, R. (2017). Costs of Conflict. Albuquerque: University oif New Mexico.

-oo0oo-

[1] A detailed KPMG study distinguishes between functional and dysfunctional costs, a similar concept (Insam, 2012). [2] An organization’s leadership, especially Theory Y based leadership, will also have a substantial impact of the nature and amount of conflict, and thus the costs of conflict. See especially the discussion of organizations and leadership in Chapter 3 of Resolving Organizational Conflict (Cloke & Goldsmith, 2021). [3] The Mediation Training Institute of Eckerd College reports that “studies have found that” 20-40% of management time is spent “dealing with” conflict (Runde and Flanigan, 2012, p. 12), but that not all of that time is unproductive (subtractive). (Mediation Training Institute, Eckhard College, 2022) A 2012 KPMG study sets the executive time spent on conflict management in the 30% to 50% range. See (Ahrens, 2022). [4] Pollack Peacebuilding Systems, updating the CCP 2008 study, reports that, “Employees in United States companies spend approximately 2.8 hours each week involved in conflict.” This translates to about 7%. In their calculus, this represents $359 billion in hours paid each year. (Pollack Peacebuilding Systems, 2022) The CCP Human Capital Report cites both a 2.8 hour data point (Forward) and a 2.1 hour data point (Executive Summary) for employee hours spent in conflict, but either way, it is a huge number. (Hayes, Jeff, 2008) Analysis of a KPMG study concludes that 10% to 15% of the working time in a company is devoted to conflict and conflict management (Ahrens, 2022). [5] While the magnitude of cost reduction would vary, this general conclusion is supported by my own direct experience and by many conversations with other employment law specialists at ABA and similar functions. [6] See Arbinger Institute’s website that walks one though a process by which costs of conflict could be estimated (Lazan, The Financial Cost of Conflicts in Organizations, 2022). The generalizations and limited data points in this approach seem likely to substantially underestimate an organizations true cost of conflict. [7] See, for example, Mediation Training Institute’s version at https://www.mediationworks.com/conflict-cost-calculator/, a tool presumably developed with the help of Dr. Dana, who was a consultant for MTI until his retirement, but of limited utility in its public version (Mediation Training Institute, Eckhard College, 2022). A more fully developed calculator is available at https://www.resologics.com/cost-of-conflict-calculators, but the developer of this tool said it had been frequently accessed, but rarely used (Baril, Senior Practitioner, 2022). For German speakers, there is also a cost of conflict calculator developed by business mediators Oliver Ahrens and Christian Heidkamp at https://www.konfliktkostenrechner.de//?locale=en (Ahrens, 2022). [8] I discuss Conflicts Analysis below in Section 4 of this paper. [9] This payroll (as a percent of sales) data was derived from placement data (Fundsquire, 2022). Because so much of the costs of conflict is derived from employee time associated with workplace conflict, this is thought to be a useful metric in creating a rough “rule of thumb” by which Recoverable Costs of Conflict for other types of businesses could be quickly estimated. [10] See discussion of Webs of Association by Professors Cloke and Goldsmith (Cloke & Goldsmith, The End of Management and the Rise of Organizational Democracy, 2002, pp. 138-141). [11] Production, distribution, sales, procurement, and management teams were formed. As operations grew, and functions became more specialized, sub-teams were formed. [12] Legal compliance with FLSA and Title VII was required, but within those boundaries, the team could set work expectations. Peer discipline resulted in very few matters ever getting to HR, and those were resolved after the applicable rules were clarified. Very little paperwork was involved, and almost no legalese. During the several years I was involved, no external charges, complaints or lawsuits were filed. [13] We stretched a bit to appear compliant with FLSA requirements as to bonus allocations where overtime was worked, but there were no issues with State or federal officials, including for the few employees who were separated from employment. [14] We negotiated with the local union a very unique renewal CBA to mimic the teams organization of the greenfield facility but were restrained under NLRA 8(a)(2) by a minority of employees who felt the new CBA would undermine the local pattern agreement for other facilities. [15] The greenfield plant experience is consistent with the observation that, “…[organizational] democracy is a superior means of making decisions in organizations….it is not only the best environment for waking people up but an inevitable consequence of doing so” (emphasis in original) (Cloke & Goldsmith, The Art of Waking People Up, 2003, p. 282). Both engagement and productivity improved when teams were challenged to do it yourself, if you can do it better. Show me. [16] I do not have as much experience in non-union organizational design. As a labor layer, my job was to negotiate durable agreements being careful not to fumble the negotiation or violate applicable labor laws. In my experience, labor lawyers are never asked to manage OD opportunities in the context of employment laws. That might well be different in the current hyperaggressive enforcement climate of California. [17] In Frederick Winslow Taylor’s model of modern management, managers did all the thinking, planning, and directing; workers did only the prescribed hands-on implementing.” (Cloke & Goldsmith, The End of Management and the Rise of Organizational Democracy, 2002, p. 27) [18] I interviewed four companies that offered to provide conflict reduction services. All started with some sort of conflict assessment, although there were differences in the depth and apparent quality of the assessments, and then designed “tailored” services for each client. Shelley Allen at Allen Conflict Solutions offered mediation and system redesign services (Allen, 2022). Michael Lazan at Arbinger, Inc. offered training and monitoring services (Lazan, PhD., 2022). Jeremy Pollack at Pollack Peacebuilders offered training and communication services (Pollack, 2022). Mark Baril at Resologics offered training and mediation services (Baril, Senior Practitioner, 2022). Some suggested some service follow-up to measure success at conflict management and on-going work. None offered ombuds services or similar institution of “resident” mediation service. [19] Fully litigating a single case in Southern California to a successful outcome, can be expected to cost between $200,000 and $500,000 even when it is a win, and a mixed outcome can easily add half again as much in fees and costs, plus whatever settlement or award is involved. [20] “Companies like RCAR Electronics have reported saving $10 million annually after implementing self-managed teams” (emphasis in original) (Waters, 2022). [21] See Appendix A for sample survey questions (Cloke & Goldsmith, 2021, pp. 254-255). [22] Each of the consultancies with whom I spoke tip-toed around this cost/benefit analysis; as none really lead with a detailed Conflict Costs Assessment, none could really talk about the leverage of a costs of conflict reduction program. Both Arbinger and Pollack suggested initial assessment would be $25,000 to $50,000 (Lazan, PhD., 2022) (Pollack, 2022). Resologics suggested an assessment might be in the $50,000 to $100,000 range (Baril, Senior Practitioner, 2022). Allen Conflicts Solutions declined to estimate their opening ante, suggesting her reputation for ethics in pricing and performing services would speak for itself (Allen, 2022). . [23] See Professors Cloke and Goldsmith’s comments (Cloke & Goldsmith, 2021, p. 229) and related text. [24] I am assuming basic legal compliance with applicable employment laws. In general, in areas where laws are uniformly and fairly applied, I believe businesses are best served by complying with the law or changing the law, but not by breaking the law. [25] (Cloke & Goldsmith, 2021, pp. 254-255)