Workplace misunderstandings cost billions

Jun 19 2008 by Nic Paton Print This Article

Listen up, I will say this only once. Misunderstandings between workers and managers cost firms $37bn a year, yet few firms trouble to do anything about it.

A study by employee assessment firm Cognisco has argued that while organisations are often aware of the costs of misunderstanding, just one in three ever takes any action to close the gap.

It defines such misunderstandings as actions taken by employees who have misunderstood or misinterpreted (or were misinformed about or lack confidence in their understanding) of company policies, business processes, job function or a combination of the three.

And by ignoring the issue firms put themselves at risk for compliance, public safety and legal problems, it added.

The primary cost of such misunderstandings was unplanned downtime, followed by poor procurement or buying and, in the most serious cases, the case of making settlements to industrial tribunals.

Other common costs included regulatory penalties and tax or revenue penalties.

And when taking into account the cost of employee misunderstanding on areas such as brand, reputation and customer satisfaction, the figure would be likely to be even higher, it argued.

Of the 400 companies polled who reported that employee misunderstanding had placed their company at risk of injuries to employees or the public, virtually all said such misunderstandings had risked losing them sales and reduced customer satisfaction in the past 12 months.

On average businesses with 100,000 employees were each losing $62m a year through misunderstandings, at an average of $624 per employee.

The banking industry had the highest cost of misunderstanding because of the high risk associated with handling funds, while the transport industry reported the lowest cost.

More than eight out of 10 of the banks polled reported exposure to impaired brand image and reputation in the past 12 months, against more than a third of transport businesses.

Just as worryingly, more than half of petrochemical organisations polled reported a risk to health and safety compliance in the past 12 months because of misunderstandings, while nine out of 10 pharmaceutical companies reported a risk of reduced productivity as a result.

"An organisation's greatest asset is its employees", said Mary Clarke, chief executive of Cognisco.

"Obviously if an employee misunderstands or misinterprets actions there will be repercussions from loss of business to impaired brand image. But what is often not measured, is the employee's confidence to take the appropriate actions which can also have a significant impact," she added.