Workplace conflicts pose internal risks in business

Conflict is a natural phenomenon in our lives. It is so common that it is inevitable. One study revealed that in average, we may encounter five conflicts daily to which we usually respond in three ways–fights, flight or flow. That we spend more than one eighth of our day at our workplaces, conflicts between and/or among our colleagues become inescapable, given our diversity and plurality in culture, belief systems and personalities.

Workplace conflicts affect workers and consequently, the business. The main objective of any business is to accrue profits. Therefore, any factors that threaten to reduce profits or cause losses are considered as risks and should be adequately managed, and yet workplace conflict has not been adequately considered as a potential threat to business growth.

Risk essentials refers to unforeseen or unexpected future events that potentially threaten business prospects of making profits or can cause losses. Risk cannot be eliminated completely, however, it can be mitigated or controlled by proper preventive and corrective measures. Risk can be broadly grouped as internal and external depending on the source from which it emanates. Internal risks refer to events or cycle of events that emanate from within the business.

They include: systems, policies and procedures, communication and leadership strategies, and human factors, such as conflicts between employees. The consequences of conflict pose potential risk to business operations and reputation.

Operational risk factors  
Basel Committee on banking supervision (2006) defines operational threats as the “risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”. In regard to people, human factors caused by workplace conflict pose great operational risk since business operations depend on employees for execution.

Conflicts create tension and anger, which inevitably affects our efficiency and productivity. It also stifles our creativity and desire to make innovative ideas to the business, which may have significant impact on the market edge.

Human error could set in, which could also be translated to the day-to-day activities of the business, for instance, mislabelling of products, failure in transportation and delivery of goods and services, etc. From a narrow perspective, these failures may seem small, but the impact made on the business can be immense and lead to loss of revenue.

Reputational risk factors
“It takes many good deeds to make a good reputation, and only one bad one to lose it” says Benjamin Franklin. This adage also applies to business firms which enjoy good reputation and customer loyalty to the extent that their customers would mind less being charged more for value! Reputational risk has not been adequately considered in many business risk management strategies as there seems to be lack of agreement on its assessment.

However, it is worth consideration. Some experts posit that in an economic eco-system where approximately 70-80 per cent of the “market value is derived from hard-to-assess intangible assets, such as brand name and good will”, business firms ought to strategise against any threats to their reputations.

It is even more important in this era of social media where a tweet made by one dissatisfied customer can reach a wide network of potential customers and market competitors. For instance, human error or tense working environment caused by a conflict among employees of a restaurant may cause delivery of wrong food orders to customers or even use of wrong recipes to prepare food, which could dearly cost the business for a period of time.

Conflicts are inevitable within our workplaces, but looking at their upside, they can spur positive changes in businesses. Inasmuch as there has been much effort made by business firms in establishing strategic conflict management techniques, there is need for more consideration of the negative impact of workplace conflicts as a potential risk to business.