Costs of Poor Workplace Communication

Poor communication in the workplace leaves in its wake low motivation, poor productivity and high employment costs.

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Why Communication Practices Are Important

Good communication practices are at the heart of every successful business. Communication serves two essential functions in every organization. It disseminates the information needed by employees to get things done and builds relationships of trust and commitment. Without it, employees end up working in silos with no clear direction, vague goals and little opportunity for improvement. Successful projects and change programs are a rarity and real leadership is scarce.

Staff morale plummets when communication is ambiguous, unfocused, lacking in important details and does not allow for genuine two-way dialogue. Critically, the impact of poor communication hits customers and suppliers. They begin to feel disenfranchised and take their business elsewhere.

Not long ago, the ability to communicate well was viewed as a "soft" skill that was nice to have, but considered not really necessary. In today's rapidly changing business climate, it's a mandatory requirement for everyone, from top level executives to the people on the shop floor. Organizations that fail to convey clear strategies and processes and engage employees in shared goals are likely to lose to companies with more effective communication practices.

The Business Impact of Poor Communication

We all feel the personal costs of poor communication when a manager is rude or when we are not invited to an important meeting. However, what are the tangible costs of not paying attention to the quality of communication practices in your workplace? Below we list the key business costs as a result of poor communication practices. The items on the list may convince you to take a closer look at the practices in your organization.

Increased employee turnover

People voluntarily leaving is a significant cost to any employer. Employee replacement costs can be as high as three times the person's annual salary. A Watson Wyatt study found that companies that communicate most effectively are more than 50% more likely to report turnover levels below the industry average compared with only 33% for the least effective communicators.1

Increased absenteeism

Inadequate, inefficient and insensitive communication severely impacts employee motivation. This in turn drives the employee's decision to come to work each day. One company study revealed that 18% of the variation in sickness and absence rates across the company was due to variations in communication practices. A more general study showed that where employees feel fully informed, absence rates are below average.2

Poor customer service

Poor communications with employees lead to frustrating communications with customers. Employees who lack guidance from management and are locked out of genuine dialogue about their job struggle to know how to satisfy customers and lose the commitment to do so. In the case of legal firm, Slaw, the company reports that 40% of malpractice claims against real estate agents involve communication errors with the client.3

The link to the bottom line is well-established. A well-known study of retailer, Sears, revealed that a five-point improvement in employee attitude results in a 1.3% increase in customer satisfaction, which then drives an 0.5% increase in company revenue.4

Ineffective change management

Change in business structures, systems and processes is accelerating. Yet well more than half of change programs fail to meet their objectives. Important here is the communications skills of managers in being able to deal with resistance to needed changes. A Towers Watson survey reveals only three out of 10 employees report their manager as effective at dealing openly with resistance to change. Companies with highly effective communication practices are more than three times as likely to employ managers skilled in change communications as less effective organizations.5

Failed project delivery

Two in three projects begun meet with project failure. The cost of project cost blowouts, budget overruns and project cancellations to business and governments is massive. Poor communication is cited as the main cause of failure for IT projects by 28% of respondents in a survey conducted by a national association of IT professionals.6

Greater incidence of injuries

Occupational health and safety accidents and stress related illnesses cost organizations and taxpayers billions of dollars each year. Inadequate communication is a major factor in many of these incidents. For example, the US Joint Commission for Hospital Accreditation reported the primary root cause of inadvertent patient harm was communication failure in over 70% of cases.7

Higher litigation costs

Employees feeling stress from poor relationships at work is a key driver of company law suits. One survey puts the proportion of employees suffering relationship stress at 16%.8 Putting in place collaborative communication systems and processes for resolving conflict assists greatly in reducing the high cost of law suits. One study reports that organizations implementing collaborative conflict management systems reap savings in the order of 50% to 80%.9

Lower shareholder return

The amalgamation of all of the losses resulting from poor communication practices cited above impacts the actual and perceived value of companies. A Towers Watson study concludes that companies with highly effective communication practices enjoy 47% higher total returns to shareholders compared with firms that are least effective at communicating.5

This is not the end of the story. Other costs impacting companies include dampened innovation, lower employee productivity and increased incidence of product defects. Communicating effectively both internally and externally to the organization and at all levels of management, without doubt, impacts cash flow and revenue. Communication practices also affect the balance sheet, with the top communicating companies experiencing some 30% higher market valuation compared with their poorer communicating cousins.1

How are your organization's communication practices? Are your managers and employees equipped with the skills and knowledge to communicate effectively? How are you measuring both the level and quality of communication in your organization and the impacts of poor practices? We invite you to investigate the communication resources and tools in this section as you embark upon improving communications in your organization.

(For a comprehensive literature review, see Laurel English.10)

End Notes:

  1. "Connecting Organizational Communication to Financial Performance – 2003/2004 Communication ROI Study" (2003). Watson Wyatt & Company, 3 November 2003
  2. Brown, A., Duncan, A., and MacDonald, F. (2003). "Proving Communication Impacts Business Performance", Strategic Communication Management, Vol. 7, No.6, pp 28-33
  3. Pinnington, Dan (2011). "Communication-Related Errors Are the Most Common Cause of Real Estate Claims", Slaw online legal magazine,
    http://www.slaw.ca/2011/02/14/communication-errors-most-common-cause-real-estate-claims/
  4. Rucci, A., Kirn, S., & Quinn, R. (1998). "The Employee-Customer Profit Chain at Sears", Harvard Business Review, Vol 76, No 1, pp. 82-98
  5. "Capitalizing on Effective Communication – How Courage, Innovation and Discipline Drive Business Results in Challenging Times" (2010). Towers Watson, originally published by Watson Wyatt Worldwide,
    http://www.towerswatson.com/assets/pdf/670/NA-2009-14890.pdf
  6. "Survey: Poor Communication Causes Most IT Project Failures" (2007). Computerworld Inc.,
    http://www.computerworld.com/s/article/9012758/Survey_Poor_communication_causes_most_IT_project_failures
  7. Leonard, M., Graham, S. and Bonacum, D. (2004). "The Human Factor: The Critical Importance of Effective Teamwork and Communication in Providing Safe Care", Quality and Safety in Health Care, 13, 85-90,
    http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1765783/pdf/v013p00i85.pdf
  8. WarrenShepel [online] (2005). Health & Wellness Research Database,
    http://www.shepellfgiservices.com/research/stats.asp
  9. Ford, John (2000). "Workplace Conflict: Facts and Figures",
    http://www.mediate.com/articles/Ford1.cfm
  10. English, Laurel (2005). "Tying Employee Communications to Organizational Value: In Search of the 'Missing Links'" http://www.english-communications.com/downloads/capstone.pdf

Expert Author: AIMM MAITD

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