The hidden costs of dysfunctional organizations

The hidden costs of dysfunctional organizations

This is one of the most important cost center in organizations, though it is not visible in any balance sheet. The waste of people’s resources resulting from the organization’s inefficiency is often higher than all other expenses.
These costs are not easily quantifiable, as organizations are complex systems: It is not easy to find the relation between the cause and the effects. In this article, we look at some potential costs and try to estimate them, in order to better prioritize our efforts for the organization development.

Cost of conflicts

Team conflicts are interpersonal problems that occur between two or more members of the same project team. Conflicts are a teamwork killer and affect productivity. As stated in the Human Capital Report, the average time spent by employees in solving conflicts is on average  2.8 hours per employee and per week. So about 7% of our productive time is spent on undesired conversations with colleagues.
Conflicts also impact employee turnover, which according to an article from the Gallup institute, costs from half to 2 times the employee yearly salary.

Conflicts are part of normal human interactions and from them emerge solutions. However many of them can be avoided or solved more quickly, thanks to a culture of trust and openness in the organization.

Cost of context switching

From the teamwork perspective, context switching is the process of stopping work in one project and picking it back up after performing another task on a different project. Switching from a task to another requires effort to get the new context and refocus.

According to the leadership strategist Curst Steinhorst in this article from Forbes, the cost of multitasking is about 2 hours of an employee day on average.  Another article from Psychology Today points out that context switching costs up to 40% of your productivity every day.

Context switching is the consequence of lack of focus at every level of the organization. This can be solved by a strict prioritization of objectives and reduction of the number of tasks in progress.

Cost of poor decision making

This is the most difficult factor to quantify. Some decisions in a company have a dramatic impact, like the loss of 30 billion EUR in the diesel gate at Volkswagen. Another examples of wrong decisions would be for instance a wrong staffing, a poor product design or a wrong marketing strategy.
According to a study from Gartner, poor decision making costs companies more than 3% of profit. In another study from McKinsey, 72% of executives say that bad decisions are as frequent as good ones in their organization. If we assume conservatively, that a wrong decision leads to 20% loss of resources, then they cost 10% of the overall workforce capacity.

A wrong decision is on the other hand a learning opportunity for the organization. It is sometimes better than no decision at all. However, dysfunctional organizations are not effective in their decision process and repeat mistakes. Agile organizations are able to use collective intelligence to make faster and better decisions.

Cost of unproductive meetings

According to this survey from Atlassian, average workers waste 31 hours per month on unproductive meetings.
Meetings are like test tubes containing the company culture. Many dysfonctions mentioned before are visible there: the conflicts, the lack of focus on the objectives, the difficulties in decision making. That is the reason why many organizations train moderators to make meetings more effective, and measure the return on time invested from each meeting (ROTI).


If we sum up the estimates from the experts, more than half of employee’s time on average is wasted in organizations!

CostHours per Employee per WeekWorkforce (%)
Context switching1025%
Poor decision making
Unproductive meetings
(conflicts deducted)

Removing completely waste of time in organizations is impossible and contra-productive. Conflicts belong to healthy social interactions, flexibility requires some context switching, and wrong decisions are also learning opportunities. But just imagine what the companies would reach if they would be able to save just half of these hidden costs? These dramatic numbers should incite companies to put the organization development at the top of their priorities.

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