UK AND US BUSINESSES COUNT THE COST OF EMPLOYEE MISUNDERSTANDING

UK and US employees are costing businesses $37 billion (£18.7 billion) every year because they do not fully understand their jobs, according to a new IDC white paper commissioned by Cognisco, the world’s leading intelligent employee assessment specialist. “$37 billion: Counting the Cost of Employee Misunderstanding” reveals for the first time the scale and impact on businesses of employee misunderstanding. Employee misunderstanding is defined 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.

The research shows that whilst organisations are often aware of the costs of misunderstanding, only one in three claim to have taken any action to close the gap. By ignoring the issue, firms put themselves at risk for compliance, public safety and legal problems.  Approximately two thirds of the total cost of misunderstanding reported by organisations was attributed to loss of business due to unplanned downtime (32%), poor procurement practice (17%) and settlements for industrial tribunals (16%). Other costs incurred include regulatory penalties and tax or revenue penalties. 

The findings also highlighted that the real cost of employee misunderstanding may be even higher when costs such as impact on brand, reputation and customer satisfaction are taken into account.  All 400 companies asked, reported that employee misunderstanding had placed their company at risk of injuries to employees or the public, 99% cited risk from loss of sales and reduced customer satisfaction in the last 12 months.

Other key findings from the white paper include: 

• On average businesses with 100,000 employees are each losing $62 million (£31 million) per year at an average of $624 (£315) per employee
• The Banking industry has the highest cost of misunderstanding due to the high risk associated with handling funds, with the transport industry reporting the lowest cost
• 81% of banks reported exposure to impaired brand image and reputation in the last 12 months
• 36 % of transport organisations reported exposure to the risk of fatalities within the workforce or public in the last 12 months
• 52 %  of petrochemical organisations reported a risk to health and safety compliance in the last 12 months
• 89 % of pharmaceutical companies reported exposure to the risk of reduced productivity in the last 12 months.

Mary Clarke, CEO, Cognisco, said: “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.”

Lisa Rowan, programme director HR and Talent Management services, IDC, added: “This is the first time the cost of employee misunderstanding has been calculated.  Large enterprises are potentially losing millions of dollars each year to ‘employee misunderstanding’ yet very few organisations are taking action or are even aware a problem exists.

“The potential impact and repercussions from this misunderstanding should be addressed by all organisations and at the highest level – the CEO.”

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