Cost of Chaos / Value of Clarity

Communication is an organization's lifeblood, especially during change. The impact of poorly managed communication lingers for years.So, Consider this:

Effective communication during change -

  • Increases trust in management

  • Increases employee acceptance, productivity, and motivation

  • Improves employee morale

  • Reduces rumors

  • Prepares the organization for change

  • Generates early momentum

  • Helps retain valued employees

  • Helps prevent destructive "we-they" mindsets

  • Increases customer satisfaction and prevents defections

  • Directs attention and resources to the issues that matter most for success

Organizations that communicate well during change -

  • Are more aligned

  • Preserve market share, strength, brand reputation, and goodwill

  • Achieve better results in terms of financials, productivity, and shareholder returns

  • Outperform companies without effective communication

Putting it in dollars and cents . . .

Assume the following frequently quoted figures:

  • Employees lose an extra 30 minutes to 2 hours per day in productivity during major change situations dealing with confusion, low morale, increased stress, and gossip and rumor.

  • A typical first-year attrition rate during major change runs 20-30%; and it's usually your best employees who are first to leave.

  • The average cost to replace an employee is 150% of annual compensation.

Assume this is your organization:

  • 1,000 employees

  • $40/hour average total compensation

Assume the lower end of productivity loss and attrition figures:

  • 1 hour in lost productivity per employee per day

  • 21 working days per month

  • 20% annualized attrition rate

Your cost of chaos in the first month after announcing the change:

  • $ 840,000 in lost productivity ($40,000 per day X 21 days)

  • $2,040,000 in employee replacement costs (1 month attrition of 17 employees @ 1-1/2 times compensation)

  • $2,880,000 total losses for one month in productivity and retention

The total does not take into account all the other factors that increase costs or reduce revenue during times of transition, like:

  • Customer defections

  • Increased worker's comp costs

  • Rise in employee absence and illness

  • Increased errors

  • Loss of corporate knowledge base

  • Lost opportunity costs

Information from management provides both substantive and symbolic value to your employees, customers, and other stakeholders, reducing the tendency toward chaos. Data taken from focus groups and surveys tell management how your business is performing and how people are acting and feeling. Bottom line is that a strategic, focused, and timely communication program based on clear and accurate information can determine your level of financial success during a major change situation and long after.

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