Inviting Risk Through Costs of Employee Misunderstanding…

I am reminded of a ‘buy offer’ that occurred several years ago when…Steve Balmer (formerly of Microsoft) expressed interest in purchasing Yahoo!, for a reported $43 billion.

And, according to multiple respected estimates…perhaps as much as $38 billion of the ($43b) buy offer, had the transaction been executed at the time, would be comprised of Yahoo! intangible assets, comprised primarily of intellectual, structural, and relationship capital ala the intangible assets.

Now, that’s significant, irrespective of one’s operational familiarity with intangible assets…the $37b figure should come as no surprise to those even minimally familiar with the irreversible trend  – economic fact that…

  • companies globally, are far less – have little or no reliance on conventional tangible-physical assets, and instead, are transitioning, at a very rapid pace, to intangible asset intensity and dependency.

The reason lies in the unchallengeable and irreversible economic fact that today…

  • 80+% of most company’s value, sources of revenue, and ‘building blocks’ for competitiveness, growth, sustainability, reputation, and profitability lie in – emerge directly from intangible assets, particularly intellectual, relationship, structural, and competitive capital.

What I am suggesting is this, should the $38b figure noted above be reasonably correct…which I believe it is, it alone should influence c-suites, management teams, boards, and investors to, at minimum, review a…

  • 2008 IDC ‘white paper’ study commissioned by Cognisco which self-describes as ‘the world’s largest intelligent employee assessment specialist’.

The studies’ findings provide, in my judgement, additional evidence that for UK and US employers considered in the study…are losing an estimated $37 billion annually from their EBITDA…

  • due primarily to actions or errors of omission by employees who, for various reasons misunderstand, have misinterpreted, or, were misinformed about company processes, practices, policies, or their job function. 

The report, titled ‘Counting the Cost of Employee Misunderstanding’ revealed the…scale of the impact, i.e., $36 billion annually, is attributable to employee misunderstanding, which the report defines 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 study indicates many businesses are generally aware of the costs attributed to (employee) misunderstanding, but…

  • approximately one in three self-report they had taken actions to close the ‘misunderstanding gap’.

From this, it’s certainly not a stretch then…for company leadership to assume their business, may, quite literally, be inviting risk to materialize by virtue of sustained employee misunderstanding!

Particularly noteworthy in the studies’ findings is…approximately two thirds of the ($36b) cost of employee misunderstanding, as reported by the 400 respondent companies in the 12 months encompassing the study, were attributed to…

  • loss of business due to unplanned downtime (32%).
  • poor procurement practice (17%).
  • costs – settlements incurred from regulatory penalties and tax or
    revenue penalties (16%).
  • placing a business at risk of injuries to employees and/or the
    public, and
  • loss of sales and reduced customer satisfaction.

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 (also intangible assets) are fully factored – accounted for.

Mary Clarke, former CEO at Cognisco, notes rather 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.”

Michael D. Moberly July 9, 2017 St. Louis [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published posts, read in 137 countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’!

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