Why intangible costs in HR can have a negative impact on business

Intangible costs in HR refer to costs that are not directly measurable in financial terms but still have a significant impact on an organisation's productivity, culture, and overall success.

Here are some examples of intangible costs in HR: 

A negative work culture can increase conflict, reduce collaboration, and create a hostile environment, leading to lower productivity and higher turnover.

Employee Morale and Engagement

Low Morale: When employees feel disengaged, unsupported, or undervalued, their motivation and productivity can decline, leading to reduced output and quality of work.

Burnout: Employees suffering from burnout due to poor work-life balance or high stress levels may underperform, call in sick more often, or leave the organisation, increasing turnover costs.

Company Culture

Toxic Work Environment: A negative work culture can increase conflict, reduce collaboration, and create a hostile environment, leading to lower productivity and higher turnover.

Poor Leadership: Inadequate leadership or management practices can lead to unclear communication, lack of direction, and employee dissatisfaction, which can harm overall performance.

Knowledge Loss

Employee Turnover: When experienced employees leave, they take institutional knowledge, skills, and relationships with them, leading to gaps in expertise and efficiency.

Delayed Projects: Loss of key staff members, can delay projects or disrupt ongoing tasks, causing inefficiencies that are not always immediately quantifiable

Opportunity Costs

Failing to hire the right talent or taking too long to fill key positions can cause missed opportunities for growth, innovation, and market competitiveness.

Ineffective Recruitment: Failing to hire the right talent or taking too long to fill key positions can cause missed opportunities for growth, innovation, and market competitiveness.

Lack of Innovation: When employees are disengaged or unmotivated, creativity and innovation decline, resulting in missed opportunities for improving processes or products.

Poor Employee Development

Underdeveloped Skills: Not investing in employee training and development can lead to skill gaps and limit employee growth, causing a decline in performance and innovation.

Missed Promotion Opportunities: Failing to nurture internal talent can result in fewer opportunities for promoting from within, leading to higher recruitment costs and lower employee loyalty.
Reputation and Employer Brand

Negative Employer Branding: A poor reputation as an employer can deter top talent from applying, limiting the company’s ability to attract skilled professionals.

Bad Employee Reviews: Negative reviews on platforms like Glassdoor or word-of-mouth can harm the company’s reputation, making it difficult to hire and retain employees.

Employee Relationships and Team Dynamics

Interpersonal Conflicts: Conflicts between employees or poor team dynamics can slow down progress on projects, reduce collaboration, and impact overall productivity.

Lack of Trust: When employees don’t trust their leaders or colleagues, it leads to reduced cooperation, poor communication, and inefficiency in daily operations.

Compliance and Legal Risks

Non-Compliance: Failing to comply with labour laws and regulations can lead to legal challenges, penalties, or lawsuits, but even before financial penalties are applied, the damage to organisational focus and culture can be significant.

Unaddressed Harassment or Discrimination: Ignoring or mishandling issues related to harassment or discrimination can cause deep employee dissatisfaction, absenteeism, and turnover, as well as reputational harm.

Change Resistance

Change Management Issues: Poorly managed change initiatives (such as restructuring, digital transformation, or policy changes) can lead to employee resistance, which slows adoption and impacts the efficiency of new processes or tools.

Loss of Trust During Change: Rapid or poorly communicated changes may erode trust in leadership, causing long-term disengagement or confusion.

Absenteeism and Presenteeism

Absenteeism: Frequent absences due to disengagement, stress, or health issues disrupt workflows and place additional burdens on other team members, reducing overall productivity.

Presenteeism: When employees come to work despite being unwell or disengaged, they may contribute little value while still occupying time and resources, impacting the efficiency of the organisation.

Diversity and Inclusion Challenges

Lack of Diversity: A lack of diversity can stifle creativity and innovation, as well as cause employees from underrepresented groups to feel excluded or undervalued, which affects retention and productivity.

Non-inclusive Practices: Poor diversity and inclusion practices can lead to underutilization of talent, harming collaboration, and engagement.

These intangible costs can erode organisational performance over time, often silently, making it essential for HR to proactively manage employee well-being, culture, and engagement to minimize these hidden costs.

Charmaine Oglesby, a seasoned Senior Human Resources Generalist in South Africa

Introducing our guest writer, Charmaine Oglesby, a seasoned Senior Human Resources Generalist with a proven track record in delivering value-driven HR solutions. Charmaine is committed to enhancing profitability and ensuring the long-term sustainability of the companies she supports. Her solid foundation, built during her tenure at Maersk, coupled with exposure to best practices in multinational organisations, equips her with extensive expertise in corporate governance. Charmaine is passionate about fostering a culture of pride and belonging within the organisations she collaborates with.

HCB Partners. Should you need assistance in any of these areas, please feel free to email Charmaine on charmaine@hcbpartners.co.za or contact on +27 83 776 412.