Negotiating with interactive scenarios and strategies.

The health care industry, more than ever before, is undergoing intense competition and conflict. During these times of rapid change and realignment, health care executives must be strategic negotiators, able to use bargaining and problem-solving skills to resolve differences. To become successful negotiators, physician executives must analyze their priorities and select negotiation strategies that will maximize their substantive and relationship outcomes.

In a previous article (Blair, J., and others. "Negotiating for More Than a Slice of the Pie." Physician Executive 17(2):3-9, March-April 1991), we outlined three steps for selecting an initial negotiation strategy based on the executive's preferences. [1] Figure 1, page 10, summarizes these steps; in the discussion that follows, we briefly apply these three steps to negotiations that a hospital physician executive initiates on a helicopter joint venture with another hospital.

First, the hospital executive must assess the scenario of the negotiation (see figure 1, step 1), examining the relative power and the level of conflict between the two hospitals. The executive assesses his or her hospital's power in relationship to the other hospital--the hospitals' relative ability to control either human or material resources--and decides each hospital is evenly matched. [2-4] Next, the executive reviews the existing level of conflict between the hospitals. [5,6] Finally, the executive considers the best alternative to a negotiated agreement (BATNA). [7]

Second, the executive must diagnose the negotiation situation to determine the importance of both substantive and relationship outcomes (see figure 1, step 2). Before negotiating, executives certainly should consider potential gains or losses in financial, marketing, and other areas. We suggest they also consider the gains from an improved relationship and the losses from a weakened relationship. For example, the helicopter service provides a means to gain market share and compete more effectively with other hospital systems that would be difficult to accomplish through any other alternative. As a result of considering the BATNA, the executive places great importance on the substantive outcomes from the joint venture negotiation, including the cost of the investment, the services that can be provided, and the distribution of potential patients. Moreover, prior consideration of the relative power and level of conflict between the hospitals leads the executive to place importance on the relationship. He believes the present, slightly negative relationship between the two hospitals can be improved and that the two hospitals, as allies, can achieve potentially greater long-term gains than they could on their own.

Third, based on the importance of substantive and relational outcomes (see figure 1, step 3), the executive can select from one of four initial negotiation strategies:

* Trusting collaboration, if both substantive and relational outcomes are important.

* Firm competition, if substantive outcomes are important but relationship outcomes are not.

* Open subordination, if relationship outcomes are important but substantive outcomes are not.

* Active avoidance, if neither the substantive nor the relational outcomes are important. [8]

Because of established priorities, the executive selects an initial strategy of trusting collaboration. However, the success of this strategy depends on the strategy used by the other hospital. Hence, the executive must consider the other's strategy and how it and his or her initial strategy are likely to interact before engaging in negotiations. The executive can improve the likelihood of success by following four more steps:

* Step 4--Anticipate the other party's strategy.

* Step 5--Forecast the interactive scenario.

* Step 6--Select an interactive strategy.

* Step 7--Monitor the other party and modify the strategy.

Step 4: Anticipate the Other Party's

Strategy

Rather than immediately using an initial strategy, the physician executive should diagnose the other party's negotiation situation. The manager should anticipate the substantive and relationship priorities of the other party and the negotiation strategy the other party is likely to select. This step is crucial, because the previously suggested initial strategies could cause grave problems if the other party's priorities are much different from the physician executive's priorities. For example, both trusting collaboration and open subordination (both relationship-focused strategies) leave the physician manager vulnerable to another party concerned only about substantive outcomes and pursuing a firmly competitive strategy.

To anticipate the other party's substantive and relationship priorities, physician executives should consider the following diagnostic questions:

1. Does the other party stand to gain direct or indirect financial rewards from the negotiation?

2. Does the other party stand to lose money directly or indirectly if the negotiation fails?

3. Does the other party need to conduct ongoing business with your organization?

4. Does the other party depend on your organization for its business?

The answers to these and similarly focused questions will allow the executive to anticipate if the other party's actions are likely to be supportive or hostile, to focus on short-term gains or long-term relationships, or to change the degree of dependence on, or interdependence with, the hospital.

Given some data and some thought about the other party's priorities, the hospital manager can anticipate the initial negotiation strategies the other party is most likely to select. Here, the manager simply answers the questions in figure 1, step 3, from the assumed perspective of the other party. Continuing with the example of a potential helicopter service joint venture, suppose the executive discovers from informal discussions with the other hospital manager counterpart that the answers are "yes" for questions 1 and 2 and "no" for questions 3 and 4. Under these circumstances, the hospital executive should anticipate that the other hospital will seek only substantive outcomes and will compete firmly (Strategy P1).

Alternatively, if the hospital executive has concluded from social and collegial contacts with his or her counterpart at the other hospital that it has a "no" response to all of the diagnostic questions, he or she can properly assume that the other hospital seeks neither substantive nor relationship outcomes and will actively avoid negotiating (Strategy A1). However, if the executive perceives that the other hospital would probably answer "yes" to questions 1 and 3 but "no" to questions 2 and 4, he or she should assume that the other hospital will seek both substantive and relationship outcomes and will collaborate trustingly (Strategy C1).

Step 5: Forecast the Interactive

Scenario

Executives should apply the scenario approach to forecast what is likely to happen when the negotiation begins. Consider a medical school negotiating affiliation agreements with community hospitals. The physician executive negotiating for the medical school assumes the following initial strategies: In relation to hospital A, the medical school executive selects strategy P1 (firmly compete) because hospital A possesses a great number and variety of patients appropriate for the educational and training needs of the medical school but does not have the potential for developing close interorganizational coordination and cooperation. Toward hospital B, the medical school chooses strategy S1 (openly subordinate) because hospital B has a particularly renowned professional and communal reputation but is lacking in the accessibility of its inpatient population for the educational needs of the school. For hospital C, the school assumes Strategy C1 (trustingly collaborate) might be appropriate because hospital C possesses many of the favorable attributes of hospital B and has an inpatient population more accessible for teaching students. However, for hospital D, the physician executive assumes Strategy A1 and avoids negotiating because hospital D possesses none of the favorable attributes of A, B, or C.

When anticipating the priorities and the strategies of the several hospitals, the physician executive concludes that hospital A would firmly compete (P1) in the negotiations for an affiliation agreement, hospital B would openly subordinate (S1) because its image could be further enhanced by an affiliation agreement, and hospital C would firmly compete (P1) because it is considering similar agreements with several out-of-town medical schools.

Examining these scenarios, the physician executive realizes that enacting the initial strategies may cause substantive losses and weakened relationships or limit the benefits both substantively and relationally. For example, if both the medical school and hospital A compete, either a stalemate or increasing hostility is likely to occur. If both the medical school and hospital B subordinate, nothing may be accomplished and possible substantive gains may be overlooked. If the medical school collaborates and hospital C competes, the medical school stands to incur substantive losses. Thus, the physician executive may need to adjust the medical school's initial strategies.

Step 6: Select an Appropriate

Interactive Negotiation Strategy

Figure 2, page 12, displays interactive negotiation strategies that should be most effective for the physician executive. We call these strategies interactive because they take into account the interactive effect of the executive's and the other party's anticipated or actual priorities toward substantive and relationship outcomes. Interactive strategies based on anticipating the other party's priorities may be changed to better reflect the actual priorities of the other party as revealed during a negotiation episode. Figure 2 illustrates the steps a physician executive should follow in selecting an interactive negotiation strategy. The left-hand side shows how the executive's substantive and relationship priorities lead to initial strategies. The right-hand side illustrates how these initial strategies are affected by the anticipated priorities of the other party, resulting in interactive strategies for the negotiation.

Hospital A's negotiation strategy fits anticipated interactive scenario 6; therefore, the appropriate interactive strategy for the physician executive remains the same as his initial strategy, P1 (firmly compete). For hospital B, the school's physician executive concludes that interactive scenario 11 applies and that the appropriate interactive strategy is C1 (trusting collaboration) rather than the initial openly subordinate strategy (S1). With hospital C, the physician executive anticipates interactive scenario 2, and, therefore, the appropriate interactive strategy is C2 (principled collaboration) rather than the initial, trusting collaboration strategy (C1).

As noted in Figure 2 by the thicker lines, in six cases the interactive strategy and the initial strategy are the same. This pattern occurs almost every time the priorities of the executive match or complement the priorities of the other party. The priorities of the executive match the priorities of the other party in interactive scenarios 1, 6, and 16. The priorities of the executive and the other party complement each other in interactive scenarios 3, 10, and 12. In these scenarios, the executive's initial strategy will not interfere with the anticipated initial strategy of the other party. Thus, for example, an openly subordinate strategy works well if the other party is likely to compete firmly (interactive scenario 10).

One major exception to the matching principle occurs when both the physician executive and the other party place high priorities on the relationship and low priorities on the substantive issues (interactive scenario 11). Here both parties want to enhance their relationship, and the executive should collaborate trustingly (C1) rather than match the openly subordinate (S1) strategy that the other party is likely to use. Such a shift in strategy avoids the potentially irritating "You first" or "After you" syndrome that matching subordinate strategies are likely to create. Additionally, both parties may also then gain substantively from this switch in negotiation strategy.

Of the remaining nine scenarios in which the priorities of the physician executive and the priorities of the other party are incongruent, two (9 and 13) use the trustingly collaborative (C1) strategy. Seven scenarios, however, use modified strategies.

Principled Collaborative Strategy

(C2)

The C1 collaborative strategy is based on the physician executive's trusting the other party to reciprocate whenever information is disclosed. [9] The executive, however, will be victimized if the other party perceives the substantive outcome but not the relationship outcome as very important and uses a firmly competitive strategy (P1). These circumstances are depicted by interactive scenario 2 in figure 2. Under such circumstances, the physician executive should use a modified collaborative strategy of principled negotiation. Rather than relying on trust and reciprocity to create outcomes, the executive persuades the other party to conduct negotiations based on a set of mutually agreed principles that will benefit each negotiator. [7]

In the helicopter joint venture negotiation, the physician executive will need to get agreement from the other party on the general parameters of what they both want to achieve--prior to resolving specific substantive outcomes--to ensure that he or she is not victimized substantively simply because a positive relationship is also important. For example, the executive may seek to base patient allocation between the two hospitals on the joint principles of medical specialty and reciprocity rather than on some ad hoc figure or percentage. By focusing on the principles that will bring the issue of patient allocation to agreement, the physician executive avoids taking a position and competing against a position offered by the other party. For example, one hospital may have the facilities and specialists to handle patients with severe burns, the other can handle high risk neonatal patients, and both may have superior care units for cardiology patients. Given this situation, the physician executive and the other party agree to the principle to allocate patients with specialized needs to the hospital with the best care unit and to split the remaining patients evenly.

Focused Subordinative Strategy

(S2)

To use an openly subordinative strategy (S1) effectively, the physician executive should not be concerned with achieving substantive outcomes. [10] Sometimes hospital executives do care about substantive and relationship outcomes, but the other party has little stake in either outcome. As shown by interactive scenario 4 in figure 2, executives should use a focused subordinative strategy (S2) to induce the other party to negotiate.

For example, the vice president for patient care services may want to increase salaries for registered nurses, who are in short supply, but does not want to further strain the relationship with the vice president for human resource management. In turn, the human resource management executive may want to avoid any negotiations on salaries so as not to further complicate the compensation plan. To induce the human resource executive to negotiate about RNs' salaries, the vice president for patient care services could volunteer to implement a pilot study of a new performance appaisal system being promoted by the other vice president, even though such a study will strain his or her own staff budget.

By discovering and then acquiescing to as many key needs of the other party as feasible, physician executives can still preserve some substantive outcomes for themselves while ensuring a relatively positive relationship outcome. Here, physician executives create substantive outcomes for the other party and achieve substantive outcomes for themselves.

Softly Competitive Strategy (P2)

Under some circumstances, the ruthlessness of the firmly competitive strategy (C1) may need modification. For example, even though the physician executive may place little importance on the relationship outcome, this relationship may be very important to the other party. (See interactive scenario 7 in figure 2.) If the other party is powerful and potentially threatening, the physician executive would be wise to use a competitive strategy that does not strain the relationship. [11]

For example, the chief financial officer in the largest and most highly regarded hospital in the city is negotiating with the provider representative from Blue Cross over next year's reimbursement rates. The CFO should consider that, although the Blue Cross representative may want to keep this hospital available to Blue Cross members, he or she could also deny the hospital a large amount of money. Even if Blue Cross patients only represent 10 percent of the hospital's admissions, the lack of endorsement of the hospital's pricing structure would severely hurt the hospital. Here the CFO should use a modified, softly competitive strategy of bargaining, without using highly aggressive tactics that could engender high levels of mistrust and hostility.

Passive or Responsive Avoidance

Strategies (A2, A3)

To avoid negotiating, physician executives can engage in tactics ranging from confrontation to accommodation. Simply refusing to negotiate (A1) is the most direct and active form of avoidance. [8] However, if the other party views the negotiation as important for a relationship outcome (interactive scenario 15 in figure 2), the executive should probably passively avoid the negotiation (A2). By delegating the negotiation, the physician executive allows someone else within the organization to explore possible outcomes for the organization that are not obvious and to keep the relationship from becoming hostile. Delegating ensures that possible opportunities are not ignored without having to use the executive's time on what appears to be a low priority negotiation.

For example, the vice president of patient care services is approached by a representative from the emergency department staff about installing a money changer next to vending machines outside the department. Recognizing that the money changer itself will provide no revenue and that the emergency department staff already receives many "perks," the vice president's first reaction is to actively avoid negotiation. However, the executive realizes that the emergency department staff will probably view the hospital more favorably if something can be worked out. Thus, the vice president passively avoids the negotiation by delegating it to an assistant director.

By contrast, if the emergency department staff views the substantive outcome as important but the relationship as unimportant, the vice president should regulate the issue (A3). Again, direct interaction with the ED staff is not necessary (see interactive scenario 14 in figure 2). The vice president can be responsive but still avoid negotiating either by applying standard operating procedures (e.g., direct the ED staff to submit a request to the purchasing office) or by developing a new policy that addresses the money changer issue (e.g., all contracts with machine vendors shall require that they supply money changers).

Step 7: Monitor the Other Party and

Modify the Strategy

After the interactive strategy is implemented, the physician executive should monitor the actions of the other party. How the other party acts will reveal its strategy. Based on monitoring of the other party's actions, the physician executive can determine if (1) assumptions and expectations about the other party's strategy were accurate and (2) modify, if needed, his or her own strategies during the current or a subsequent negotiation episode. An unanticipated strategy may indicate that the executive inaccurately assessed the negotiation context or under- or overestimated the other party's priorities. Hence, once the strategy of the other party is known, the physician executive should reassess the negotiation, repeating Steps 1 through Step 6, in order to check the appropriateness of the interactive strategy.

Sometimes the other party's use of an unanticipated strategy does not mean the physician executive's assessment of the negotiation context was inaccurate. In figure 2, some interactive scenarios result in the listing of two interactive strategies. Physician executives should normally use the first (left-hand) strategies in these listings. The secondary (right-hand) strategies are suggested as counter-moves if the other party uses a strategy different from that anticipated. For instance, recall the medical school negotiating with hospital A (see scenario 6 in figure 2). Here the first strategy is firm competition. However, if the competition escalates rapidly or a stalemate occurs, the physician executive should switch to the secondary strategy, principled collaboration (C2).

Consider, as an additional example, a hospital facilities executive negotiating with the representative of a vendor of hospital supplies. The executive's priorities initially suggest a firmly competitive (P1) strategy, and he or she anticipates the vendor representative will be interested in both the substantive and the relationship outcomes because the hospital is a primary account for the vendor. (See scenario 5 in figure 2.) The executive anticipates that the representative will probably choose to collaborate. This diagnosis suggests the hospital facilities executive should negotiate using principled collaboration (C2). During the actual negotiation episode, the representative competes firmly (P1), demanding a higher price than the market currently supports for acute care items and threatening to cancel other supplies on special order.

Assuming that the executive's assessment of the representative's priorities is still correct despite the unexpected choice of strategy, he or she might be well advised to match the vendor's competitive strategy with a softly competitive (P2) strategy during the current or the next negotiation episode. The P2 strategy is preferred because it is less likely to increase conflict between the executive and the other party to the same degree as would the firmly competitive (P1) strategy.

Summary and Discussion

We encourage physician executives to view negotiation as an indeterminate, iterative, and often confusing process that requires them to anticipate and to monitor the actions of the other party. The actions of the other party will inform executives whether their assumptions were correct. Based on this assessment, physician executives can then modify their negotiation strategies during either current or future episodes.

Underlying the strategic choice model in figure 2 is the assumption that most negotiations are of the mixed-motive sort. That is, the physician executive and the other party usually negotiate over several substantive items. Some of these items have outcomes that can benefit both negotiators; other items have outcomes that can benefit only one negotiator. Under these conditions, all three strategies may come into play as the negotiators seek either win-win, win-lose, or lose-win substantive outcomes. However, our emphasis in the model is toward win-win substantive outcomes brought about through collaborative strategies (C1 and C2).

Second, we assume that most relationships will involve some mixture of dependence and interdependence. Furthermore, we posit that most negotiators will view the relationship outcome as important under two very different existing situations: high interdependence and high dependence. Thus, for the most part, we see collaborative strategies as strengthening the interdependence of the organization and the other party, subordinative strategies as increasing the other party's dependence upon the organization, and competitive strategies as decreasing the organization's dependence upon the other party. Our advice about negotiation strategies is directed particularly toward enhancing relationships of interdependence or favorably shifting the balance of dependence within a relationship.

Third, our advice to physician executives is simultaneously well supported and speculative. On one hand, the generic strategies suggested in figure 1, step 3, are fairly well supported within the negotiation literature. On the other hand, the effectiveness of the interactive strategies suggested in figure 2 remains open to continuing empirical investigation. We have developed that model of strategic choice by linking our concerns about relationship outcomes with what is currently known about the basic strategies of negotiation.

Although the assumptions we make about relationships are usually warranted in most organization-related negotiations, physician executives should carefully consider whether their situations fit these constraints before implementing our strategic choice model (figure 2). Regardless of the situation, however, we believe that physician executives will generally be more effective negotiators when they carefully assess both he relationship as well as the substantive

aspects of any potential negotiation and both what is important to the other party as well as what is important to themselves.

References

[1] Blair, J., and others. "Negotiating for More than a Slice of the Pie." Physician Executive 16(2):3-9, March-April 1991.

[2] March, J., and Simon, H. Organizations. New York, N.Y.: John Wiley and Sons, 1958.

[3] Mintzberg, H. Power In and Around Organizations. Englewood Cliffs, N.J.: Prentice-Hall, 1983.

[4] Giddens, A. The Constitution of Society: Outline of the Theory of Structuration. Berkeley, Calif.: University of California Press, 1984.

[5] Andrews, R., and Tjosvold, D. "Conflict Management under Different Levels of Conflict Intensity." Journal of Occupational Behaviour 4(4):223-8, Oct.-Dec. 1983.

[6] Brown, C., and others. "Communication-Conflict Predisposition: Development of a Theory and an Instrument." Human Relations 34(62):1103-17, Dec. 1981.

[7] Fisher, R., and Ury, W.. Getting to Yes: Negotiating Agreements Without Giving In. Boston, Mass.: Houghton-Mifflin, 1981.

[8] Pruitt, D. "Strategic Choice in Negotiation." American Behavioral Scientist 27(2):167-94, Nov.-Dec. 1983.

[9] Lax, D., and Sebenius, J.. The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain. New York, N.Y.: The Free Press, 1986.

[10] Johnston, R. "Negotiation Strategies: Different Strokes for Different Folks." In Lewicki, R., and Litterer, J. (Eds.). Negotiation: Readings, Exercises, and Cases. Homewood, Ill.: Richard D. Irwin, 1985, pp. 156-164.

[11] Raffia, H. The Art and Science of Negotiation. Cambridge, Mass.: Harvard University Press, 1982.