Negotiating for more than a slice of the pie - conflict resolution goals for executives

Negotiating For More Than A Slice Of The Pie

People who provide and receive medical care in the United States confront a health care delivery system in the midst of radical change. The roles, relationships, and vested interests among the various stakeholders are changing rapidly and, in some ways, fundamentally. Some of the more obvious changes include increasing use of advanced medical technologies, cost escalation, increasing competition, increasing government intervention, emergence of alternative delivery systems, financial stress, and an increasing supply of physicians. However, more subtle changes have occurred in the attitudes, values, and expectations of both public and corporate participants:

* Health care has come to be viewed as a right. [1]

* Patient's quality expectations have risen, sometimes unrealistically. [2]

* Competition has replaced cooperation as the dominant behavioral expectation among certain stakeholders. [3]

* The public service (and servants) image of health care has been attenuated by a shift to a cost-conscious and profit-oriented focus. [4]

The U.S. image of health care has always been more myth than reality. Yet, because of the forces noted above, health care delivery in our urban, information society has changed dramatically. These changes mean that competition and conflict have become more characteristic of the health care industry, as has the use of bargaining and litigation to resolve differences. As a result, the nature of the skills and perspectives required to effectively manage a health care organization has also changed. It definitely is not "business as usual" for physician executives. To survive, let alone prosper, these executives should be scrutinizing and realigning their relationships with a wide range of stakeholders.

Managing Relationships and

Searching for Substantive

Outcomes

Most of the negotiation literature focuses upon the substantive issues and outcomes involved in a potential negotiation. For example, game theory emphasizes that the advantages and disadvantages of alternative actions should be weighed carefully prior to initiating any negotiation. [5] Just as a successful buyer at an auction should withhold any bid beyond the market value of an item, so also should negotiators withdraw from any negotiation that presents a settlement worse than their "best alternative to a negotiated agreement (BATNA)." [6]

A physician executive can determine his or her organization's BATNA by selecting the best outcome from the most likely alternatives and then estimating its cost. Unfortunately, in their rush to secure the best possible substantive outcome, health care managers typically do not consider how the negotiation will affect their relationships with the other party. This blind spot toward the relationship with the other party, however, can hurt the organization in both the short and the long term.

Many negotiations involve mixed motives, with some embodying substantive outcomes that can benefit both negotiators (an expanding pie) and some that can benefit only one negotiator (a fixed pie). Moreover, the prior relationship and the relationship that unfolds during negotiations often will determine whether the physician executive and the other party will be motivated to share the pie, grab it, or give it away. The physician executive's focus on short-term substantive outcomes can negatively influence long-term relationships with the other party. On a more positive note, physician executives may negotiate to create positive relationships and to open up long-term substantive outcomes, a strategy analogous to the professional who builds a network of supportive contacts.

We believe physician executives should consider both the substantive and the relationship outcomes of any potential negotiation. The relative importance of these two outcomes should help them decide whether and how to negotiate. To guide their decision process, managers should begin by assessing their relative power and level of conflict, key determinants of their current relationship with the other party.

Step 1: Assess the Negotiation

Context

Figure 1, left, illustrates the negotiation scenario, showing those aspects of the situation and of the negotiation episode that shape relationship and substantive outcomes. On one hand, the physician executive's BATNA is a key factor in assessing substantive outcomes. On the other hand, the history of the executive's interaction with the other party sets the bases of power and conflict for each negotiation episode. Existing levels of power and conflict influence both the relationship between the executive and the other party and the negotiation strategies they each choose. These strategies, in turn, are used during a negotiation episode--e.g., a one-on-one encounter, a telephone call, or a meeting with multiple parties--and establish substantive and relationship outcomes. A complex and lengthy negotiation may include many such negotiation episodes. A simple negotiation may be completed in one episode. Each episode, however, influences future negotiations by changing the relative power of, and the level of conflict between, the manager and the other party.

Relative Power--The relative power of the negotiators establishes an important aspect of their relationship: the extent of their dependence upon each other. Physician managers can assess their power relative to the other party by comparing their respective abilities to induce compliance through the control of human and material resources. [7] To what extent do they each control key material resources? [8] To what extent do they each control the deployment, arrangement, and advancement of people within an organization? [9]

These questions will help managers determine whether their relationship with the other party is based on independence, dependence, or interdependence. Additionally, these questions should help physician executives consider how and whether their relationship with the other party should be strengthened or weakened. Often managers will find their organization in interdependent relationships with other parties. These relationships can lead to mixed-motive negotiation situations, because they provide incentives for both competitive and cooperative actions. [10]

Level of Conflict--Both by considering the past history of their relationship and by identifying the present differences between their interests and the interests of the other party, physician executives can assess the relationship's level of conflict. On what issues do they and the other party agree? On what issues do they disagree? How intense and how durable are these differences? [11,12] Answers to these questions will reveal whether negotiations will easily resolve differences and whether the relationship is perceived as supportive or hostile. As with the question about relative power, these questions also should help physician executives consider how and whether their relationship with the other party should be strengthened or weakened. Very few negotiations begin with a neutral relationship. Indeed, the affective state of the relationship may be a primary reason for the executive to negotiate with a powerful other party, especially if that relationship has deteriorated or has been particularly supportive.

Step 2: Diagnose the Negotiation

Situation

After assessing the negotiation scenario, physician executives should consider the relative importance of the situation's substantive and relationship outcomes. Figure 2, left, shows how the relative importance of each of these two outcomes determines the manager's priorities.

If the importance of the relationship and the substantive outcomes varies, managers should focus on the more important outcome (Situations 2 and 3). When both the relationship between the negotiators and the substantive outcome of the negotiation are highly important (Situation 1), both outcomes become a priority. However, managers should seek alternatives other than negotiation if neither the relationship nor the substantive outcome is important (Situation 4).

Clearly, physician executives sometimes negotiate to secure the best possible substantive outcome. For example, if there are multiple vendors of supplies available, negotiations with these vendors may focus only on substantive outcomes (Situation 3)--i.e., price, ease of ordering, or speed of delivery.

In contrast, consider, for example, physician executives of large hospitals negotiating the price of management consulting services with rural hospitals. Recognizing that the rural hospitals serve as tertiary care referral pipelines, the executives place their priority on establishing positive relationships (Situation 2), with little emphasis on the substantive outcome--the negotiated price for providing those management services.

Joint ventures often involve a Situation 1-type negotiation. When negotiating with another hospital over a joint helicopter service, for example, a physician executive should be concerned both with obtaining a cost-effective service and with creating a positive working relationship with the other hospital. In this instance, the physician executive focuses on both substantive outcomes and relationship outcomes.

Of course, opportunities may be offered that, from the perspective of the physician executive, do not provide either direct or indirect financial pay-offs or improve the relationship with the other party. These Situation 4-type negotiations should be avoided.

Actual negotiations often require the physician executive to simultaneously consider a number of different scenarios and have a different diagnosis for each one. The diagnosis depends on the physician executive's perceptions of relative power, the level of conflict, and the BATNA in each scenario.

Step 3: Select an Initial Negotiation

Strategy

After assessing their own priorities, physician executives should select an initial negotiation strategy. Figure 3, above, illustrates four strategies that correspond to the situations shown in Figure 2, page 5. The following brief review of these four strategies adds to previous discussions in the negotiation literature by emphasizing how these strategies affect relationship as well as substantive outcomes. [13,14]

Collaborate Trustingly (Strategy C1)--A trustingly collaborative strategy should enable the executive to achieve both the relationship and substantive outcomes important in Situation 1. To collaborate, the executive should create a solution that allows both parties to achieve desired substantive outcomes. [14] The manager seeks a win-win outcome both to achieve substantive goals and to maintain a positive relationship.

Trustingly collaborative strategies generally are easier to use and more effective when both the manager and the other party are interdependent and mutually supportive. These circumstances normally engender a trusting relationship in which the negotiators will reciprocally disclose their goals and needs. Given this climate, an effective problem-solving process and a resulting win-win settlement will typify the results of a collaborative negotiation strategy.

A variety of joint ventures and other collaborative efforts within the hospital industry illustrate this strategy. [15,16] Of course, care should be taken to ensure that the negotiated settlement provides substantive outcomes for both parties. Otherwise, the interdependent relationship between the two may be strained rather than strengthened.

Subordinate Openly (Strategy S1)--Physician executives may openly subordinate by accommodating the substantive needs of the other party, thus establishing a relationship. [17] Such a strategy usually provides desired substantive outcomes for the other party, but it seldom does so for the manager. Although an openly subordinates strategy may lead to lose-win substantive outcomes, it can also bring about positive relationship outcomes.

Moreover, a subordinate strategy may be used whether the manager exercises more, less, or equal power relative to the other party. An openly subordinate strategy is a key way to dampen hostilities, increase support, and foster more interdependent relationships.

This last point underscores the difference between subordination as a strategy and subordination within a role. Subordination, as a strategy, has as its goal making the other party more dependent in order to increase the relationship's overall interdependence. In contrast, subordination within a role serves to reaffirm the one-up/one-down relationship between a superior and a subordinate.

For example, managers of small hospitals could very well be interested in establishing stronger and more positive relationships with the medical staff. In hospitals with fewer than 100 beds, more than 70 percent of the admissions come from the top five physicians. [18] Thus, the physician executive might use an openly subordinate strategy when negotiating with top physicians over substantive issues of marginal significance to the small hospital--e.g., personal parking spaces and free meals when conducting rounds--but of greater significance to the top admitting physicians. This strategy should enhance the supportiveness of the manager's relationship with those physicians.

As another examnple, a hospital manager might seek to foster relationships with members of the medical staff by offering them subsidized office facilities if they will support a certain preferred provider organization (PPO). [19] The substantive outcomes of the negotiated prices on the office facilities are not what is important to the hospital. In fact, the hospital may even lose money as a result of the negotiation. By offering low-cost offices to the medical staff, the hospital manager anticipates that the medical staff will become more favorably disposed toward the hospital. This change should make medical staff members view their overall relationship with the hospital as more interdependent, encouraging PPO medical staff members to make referrals primarily to this hospital rather than competing hospitals.

Moreover, if an openly subordinate strategy can strengthen the hospital's relationship with the medical staff, the hospital should be in a better position to negotiate with employers participating in the PPO. Negotiations with these employers, however, are likely to be quite different from those with the physicians. If the manager's priority is primarily on the negotiation's substantive outcomes, the strategy will be different.

Compete Firmly (Strategy P1)--A firmly competitive strategy allows executives to focus upon substantive goals with little concern for the relationship with the other party. The physician executive competes by trying to claim more favorable substantive outcomes than the other party. [14] When competing, managers will often take hard positions. They may also become highly aggressive by bluffing, threatening, and otherwise misrepresenting their intentions. Such actions hide the organization's actual goals and needs, preventing the other party from using that knowledge to negotiate substantive outcomes.

Not suprisingly, the credibility of the executive's aggressive tactics and, thus, the success of the competitive strategy often rests upon the organization's power relative to the other party. When following a firmly competitive strategy, the manager seeks a "win-other party lose" substantive outcome and is willing to accept a negative relationship. Physician executives can use this strategy to reduce the power of another party and to increase their own power.

Actively Avoid Negotiating (Strategy A1)--When the substance of the issue brought up by the other party and the relationship with the other party is clearly of little importance to the hospital, the manager should refuse to negotiate. [13] Too many physician executives are confronted with one-sided issues. Many proposed joint ventures with different groups of physicians, for example, are of little benefit to the hospital. These ventures are also not likely to improve relationships with physicians and may even run the risk of hurting them because the proposed ventures are not financially sound. Determining which issues are a waste of time--prior to starting to negotiate--is essential if managers are to use this strategy.

Summary and Implications

Negotiating expertise does not come easily. It requires study of appropriate management literature and, for most physicians, a reorientation of their point of view regarding interpersonal and organizational relationships as they exist across the bargaining table.

Physician executives should consider current and desired relationships as they select initial negotiation strategies. They should recognize that the history and the level of conflict between parties influences attitudes for future relationships. On one hand, feelings of hostility will often lead to a competitive strategy or to the use of an avoidance strategy. On the other hand, strategies such as trusting collaboration and open subordination may dampen hostilities and improve relationships.

The good negotiator can clearly separate an issue under consideration into substantive and relational components and conduct his or her negotiating strategy with full appreciation of the most desired outcomes. The effectiveness of any strategy, however, depends on the strategy used by the other party. For example, an executive trustingly collaborating with a person who is firmly competitive should not be surprised if neither the substantive nor the relational goal is achieved. Thus, physician managers must consider the likely strategy of the other party and make adaptations to achieve their initial goals. Effective negotiation must account for both parties' substantive and relationship priorities and adaptations during the negotiation process.

REFERENCES

[1] Johnson, E., and Johnson, R. Hospitals Under Fire: Strategies for Survival. Rockville, Md.: Aspen Systems Corp., 1986.

[2] Coddington, D., and Moore, K. Market-Driven Strategies in Health Care. San Francisco, Calif.: Jossey-Bass, 1987.

[3] Smith, H., and Reid, R. Competitive Hospitals: Management Strategies. Rockville, Md.: Aspen Systems Corp., 1986.

[4] Smith, H., and Fottler, M. Prospective Payment: Managing for Operational Effectiveness. Rockville, Md.: Aspen Systems Corp., 1985.

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

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

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

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

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

[10] Bacharach, S., and Lawler, E. Power and Politics in Organizations: The Social Psychology of Conflict, Coalitions and Bargaining. San Francisco, Calif.: Jossey-Bass, 1980.

[11] Andrews, R., and Tjosvold, D. "Conflict Management under Different Levels of Conflict Intensity." Journal of Occupational Behavior, 4(3):223-8, July 1983.

[12] Brown, C., and others. "Communication-Conflict Predisposition: Development of a Theory and an Instrument." Human Relations, 34(12):1103-17, Dec. 1981.

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

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

[15] Snook, I., and Kaye, E. A Guide to Health Care Joint Ventures. Rockville, Md.: Aspen Systems Corp., 1987.

[16] Bettner, M., and Collins, F. "Physicians and Administrators: Inducing Collaboration." Hospital and Health Services Administration, 32(2):151-60, May 1987.

[17] 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. 156-64.

[18] Morrisey, M., and others. "A Survey of Hospital Medical Staffs--Part 2." Hospitals 57(24):91-4, Dec. 16, 1983.

[19] Merz, M. "Preferred Provider Organizations: The New Health Care Partnerships." Hospital and Health Services Administration, 31(6):32-42, Nov.-Dec. 1986.

John D. Blair, PhD, is Professor of Management in the College of Business Administration, Associate Chairman and Professor of Health Organization Management in the School of Medicine, and Director of the Program in Health Organization Management for the Institute for Management and Leadership Research; Grant T. Savage, PhD, is Associate Professor of Management in the College of Business Administration, Associate Professor of Health Organization Management in the School of Medicine, and a Fellow in the Institute for Management and Leadership Research; Carlton I. Whitehead, PhD, is Professor and Area Coordinator of Management in the College of Business Administration, Professor of Health Organization Management in the School of Medicine, and Director of the Program In Organizational Design and Strategic Management for the Institute for Management and Leadership Research; and Susan B. Dymond, MBA, is an is a Coordinator for Patient\Physician Relations in Special Programs at Texas Tech University Health Science Center School of Medicine and a Research Associate in the Institute for Management and Leadership Research, Lubbock, Texas. This article is an adaptation and extension for physician executives of Savage, G., and Blair, J. "The Importance of Relationships in Hospital Negotiation Strategies." Hospital and Health Services Administration 34(2):231-53, Summer 1989.

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