Types of Negotiation

What is it?

Negotiation is a process through which parties move from their initially divergent positions to a point where agreement may be reached.[1]

Healthcare procurement involves buying pharmaceuticals, medical supplies and medical equipment from external suppliers who will have different commercial objectives from the buyer. It also involves liaising with a range of internal stakeholders who may have different expectations and requirements. Negotiation, external and internal, formal or informal, is therefore inevitable in procurement in order to reach an agreement.

Negotiation may take place at any stage of the procurement cycle: when establishing the need, developing the contract, selecting the supplier, awarding the contract, managing performance, and also when varying, extending, terminating or renewing the contract.

A distributive type of negotiation is a competitive or adversarial approach based on power. The party with the most power will aim for a win-lose situation: we win and the other party loses.  The other party will of course resist and fight back. When a party wants to maximise the value obtained in a single deal and when the relationship with the other party is not important, distributive negotiation may work. Distributive negotiation can be portrayed as each party competing over existing value (the ‘fixed pie’ analogy).

An integrative type of negotiation, on the other hand, is a collaborative approach based on common interests. It seeks to achieve a win-win outcome whereby both parties feel they have gained from the negotiation. In situations where there is a continuous requirement for supplies and on-going dealings with suppliers and internal stakeholders, the integrative approach is likely to be more effective, as it enables relationships to be maintained. Integrative negotiation involves the parties working together to increase value and it is often portrayed as ‘expanding the pie’.

The integrative approach is not just about splitting the difference between the two parties. There is likely to be a complex range of integrated variables involved in most negotiations, not just price. These variables will need to be discussed and agreed both individually and collectively in order to achieve a win-win outcome. There is still plenty of scope for the deployment of effective negotiation strategies, techniques, practices, skills and behaviours. After all, the enhanced value is not necessarily shared equally and procurement practitioners have an obligation to achieve best value for their organisations.

What does it look like?

How does it work in practice?

Examples of successful integrative negotiation:[2]

In the first example, a hospital identified a critical need for expansion of two facilities: the simulation and clinical skills centre, and the formal teaching space. The funding available was capped, and the space available for both projects was constrained by existing physical hospital infrastructure. The combined floor space required by the two projects exceeded available floor space by 50% and available budget by 30%.

In exploring the interests of each party, the project sponsor was able to identify a shared requirement for small teaching rooms. However, neither party required full-time access to the facility. Through a flexible planning approach, multi-purpose room designs were developed that accommodated the needs of simulation and formal teaching. In addition, a flexible booking arrangement allowed for more effective use of the physical space and gave each party access to more than they had originally required, thereby creating value for all parties.

The second example involves a complex negotiation regarding implementation of a new hospital Integrated Electronic Medical Record (IEMR). The supplier sought to implement a standard IEMR, but the hospital was concerned that this would not meet the hospital’s needs. The negotiation proceeded over a number of weeks, and involved clinicians, executives, members of the IEMR team, the central health department programme director and the supplier.

The hospital’s aim for the negotiation was to implement a safe and effective IEMR in the Emergency Department. The supplier’s interest was to implement the IEMR without increasing costs or effort, but there was a significant unstated interest of reputational risk. A single negotiation document was created by the hospital team, which then drove negotiation with the supplier.

The supplier opened the negotiation with the position that they would not be able to vary the installation due to costs etc., but the hospital team was able to leverage off reputational interest to achieve their aims. The hospital team established five key issues to be addressed, recognising that they would need to compromise on these to achieve a negotiated outcome, and they were prepared to offer suitable alternative options to the supplier.

Two weeks from the IEMR start-up, the supplier agreed to four of the five demands, and the fifth was negotiated to follow in the subsequent months. Due to cohesion developed through the negotiation process, the hospital team was able to implement the solution within a shortened timeframe.

[1] Steele, Paul & Beasor, Tom; Business Negotiation: A Practical Workbook; Routledge, 2017
[2] Clay-Williams, Robyn et al; Collaboration in a competitive healthcare system: negotiation 101 for clinicians; Journal of Health Organisation Management, 2018, 32(2), pp263–278.