Strategic questions are critical in negotiations, and are far too often ignored. Strategic questions are the difference between playing chess and playing checkers. Chess masters play many moves ahead. Strategic questions are a great way to gather information and gain concessions from the other side.
A strategic question is one intended to reveal more information than just the direct answer might provide. Asking what hotel your opponent is staying in reveals much about their budget. And if you already know where they are staying, it can reveal if they are honest. If you ask, “Who else, besides yourself, is involved in the decision?” you identify all the parties you need to convince. On the other hand, if you only ask him what his authority is, you will not learn who else influences that authority. If you confirm that he has the authority to negotiate outside of the typical boundaries, you effectively eliminate those boundaries. If he doesn’t confirm, then you know you need to talk to someone else.
In my home state of Minnesota, four health maintenance organizations (HMOS) dominate the healthcare market. Most medical clinics rely on these four HMOs (also called “payors”) to cumulatively pay 90 percent of their revenue. Medical clinics must negotiate contracts with each of these HMOs to become part of the network. Often, clinics believe they have no leverage, and simply accept a payor’s offer without negotiating. But there’s another side to the story.
Negotiating With HMO’s
HMOs increase revenue by insuring more patients, so the HMOs compete with each other to sell their program to large employers. Employers want complete coverage across the state, both in terms of geography and medical specialty. In other words, every employee must have access to an ear, nose, and throat specialist (ENT), a general surgeon, and every other medical specialty, all within convenient driving distance.
A shortage of doctors in some areas creates leverage for these clinics. Typically, a midsize city will have a single dominant clinic for a given specialty. In the same market, there may be 500,000 people the HMO wants to insure. The HMO must provide full access to medical care in order to sign up major employers in the area. The specialists, on the other hand, are usually very busy because theirs is the only such clinic in town. This tilts the leverage in favor of these specialty clinics.
The resulting demand gives such clinics leverage in two ways. The HMO cannot be secure in its offering to large local employers without signing up, for example, the only ENT clinic in town. The clinic, on the other hand, has more patients than it can handle, so is very secure about its future business prospects.
When negotiating with HMOs on behalf of the clinics, my team uses strategic questions to seek a commitment from the HMO negotiator at the very first meeting. Gaining this commitment ensures we are dealing with the decision maker, and that they have the authority to negotiate outside normal parameters.
We ask a magic question: “Do you have the authority to make an agreement that compensates us more than your standard offering to clinics?” We make it clear that we expect to get a better deal than they usually offer. Now the HMO negotiator must admit either (1) that they don’t have extraordinary authority, or (2) that they are willing to give us a better deal. Any other direct response threatens the deal, which they certainly do not have the authority to do. They usually are not prepared to answer this direct challenge.
HMO negotiators usually avoid answering the challenge by making one of several arguments based on either fairness or leverage. I have heard all of these before, but I still listen very carefully. The negotiator’s tone, choice of statements, body language, and level of emotion reveal how he or she reacts when their own comfort zone is threatened. I then use this information to gauge the negotiator’s reactions later, when we are in less familiar territory.
At the right time, we pull the negotiator back to the question by asking something like, “Are you telling me that you are not willing to even consider giving us a deal that is outside your normal range?” Now the negotiator will either admit that they have the authority to do so, or tell me that I must talk to their boss. Either answer they give is fine, because either way, we will soon be talking with the decision maker about getting a better deal. In the meantime, I have also learned something about my opponent. I know how they react when uncomfortable. I know whether they are sincere, whether they are direct or indirect, and I know their motivational level. I also know how prepared they are. All of this helps later in the negotiation.
Notice that the HMO negotiator could have simply answered, “Yes, I have the authority,” or, “No, I don’t.” (This answer comes out eventually.) If the negotiator answers directly, I learn very little about them that I can use later. When I hear such a direct answer, I know this is a well-prepared and sophisticated negotiator.
This is a good example of strategic questioning. We gained a commitment from the negotiator that deprives him of a whole category of arguments. We have also learned how they react under stress, weather we can expect them to be candid, and how well prepared they are. All of this from a single series of strategic questions.
The biggest benefit is the major advantage created by focusing discussions where we want them, “What is our value to you?” instead of, “What are you paying the other guys?” This focus is central to our endgame strategy.
This simple example demonstrates the great value of strategic questions. With thorough preparation, you can create strategic questions for any negotiating situation. Effective strategic questions at the beginning will give you better results in the end.