thinking strategically book review

Books I Read

Curious reads and finds, thinking strategically: book review.

I finished reading Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff in March 2010. Subtitled “The Competitive Edge in Business, Politics, and Everyday Life,” Thinking Strategically is an international bestseller and a classic, having been published in 1993. My motivation to read it was because I saw this book listed on numerous forums which listed excellent business books.

The book is organized into three parts, with a total of thirteen chapters. After reading the preface (with the moniker: “ Thinking Strategically —Don’t Compete Without It”), the authors explain in the Introduction that the aim of the book is to improve the reader’s “strategy I.Q” while not promising to “solve every question you might have.”

The first chapter sets an excellent tone for the rest of this book; this chapter profiles ten interesting “tales” of strategy. The book leads of with the phenomenon of the “hot hand,” commonly observed by sports fans and sports analysts. In fact, hot hands in such sports as basketball are actually a fallacy , most likely observed because we (humans) have a tendency to focus on streaks of occurrence rather than non-occurrence…

In the first chapter, the authors also explain so-called zero-sum games: one person’s gain is another person’s loss (basketball, football, poker all fit this description). So what isn’t a zero-sum game? The most inviting example is that of the prisoner’s dilemma , where the payoffs of the two participants do not necessarily offset. In part II of the book, the authors have a lengthy chapter entitled “Resolving the Prisoner’s Dilemma” in which they elucidate a few excellent examples (they use OPEC to build the case). The authors explain that participants of a prisoner’s dilemma may try to achieve cooperation, but that there is a large underlying incentive to cheat even if an agreement is made.

The examples in this book are interesting. For example, in Chapter 2 (“Anticipating Your Rival’s Response”), the authors feature the recurring theme in the cartoon strip Peanuts , in which Lucy holds the football and invites Charlie Brown to run up to the ball and kick it. Of course, we all know Lucy’s intentions, but it’s worthwhile to create a decision tree and deduce what Charlie Brown should do (the authors do admit that the story of Charlie Brown is “absurdly simple,” but that this example allows the reader to become familiar with decision trees for more complex situations). Another example in this chapter is the game of chess, in which the players try to envision how their opponent will play a few moves into the future. I found it interesting that the authors pondered about solving chess, something I wrote about when I linked to the Garry Kasparov article, “The Chess and the Computer.”

In the chapter “Strategic Moves,” you’ll learn about unconditional moves (an example of a TV race between United States and Japan is presented), threats and promises (while an unconditional move gives a strategic advantage to a player able to seize the initiative and move first, you can establish a similar strategic advantage through a response rule—either a threat or a promise), warnings and assurances (a warning is when it is in your interest to carry out a threat while an assurance is when it is in your interest to carry out a promise).

Other chapters in the book include “Credible Commitments” (in which you will learn about “apparent irrationality,” contracts, and why it would make sense to burn bridges), “Unpredictability” (in which you will learn about the min-max theorem and the usefulness of surprising others by surprising yourself), “Brinkmanship” (please note that “brinksmanship” is not a word), “Cooperation and Coordination” (with a most interesting case about stock markets and beauty contests: how do they relate?),”The Strategy of Voting” (with considerations about median voting, the so-called “naive voter,” and how it may occasionally behoove to vote for an enemy to see a result you desire), “Bargaining” (with a discussion of handicap system in negotiations), and “Incentives” (an excellent chapter which sets the case for merit-based bonuses in jobs).

I think the best part of this book are the number of examples and the cases at the end of the chapter which reinforce the ideas discussed. Each case has a thorough solution, and so you can definitely learn a lot by reading through these cases. Speaking of cases, the last chapter of the book is entirely devoted to them; there are a total of twenty-three additional cases to go through which further reinforce the concepts covered in the book (again, solutions to the cases are also provided).

Some interesting quotes from the book follow.

Setting the tone for the book:

You must recognize that your business rivals, prospective spouse, and even your child are intelligent and purposive people. Their aims often conflict with yours, but they include some potential allies. Your own choice must allow for the conflict, and utilize the cooperation. Such interactive decisions are called strategic, and the plan of action appropriate to them is called a strategy. This book aims to help you think strategically, and then translate these thoughts into action.

On threats and promises:

Is is never advantageous to allow others to threaten you. You could always do what they wanted you to do without the threat. The fact that they can make you worse off if you do not cooperate cannot help, because it limits your available options. But this maxim applies only to allowing threats alone. If the other side can make both promises and threats, then you can both be better off.

How do I know this book is dated? Reference to the Cold War on page 3 of the book:

As the cold war winds won and the world is generally perceived to be a safer place, we hope that the game-theoretic aspects of the arms race and the Cuban missile crisis can be examined for their strategic logic in some detachment from their emotional content.

On De Gaulle’s rejection of friendship:

A compromise in the short term may prove a better strategy over the long haul.

On Khrushchev’s silence:

Khrushchev first denounced Stalin’s purges at the Soviet Communist Party’s 20th Congress. After his dramatic speech, someone in the audience shouted out, asking what Khrushchev had been doing at the time. Khrushchev responded by asking the questioner to please stand up and identify himself. The audience remained silent. Khrushchev replied: “That is what I did, too.”

On rules of the game:

There are two general features of bargaining that we must first take into account. We have to know who gets to make an offer to whom, i.e., the rules of the game. And then we have to know what happens if the parties fail to reach an agreement.

On taking risks (this conclusion follows after a case study of the 1984 Orange Bowl game between the Nebraska Cornhuskers and the Miami Hurricanes):

If you have to take some risks, it is often better to do this as quickly as possible. This is obvious to those who play tennis: everyone knows to take risks on the first serve and hit the second serve more cautiously.

An explanation of a dominant strategy with a baseball analogy (situation: one or more players on base, there are two outs in the inning, and a batter is facing a 3-2 count):

We say that running on the pitch is the dominant strategy in this situation; it is better in some eventualities, and not worse in any. In general, a player has a dominant strategy when he has one course of action that outperforms all others no matter what the other players do. If a player has such a strategy, his decision becomes very simple; he can choose the dominant strategy without worrying about the rival’s moves.

What is the dominance in a “dominant strategy”?

The dominance in “dominant strategy” is a dominance of one of your strategies over your other strategies, not of you over your opponent. A dominant strategy is one that makes a player better off than he would be if he used any other strategy, no matter what strategy the opponent uses.

Another revelation of the age of this book:

As we write this, the Iraqi invasion of Kuwait has shot the price of oil up to $35 per barrel and experts are divided about the future of OPEC.

On an interesting police tactic:

Police have been known to scare drug dealers into confessing by threatening to release them. The threat is that if they are released, their supplies will assume they have squealed.

How to deter cheating with punishment (you have to read the book to find out the problem with the approach listed below; alternatively, respond with your thoughts in the comments, and I will make note of the correct response):

Next we ask how severe a punishment should be. Most people’s instinctive feeling is that it should “fit the crime.” But that may not be big enough to deter cheating. The surest way to deter cheating is to make the punishment as big as possible. Since the punishment threat succeeds in sustaining cooperation, it should not matter how dire it is. The fear keeps everyone from defecting, hence the breakdown never actually occurs and its cost is irrelevant.

Threats and promises versus warnings and assurances:

Threats and promises are truly strategic moves, whereas warnings and assurances play more of an informational role. Warnings or assurances do not change your response rule in order to influence another party. Instead, you are simply informing them of how you will want to respond based on their actions. In stark contrast, the sole purpose of a threat or promise is to change your response rule away from what will be best when the time comes. This is done not to inform but to manipulate. Because threats and promises indicate that you will act against your own interest, there is an issue of credibility. After others have moved, you have an incentive to break your threat or promise. A commitment is needed to ensure credibility.

On burning bridges:

Armies often achieve commitment by denying themselves an opportunity to retreat. This strategy goes back at least to 1066, when William the Conqueror’s invading army burned its own ships, thus making an unconditional commitment to fight rather than retreat.

On the element of surprise:

If you choose a definite course of action, and the enemy discovers what you are going to do, he will adapt his course of action to your maximum disadvantage. You want to surprise him; the surest way to do so is to surprise yourself. You should keep the options open as long as possible, and at the last moment choose between them by an unpredictable and therefore espionage-proof device.

The essence of brinkmanship:

The essence of brinkmanship is the deliberate creation of risk. This risk should be sufficiently intolerable to your opponent to induce him to eliminate the risk by following your wishes. This makes brinkmanship a strategic move. Like any strategic move, it aims to influence the other’s action by altering his expectations. [Question for the reader: is brinkmanship a threat?]

On inferior technologies:

Our greater experience with gasoline engines, QWERTY keyboards, and light-water nuclear reactors may lock us in to continued used of these inferior technologies.

Final Thoughts

Most books on strategy and game theory can be dry and/or inaccessible to the general reader with overwhelming mathematics. This book is excellent (and interesting to read) because it has an amazing diversity of illustrative examples drawn from political campaigns, corporate relations, sports, OPEC, the military draft, the Cuban Missile Crisis, the Cold War (especially the Cold War, if I may so myself), speed limits, and other interesting topics. The book is mostly self-contained but it does require multiple sittings to go through it (I spent over a week reading this book), especially if you’re careful to go through the cases and work through some of the solutions to verify the authors’ findings. Do keep in mind that this book was published in 1993, so some of the topics are dated. Nevertheless, if you’re at all interested in strategy, game theory, and are comfortable with basic mathematical concepts, this book is definitely worth a read .

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2 thoughts on “ Thinking Strategically: Book Review ”

Thank you for such a great review. I read about this book from other forum as well, but they typically just say it’s a good read or introductory to game theory. Your review is much more detailed and informative, enough to convince me to order the book. Thank you.

Thanks, Danny! I’m glad my review was helpful.

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HBR Guide to Thinking Strategically (Book Summary)

May 31, 2021 Jeremey Donovan

HBR Guide to Thinking Strategically (HBR Guide Series) by Harvard Business Review

INTRODUCTION Why Everyone Needs to Think Strategically

• Strategic thinking is about analyzing opportunities and problems from a broad perspective and understanding the potential impact your actions might have on the future of your organization, your team, or your bottom line.
• You gather complex, sometimes ambiguous data and interpret it, and you use the insights you’ve gained to make smart choices and select appropriate courses of action.
• Consistency.
• Future focus.
• Outward focus.
• Breadth. You continually work to broaden your knowledge and experience so you can see connections and patterns across seemingly unrelated fields of knowledge.
• Questioning. You constantly ask yourself if you should be doing what you’re doing — whether your team is focused on the right things, if there is something you can stop doing, if you should change your approach, and how what you are doing is creating value.
• Understand your organization’s overarching strategic objectives.
• Keep a big-picture perspective.
• Make decisions with the organization in mind.
• Set strategic priorities and manage trade-offs.
• Align your team around organizational goals.
• Move beyond strategy and start to execute.

SECTION ONE Get Started: Be Strategic in Your Daily Work

CHAPTER 1 Strategic Leadership: The Essential Skills

• six skills that, when mastered and used in concert, allow leaders to think strategically and navigate the unknown effectively: the abilities to anticipate, challenge, interpret, decide, align, and learn.
• Do you have the right networks to help you see opportunities before competitors do? Are you comfortable challenging your own and others’ assumptions? Can you get a diverse group to buy in to a common vision? Do you learn from mistakes?
• Strategic leaders are constantly vigilant, honing their ability to anticipate by scanning the environment for signals of change.
• Talk to your customers, suppliers, and other partners to understand their challenges.
• Conduct market research and business simulations to understand competitors’ perspectives, gauge their likely reactions to new initiatives or products, and predict potential disruptive offerings.
• List customers you have lost recently and try to figure out why.
• Attend conferences and events in other industries or functions.
• Strategic thinkers question the status quo.
• Focus on the root causes of a problem rather than the symptoms.
• Apply the “five whys” of Sakichi Toyoda, Toyota’s founder. (“Product returns increased 5% this month.” “Why?”  “Because the product intermittently malfunctions.” “Why?” And so on.)
• List long-standing assumptions about an aspect of your business (“High switching costs prevent our customers from defecting”) and ask a diverse group if they hold true.
• When analyzing ambiguous data, list at least three possible explanations for what you’re observing and invite perspectives from diverse stakeholders.
• Force yourself to zoom in on the details and out to see the big picture.
• Actively look for missing information and evidence that disconfirms your hypothesis.
• Supplement observation with quantitative analysis.
• Reframe binary decisions by explicitly asking your team,” What other options do we have?”
• Divide big decisions into pieces to understand component parts and better see unintended consequences.
• Tailor your decision criteria to long-term versus short-term projects.
• Consider pilots or experiments instead of big bets and make staged commitments.
• Communicate early and often to combat the two most common complaints in organizations:” No one ever asked me” and” No one ever told me.”
• Identify key internal and external stakeholders, mapping their positions on your initiative and pinpointing any misalignment of interests. Look for hidden agendas and coalitions.
• Reach out to resisters directly to understand their concerns and then address them.
• Institute after-action reviews, document lessons learned from major decisions or milestones.
• Create a culture in which inquiry is valued and mistakes are viewed as learning opportunities.

CHAPTER 2 To Be Strategic, Balance Agility and Consistency

• For managers, it’s wise to find a strong “number two” who can check your worst impulses and enhance your strengths.

CHAPTER 3 Prove You’re Ready for the Next Level by Showing Off Your Strategic Thinking Skills

• It requires you gain exposure to strategic roles, synthesize broad information, participate in a culture of curiosity, and gather experiences that allow you to identify patterns and connect the dots in novel ways.
• Demonstrating strategic thinking requires that you are simultaneously a marketer, a salesperson, and a change agent.
• By better understanding trends within the function, the company, the industry, or the macro environment, and asking, “How might this impact my function or organization?”
• Block out 30 minutes on your calendar before important meetings.
• To display strategic thinking, you must synthesize disparate thoughts into a point of view and a vision that your bosses can see.
• Shift your contributions in senior executive meetings from operational input to strategic input.
• Package your ideas into a vision for the organization and engaged your peers in new discussions about how the vision could impact their areas.
• Demonstrating that you think strategically about hiring and talent development is a surefire way to make your leaders notice you.
• Show that you can initiate innovation and bring strategic change
• Demonstrate that you can use your knowledge to put new ideas into action.

SECTION TWO Understand Your Organization’s Strategy

CHAPTER 4 Understanding Your Organization’s Strategy

• Ask where the biggest risks are

CHAPTER 5 Strategy Isn’t What You Say, It’s What You Do

• A company’s strategy is what the company’s people are actually doing, not the slogan their bosses articulate.

CHAPTER 6 Building a Strategic Network

• You need not one but three networks: operational, developmental, and strategic.
• People in other units of the company, and outside, on whom and on whose work you rely on do your work. This is your operational network.
• Your developmental network is the collection of individuals whom you trust and to whom you can turn for a sympathetic ear, advice (depending on their experience), and a place to discuss and explore professional options
• Define what the future will bring
• Prepare for and succeed in that future.
• Your strategic network consists of outposts — individuals who work on the horizon of your world and can see into worlds beyond, both inside and outside your organization. Your links to these outposts will mostly be what sociologists call “weak ties.”

SECTION THREE Develop a Big – Picture Perspective

CHAPTER 7 Spotting Trends and Patterns That Affect Your Business

• Start by paying attention to the internal signals within your company that may give rise to opportunities or challenges right under your nose.
• Understanding root cause can help you find a solution to the problem you’re facing or a better path forward if change requires it.
• In exploring root causes, you will also need to consider external forces affecting your business.
• Discuss the implications of trends.
• Combine trends and build multiple scenarios for the future.
• Meaningful insights often arise when we combine different trends and then ask the question, “What would happen if…?”
• Our assumptions and unconscious biases may cloud our objectivity, which can cause us to see a trend that we want to see, rather than what is actually there.

CHAPTER 8 Look at Your Company from the Outside In

• Effective leaders listen. They observe. And they translate what they learn into strategy.
• Interview potential stakeholders, too. That includes customers and others who are currently dealing with your competitors — but also those who interact with neither you nor your rivals.

CHAPTER 9 Thinking Long-Term in a Short-Term Economy

• Make sure that you have a dynamic, constantly refreshed strategic “vision” for what your organization (or unit) will look like and achieve three to five years from now. I’m not talking about a strategic plan, but rather a compelling picture of market / product, financial, operational, and organizational shifts over the next few years.
• Long-term value, however, is not created in straight lines.

CHAPTER 10 The Future Is Scary. Creative Thinking Can Help

• Understand How People Think
• Question Your Organization’s Fundamental Beliefs
• Use “Prospective Thinking” to Consider Key Trends and Disruptions
• Megatrends — large social, economic, political, environmental, or technological changes likely to have major impact across a wide range of areas

CHAPTER 11 Zoom In, Zoom Out

• Zooming In: Close-in managers look for immediate benefits and make ad hoc decisions. They often favor one-on-one conversations over group meetings. They want to address details by doing whatever occurs to them.
• The best leaders work the zoom button in both directions.

SECTION FOUR Align Decisions with Strategic Objectives

CHAPTER 12 Reflect on Your Actions and Choices

• Being more strategic requires only that you put even the smallest decisions in the context of the organization’s broader goals.
• Strategic people create connections between ideas, plans, and people that others fail to see.

CHAPTER 13 Seven Steps for Making Faster, Better Decisions

• Write down five preexisting company goals or priorities that will be impacted by the decision.
• Write down at least three, but ideally four or more, realistic alternatives.
• Write down the most important information you are missing
• Write down the impact your decision will have one year in the future.
• Involve a team of at least two but no more than six stakeholders.
• Write down what was decided, as well as why and how much the team supports the decision.
• Schedule a decision follow-up in one to two months.

CHAPTER 14 How to Make Better Decisions with Less Data

• Step 1: Define – How do you understand the problem? What are its causes? What assumptions does your team have? Write about the problem (without proposing solutions) from different perspectives — the customer, the supplier, and the competitor, for example — to see the situation in new ways. Ask yourself a simple question: If I collect the data, then how would my decision change? If the data won’t change your decision, you don’t need to track down the additional information.
• Step 2: Integrate
• Step 3: Explore
• Step 4: Test – People under-collect disconfirming data.

SECTION FIVE Set Priorities and Manage Trade – Offs

CHAPTER 15 A Better Way to Set Strategic Priorities

• A better way to establish priorities is to put rank ordering aside and return to first principles.
• There are three interdependent variables that are essential for executing any initiative: objectives, resources, and timing.

CHAPTER 16 How to Prioritize When Your Manager Is Hands-Off

• Don’t assume that prioritizing your workload is someone else’s job
• What is my highest contribution?
• What am I passionate about?
• If you don’t prioritize your time, someone else will.

CHAPTER 17 Identify and Kill Outdated Objectives

• Box 1: Manage the present by optimizing core businesses.
• Box 2: Forget the past by letting go of the values and practices that have lost relevance.
• Box 3: Create the future by inventing a new business model.
• Create a process for winnowing large, medium, and small projects
• Changing projects or processes that affect companywide strategic objectives instead requires a top-down approach.

CHAPTER 18 What to Do When Strategic Goals Conflict

• The goals that emerge from your strategy should not be implemented piecemeal, but instead need to be considered holistically, as part of an overall execution strategy.

CHAPTER 19 Assess and Manage Trade-Offs

• Think through the potential short-and long-term impacts of potential courses of action.

SECTION SIX Align Your Team Around Strategic Goals

CHAPTER 20 To Be a Strategic Leader, Ask the Right Questions

• Strategy succeeds or fails based on how well leaders at every level of an organization integrate strategic thinking into day-to-day operations.
• What Are We Doing Today?
• Why Are We Doing the Work We’re Doing? Why Now?
• How Does What We’re Doing Today Align with the Bigger Picture?
• What Does Success Look Like for Our Team?
• What Else Could We Do to Achieve More, Better, Faster?

CHAPTER 21 An Exercise to Get Your Team Thinking Differently About the Future

(no highlights in this chapter; the title says it all)

CHAPTER 22 Communicating a Corporate Vision to Your Team

SECTION SEVEN Move from Thinking Strategically to Executing the Strategy

CHAPTER 23 Execution Is a People Problem, Not a Strategy Problem

CHAPTER 24 How to Excel at Both Strategy and Execution

• Are you very clear about how you add value to customers in a way that others don’t, and about the specific capabilities that enable you to excel at that value proposition?

CHAPTER 25 How the Most Successful Teams Bridge the Strategy-to-Execution Gap

• High-performing teams spend over 25 % more time focusing the enterprise than their lower-performing peers. That time is spent establishing financial and operational metrics, aligning goals with overarching strategy, allocating resources, and reviewing key metrics.
• High-performing teams spend 14 % more time checking their progress against strategic goals by reviewing key metrics and shifting resources accordingly.

CHAPTER 26 Get Your Team to Do What It Says It’s Going to Do

SECTION EIGHT Navigate Strategic Thinking Challenges

CHAPTER 27 When You Think the Strategy Is Wrong

• An organization’s strategy is often steeped in complex political issues. Before you speak up, try to understand the situation in which the strategy was developed.
• “Good enough strategy excellently implemented will trump a perfect strategy lukewarmly implemented nine times out of ten.”
• “Is it that you would have expected a different direction or do you believe that the analysis, facts, or process that the company used [were] flawed?”

CHAPTER 28 When Your Boss Gives You Conflicting Messages

CHAPTER 29 When the Strategy Is Unclear, in Flux, or Always Changing

• The ability to thrive during periods of strategic uncertainty separates the great managers who go on to become exceptional leaders from the rest.

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Book description

Table of contents.

• Mentor’s Message: Why Learn to Think Strategically?
• What is strategic thinking?
• Why is strategic thinking important?
• Who needs to think strategically?
• What are the distinguishing characteristics of strategic thinkers?
• What are the steps in strategic thinking?
• Understanding company and unit strategies
• Analyzing customers, competitors, and your industry
• Considering internal stakeholders’ priorities
• Understanding your boss’s objectives
• Defining your own objectives
• Identifying project-related objectives
• Making your objectives “SMART”
• Understanding how it works
• Devising solutions
• Categorizing information
• Challenging your assumptions
• Inviting provocation
• Envisioning an ideal world
• Gathering others’ perspectives
• Fostering an environment for creativity
• Identifying critical information you need
• Steering clear of irrelevant information
• Crafting an information-gathering plan
• Building on existing knowledge
• Establishing time lines
• Keeping the big picture in sight
• Assessing the pros and cons of a proposed course of action
• Comparing short- and long-term outcomes
• Balancing unit and company needs
• Learning to say no
• Tools for Thinking Strategically (1/4)
• Tools for Thinking Strategically (2/4)
• Tools for Thinking Strategically (3/4)
• Tools for Thinking Strategically (4/4)
• Answers to test questions
• To Learn More (1/2)
• To Learn More (2/2)
• Sources for Thinking Strategically
• Notes (1/2)
• Notes (2/2)

Product information

• Title: Thinking Strategically
• Author(s): Harvard Business Review
• Release date: June 2010
• Publisher(s): Harvard Business Review Press
• ISBN: 9781422172643

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Preface-Part 1

Key Figures

Index of Terms

Important Quotes

Essay Topics

Discussion Questions

Summary and Study Guide

Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life explains how to win at nearly any competition, from poker and product marketing to politics and warfare, using game theory . Published in 1991 by economics professors Avinash K. Dixit of Princeton University and Barry J. Nalebuff of Yale University, the work became an international bestseller. The eBook version of the 1993 re-issue forms the basis for this study guide.

In life, people often vie to win resources; this applies to everything from poker games to job searches, dating, marketplace competition, elective office, and warfare. In the science of game theory, each of these competitions is considered a “game” for which there are strategies that improve the chances of winning.

Game theory breaks competitions into various types, each with a different strategy for victory. A basketball player with “hot hands” forces the defense to focus on him, freeing up his teammates to make more baskets. A sailboat leading a race copies whatever the second-place boat does and stays in the lead; similarly, large corporations let upstart firms take innovative risks, then copy their successes. Before making commitments, people demand more benefits because they know that, once they’ve signed on, their bargaining power drops. These are examples of the many types of games and how to win them.

Players make their moves either simultaneously or in sequence. Sequential games, like sports or politics, can be diagrammed with a “game tree.” For each possible move, game trees portray the possible follow-up moves as branching lines that contain further branches for the next round of moves, and so on until the game ends. Simultaneous games—for example, voters on Election Day, or businesses that release competing products on the same day—can be charted with tables that list one player’s options as rows and another player’s options as columns; the resulting squares display the results of each combination of options.

In many games, players find they have a “dominant strategy,” an approach that works at least as well or better than any other option. No matter what the other players do, the player’s dominant strategy is the best one to use. Similarly, “dominated” strategies are worse than all other approaches and should be removed from consideration. Some games end up in an “equilibrium,” where each side has one consistent strategy no matter what the other side does. 

A common game in society is the prisoner’s dilemma , where two or more parties agree to do something costly to each but beneficial to all, except the players also are tempted to defect and get a free ride on the others’ sacrifices. If all players think this way, cooperation collapses and the result is worse for everyone than if they hadn’t agreed in the first place. Price fixing is a common example of this type of cooperation: It’s hard to prevent members from cheating.

In games that last indefinitely—business competition, or international diplomacy, as examples—cooperation can be enforced because players will face future punishments if they defect. When a game has a final round, players will defect at the end because they won’t suffer punishment; this realization causes all cooperation to collapse. In games where players always punish negative behavior, any lapse may cause the game to become a feud, a loop of endless punishments.

Players sometimes can control events with “strategic moves,” promises either to do something unilaterally or to punish or reward the others under certain conditions. A candidate might promise to lower taxes no matter what; a country might promise to retaliate if another nation attacks the country’s allies. Strategic moves only work if the promise is believable; opponents are more likely to believe a player who makes a commitment of resources to fulfill the promise.

Several approaches can improve a player’s credibility: These include a good reputation, written contracts, cutting off communication and burning bridges to remove the temptation to renegotiate or retreat, moving in small steps to prevent defaulting, using self-reinforcing teams, and negotiating through an arbitrator.

Players need to randomize their attacks. A tennis player who always serves to an opponent’s backhand will do much worse than if the serves are randomized to both backhand and forehand. It’s possible to figure out the best mix of serves based on the opponent’s strengths and weaknesses; even if the opponent figures out that mix, moment-to-moment randomization of serves makes it impossible to predict the next serve.

One form of strong commitment is brinkmanship , the art of dragging an opponent toward a disastrous outcome if the opponent doesn’t make concessions. During the Cuban Missile Crisis of 1962, US president Kennedy demanded that the Soviet Union remove nuclear missiles it had placed in Cuba, just off the US border; he ordered a blockade of Russian ships nearing Cuba with more missiles. Soviet premier Khrushchev backed down on condition that the US secretly remove its own nuclear missiles from bases in Turkey, close to the Soviet Union. Kennedy’s brinkmanship used the threat of total disaster to scare his opponent. Such tactics always are risky; there’s no way to design such a game without the possibility of sliding accidentally toward complete destruction.

People’s individual choices sometimes combine, in group settings, into results that are worse than no choice. This is due partly to a lack of pricing: Pollution has no price, for example, because it’s not for sale. It’s also due to incentives that work for individuals but not for groups: If everyone is speeding, it’s safer to go along with them but less safe than if everyone was obeying the speed limit. Sometimes people adopt a product standard that’s worse than others—the QWERTY keyboard, or gasoline engines, or light-water nuclear reactors—because of flukes during the product’s development processes. In these situations, outside intervention sometimes can reset the incentives so the group arrives at a better solution.

Voting is a game in which participants try to promote their candidate by placing votes where they do the most good, not always by voting directly for their preferred candidate. No voting system is perfect, and ballots with multiple candidates can generate especially strange results, so that winners sometimes aren’t anyone’s first choice.

Negotiation is an important game, with results dependent on the rules of the interaction and the amount of each side’s needs. For evenly matched opponents, generally the resources in contention get split 50/50, but the less-patient side tends to give in to the more-patient one.

Companies design incentives so that employees focus on doing good work. A software firm, for example, might offer computer programmers a bonus if their work produces applications that sell well. Partnerships, meanwhile, must be designed so that one side doesn’t get a free ride or quit suddenly. Firms should put up a large sum toward the project and suffer financial penalties if they back out; each partner should profit in proportion to its costs, though this can cause them to pad their expenses.

Every chapter in Thinking Strategically contains a Case Study—a real-world example of the chapter’s principles—with a discussion on the best solutions. Chapter 13 contains 23 Case Studies that cover these and other game theory situations.

The book is easy to read for the non-professional; its style is enthusiastic and sometimes humorous. The work includes many charts, diagrams, and tables that clarify the content, along with 36 pages of notes. 

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Thinking Strategically - critical summary review

This microbook is a summary/original review based on the book:   Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life

Available for:  Read online, read in our mobile apps for iPhone/Android and send in PDF/EPUB/MOBI to Amazon Kindle .

ISBN:   0393310353

Publisher:   W. W. Norton & Company

Critical summary review

The average person makes some kind of a decision every two seconds, or a whopping 35,000 times a day! Some of these decisions – such as what to eat for lunch or which NBA game to watch tonight – are made in a vacuum: the outcome depends solely on your choice. However, the outcome of a bunch of other decisions – such as which restaurant to go to with your friends or how you and your spouse should raise your children – depends on the preference and aim of at least one other active decision-maker. 

This (These) second type of decisions – made in interaction with other people – are called strategic, and the branch science that studies them is called “game theory.” The perennial bestseller “Thinking Strategically” by economists Avinash K. Dixit and Barry J. Nalebuff is an introduction to game theory and a crash course to outmaneuvering your rival. As the two authors themselves write, the book “aims to help you think strategically,” that is “to improve your strategy IQ.” So, get ready to do just that! 

Game theory: some terms and concepts

Strategic thinking, as defined by Dixit and Nalebuff, is “the art of outdoing an adversary, knowing that the adversary is trying to do the same to you.” The science that studies strategic thinking is called game theory. Pioneered by Princeton polymath John von Neumann in the middle of World War II, game theory is interested in discovering optimal game strategies, that is, strategies that will provide the best payoff for a player in any game of conflict, cooperation or both.

The games studied by game theory are essentially well-defined mathematical objects, but are pretty limitless in scope. They include everything “from chess to child-rearing, from tennis to takeovers, and from advertising to arms control.” In fact, any interaction between two people can be considered a game worthy of mathematical analysis if it includes a set of decision-makers, a set of choices available to those decision-makers, and a specification of payoffs for each choice or combination of choices. In game theory, the decision-makers (are) involved in “a situation of strategic independence” – that is, a game – are called, appropriately, “players,” and their choices are called “moves.” A combination of moves is called a “strategy.”

Now, the moves in a game can be sequential or simultaneous. In a game of sequential moves, players take turns and have information about the other person’s previous choice before they make theirs. In a game of simultaneous moves, players must act at the same time, that is to say, they have to choose their action without any knowledge of the actions being chosen by other players. 

If the interests of the players in the game are in strict conflict – that is to say, if one person’s gain always means another person’s loss – then we’re talking about zero-sum games. Such are the games in most sports competitions: if one team has won, that means the other team has lost. In practice, however, most of the games we play include combinations of mutually gainful (win-win) or mutually harmful (lose-lose) strategies. These games are called non-zero-sum games. But enough with theory: it’s time to make things much more interesting. 

Sequential games: anticipating your rival’s response

As we already said above, a game of sequential moves is a game in which players take turns. Chess and tic-tac-toe are good examples of how this kind of game works: one player makes a move, and then the other tries to find an appropriate response. Consequently, sequential games are dominated by a linear chain of thinking: “If I do this, my rival can do that, and in turn I can respond in the following way, etc.” Game theories study sequential games by drawing decision trees. The more complex the game, the more branched out the tree. The game tree for tic-tac-toe, for example, is easily searchable, but a complete game tree for chess hasn’t been drawn yet. There are just too many combinations, too many strategies.

The best choices of moves in a sequential game can be found by applying one very simple rule: “look forward, and reason backward.” In other words, “anticipate where your initial decisions will ultimately lead, and use this information to calculate your best choice.” That’s what chess players do: they ask themselves whether a certain combination will lead to a generally good position four or five moves ahead, and if so, they pursue it; if not, they try to devise another combination. Either way, they make their next move by reasoning backward from a presumed outcome several moves in advance. 

To simplify the situation, think of the cartoon strip “Peanuts,” and the recurring theme of Lucy holding a football on the ground and inviting Charlie Brown to run up and kick it. At the last moment, however, she pulls the ball away and Charlie Brown, after kicking the air with full force, lands on his back to Lucy’s great amusement and perverse pleasure. 

Game theorists would say that Charlie’s choice to kick the ball was never his optimal strategy and that he should have declined Lucy’s invitation immediately. Indeed, if Charlie only applies the rule “look forward, and reason backward,” he would be able to realize that there are only two possible outcomes in his situation, and that he would gain far less from kicking the ball than he might lose from Lucy pulling the ball away. Moreover, just from knowing Lucy’s character from other contexts, he should have known that the logical possibility of her letting him kick the ball was always going to be realistically irrelevant.

Simultaneous games: seeing through your rival’s strategy

Whether it’s chess or tic-tac-toe, the general principle for sequential games is that “each player should figure out the other players’ future responses, and use them in calculating his own best current move.” This principle, however, doesn’t work at all for simultaneous games (such as, say, rock-paper-scissors) wherein all players are asked to make their decisions at the same moment. As a result, simultaneous games are governed by a logical circle of reasoning: “I think that he thinks that I think that…” Moreover, whereas sequential games can be represented and studied in the form of decision trees, the best way to tackle a game of simultaneous moves is by outlining a table which would show the outcomes corresponding to all conceivable combinations of choices.

A textbook example of how a simultaneous game works is the prisoner’s dilemma. In this game, two people are arrested for a crime they never committed and put in solitary confinements with no means of communicating with each other. With not enough evidence – but a strong desire – to convict the pair, their prosecutors offer each of the innocents the opportunity to make a false confession that would implicate their unknown “collaborator.” If both prisoners do this and betray each other, they will both receive a standard sentence of 10 years. If only one of them signs a false confession, he will get away with one year of prison for cooperating with the authorities, while the other one will receive a harsh sentence of 25 years for his recalcitrance. Finally, if neither of the criminals chooses to cooperate with the police, each will be sentenced to only 3 years in prison. 

The best joint strategy is, obviously, for both prisoners to stand firm. However, this is not the optimal strategy on an individual level. Quite the opposite, “the jointly preferred outcome arises when each chooses its individually worse strategy.” Individually, the best strategy for each of the prisoners is to betray the other person because, that way, in the best-case scenario, they might get a one-year sentence, and in the worst, 10 years behind bars. Standing firm, on the other hand, may result in a three-year sentence, but it can also lead to 25 years in prison. Leaving your fate in the hands of the other player is not rational. In fact, the goal of strategic thinking is the very opposite.

Dominant strategies and the Nash equilibrium

Backward induction – or, the “look ahead, and reason back” rule – is the single, unifying principle that governs sequential games. Allow us to stay with the prisoner’s dilemma a bit more – and simplify things to a certain extent – to explain the three basic rules for action that can help one devise the best strategy to win in games with simultaneous moves. These three rules rest on two simple ideas that are very important in game theory: dominant strategies and equilibrium. 

A dominant strategy can be defined as a strategy that provides a better outcome for a player, regardless of the other player’s choice. In general, dominant strategies are better in some eventualities, and not worse in any. If a player finds a dominant strategy in a simultaneous game, then his decision should be to always choose it and not worry about the rival’s moves. That is Rule No. 2 of game theory, “If you have a dominant strategy, use it.” 

In the prisoner's dilemma, the dominant strategy for any individual player is to implicate the other person in the crime, because that way he’ll never risk getting tricked by his rival. If both players make the same choice – that is, if both players opt for the dominant strategy – then their game will reach something called “a dominant strategy equilibrium.” This equilibrium is better known as Nash equilibrium, after mathematician John Nash, who was made famous in 2001 through the Academy Award-winning movie “Beautiful Mind.”

In a Nash equilibrium, no player can gain anything by changing only their own strategy. In other words, if one of the prisoners chooses to sign a false testimony, the best the other one can do is follow suit; otherwise, he’ll end up on the losing side. That’s why the Nash equilibrium produced by the confess-confess strategy is the dominant strategy equilibrium of the prisoner’s dilemma, even if it is not the optimal one, which is produced by mutual cooperation.

When systems fail: mixing plays

In the prisoner’s dilemma, the dominant strategy for the individual players is to cooperate and implicate the other person in the crime; standing firm, conversely, can be described as a weakly dominated strategy, because it leaves a player worse off in three of four possible cases. When a player can’t find a dominant strategy in a game of simultaneous moves, then he should apply Rule No. 3 and eliminate all dominated strategies from consideration. Finally, if there are neither dominant nor dominated strategies in a game, players should heed Rule No. 4 and look for an equilibrium, that is, “a pair of strategies in which each player’s action is the best response to the other’s.”

But what if you find no such equilibrium after careful consideration? Well, in that case, say Dixit and Nalebuff, it’s very likely that systematic behavior isn’t the solution, but the problem. The optimal approach in games of no dominant strategies or equilibrium is mixing your plays. The keyword here is not mixing, but unpredictability, or even randomness. Rotating your plays in a predictable manner is not that different from not rotating them at all.

To understand mixing better, just think of what would happen if Company A released a coupon promotion on a regular schedule, say, the last Friday of every odd month. In such a case, Company B would be able to easily preempt them by making the same move precisely a week before. Of course, then Company A can readjust its schedule to anticipate Company B’s promotions and so on. The result of the process would be less profit for both companies. However, if each of them uses an unpredictable or mixed strategy, releasing  coupons at random times, both will probably gain, while reducing the fierceness of the competition.

In many sports – where systematic behavior can usually be easily exploited by rivals – the best players are those with the largest number of moves at their disposal. Simply put, it’s much more difficult to guard an ambidextrous basketball player who can both shoot and assist than it is to guard an exceptional right-handed shooter. In the latter case, the other team can concentrate solely on defending against right-handed shots. However, the more moves a player has, the less a systemic defense against him is possible.

Final notes

To quote Burton G. Malkiel, “Thinking Strategically” is “a gem of a book.” Indeed, we’ve never come across a better introduction to game theory than Dixit and Nalebuff’s classic.

“To be literate in the modern age,” remarked influential economist Paul Samuelson in a contemporary review, “you need to have a general understanding of game theory. Dixit and Nalebuff provide the skeleton key. You'll benefit from ‘Thinking Strategically’ and enjoy the book.”

We concur. On both accounts.

Wing games of sequential move by thinking ahead and reasoning backward. In simultaneous games, try first to discern the dominant strategies. Then start using them, and stop worrying about your rival’s choices.

Who wrote the book?

Avinash K. Dixit is a renowned Indian-American economist. He is the John J. F. Sherrerd ‘52 University Professor of Economics Emeritus at Princeton University and has been a senior research fellow and adjunct professor at several other... (Read more)

Barry J. Nalebuff is an American author, academic, and entrepreneur who is the Milton Steinbach Professor of Management at Yale School of Management. His class on negotiation is also one of the highest-rated classes at... (Read more)

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How to Think Strategically

• Michael D. Watkins

Are great strategic thinkers born or made? The answer turns out to be “yes.” Yes, individuals sit somewhere on a spectrum of innate talent and yes, you can develop that talent. The implication for organizations is that they must find ways to identify and cultivate future leaders with the capacity to think strategically. The implication […]

Are great strategic thinkers born or made? The answer turns out to be “yes.” Yes, individuals sit somewhere on a spectrum of innate talent and yes, you can develop that talent.

• Michael D. Watkins is a professor of leadership and organizational change at IMD , a cofounder of Genesis Advisers , and the author of The Six Disciplines of Strategic Thinking .

Partner Center

Ideas and insights from Harvard Business Publishing Corporate Learning

Think Strategically to Stay Ahead

Our lives, both personally and professionally, have been disrupted like never before. The COVID-19 pandemic has turned businesses around the world upside down. We’re all focused on firefighting, on surviving, on managing unforeseen circumstances that weren’t part of anyone’s strategic plan. At a time like this, why would anyone make time for thinking strategically?

To be blunt: you can’t afford not to. Although COVID-19 has made things even more complex and uncertain than usual, leaders always need to have one foot in today and another in tomorrow. If you’re focused only on your, or your team’s, work, you will fail to see the big picture and won’t be able to keep pace with a changing world. The current crisis will eventually end. To not just survive but also succeed, you and your organization need to understand how your industry will shift in the coming months and start planning your next steps now.

But wait, why do I need to think strategically? When it comes to strategic thinking, many people operate under the assumption that strategy is set at the executive level, or by those charged specifically with strategic planning. Leaders further down in the organization, the thinking goes, are the ones responsible for executing the strategy that’s handed to them. They’re the frontline, the doers.

The issue with this breakdown is that it conflates strategic thinking with strategic planning . Traditional strategic planning involves creating a roadmap that enables an organization to achieve its goals and is the responsibility of executives. Strategic thinking, on the other hand, is a mindset and technique that everyone in an organization can and should practice. It involves looking at one’s work with a broader focus and across a longer time frame than usual. When you think strategically, you’re able to work more efficiently; you and your team spend your time and energy where it will have the most impact down the road. Additionally, thinking strategically puts you in a position where you can weigh in on your organization’s strategic plans with confidence.

How to become a strategic thinker To exercise your strategic thinking muscles, first lift your head up from the day-to-day and get to know the big picture. This doesn’t just mean familiarizing yourself with your organization’s long-term strategic goals. You also want to develop an overall sense of what’s going on in the world, in your industry, and in your markets. Keep your eyes open for emerging trends, and make sure your team is on the lookout as well. This means that you’ll need to take a little time away from your normal responsibilities. Trust me, it’ll be worth it.

After you begin to tap into relevant trends, don’t stop there. Question your assumptions about how your industry and markets operate. For example: What is one aspect of your industry that you take for granted? How might your organization be affected if it was no longer true?

After surfacing industry trends and questioning everyday assumptions, use these new insights to identify opportunities you and your team can take advantage of.

There’s no time like the present for thinking about the future The COVID-19 pandemic will impact every global industry in some way or another. Let’s get specific. Think about the opportunities that are opening up for work-from-home technology companies. Their strategy may have focused on road warriors, on the minority of those working from home full-time, and on those enjoying the occasional work-from-home perk. With so many employees now operating in a fully virtual environment, are there new markets opening up? New products and services that can be provided?

Another example is the number of clothing manufacturers who have stepped up and, in response to the pandemic, have begun manufacturing personal protective equipment for medical personnel. Should this be a temporary business for them, or does it offer a new strategic direction?

Right now, we’re all thinking about surviving the pandemic. But there may be ways your organization can thrive despite it. There will always be trends that provide new opportunities. And it’s up to leaders at all levels to spot and jump on them.

How have leaders at your organization transitioned to strategic thinking during the pandemic?

Want to learn more about how you and your team can think strategically? With the updated Strategic Thinking topic in Harvard ManageMentor, you’ll find  new lessons on anticipating what’s to come, challenging assumptions, exploring trends, and more.

Ryan Kehr is content development manager at Harvard Business Publishing Corporate Learning. Email him at [email protected] .

Let’s talk

Change isn’t easy, but we can help. Together we’ll create informed and inspired leaders ready to shape the future of your business.

© 2024 Harvard Business School Publishing. All rights reserved. Harvard Business Publishing is an affiliate of Harvard Business School.

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How to Think Strategically: Sharpen Your Mind. Develop Your Competency. Contribute to Success. Paperback – July 9, 2019

• Internalize the 20 microskills of strategic thinking
• Develop your personal brand as a competent strategic thinker
• Pose high-quality questions that spark strategic insights
• Write a concise one-page statement strategy, with five essential concepts that will help you distinguish effective strategy from a list of goals
• Design strategy that is clever and powerful
• Recognize and mitigate blind spots and decision traps
• Distinguish strategic thinking from operational thinking and appropriately apply each
• Overcome the excuse of “I'm too busy to be strategic"
• Recognize and exploit the four X-factors of strategic thinking: Drive, Insight, Chance, and Emergence
• Practice extra -ordinary leadership to confront issues and leap into an unknown future
• Improve conversations with other strategists
• Print length 304 pages
• Language English
• Publisher Maven House
• Publication date July 9, 2019
• Reading age 18 years and up
• Dimensions 6 x 0.75 x 9 inches
• ISBN-10 1938548906
• ISBN-13 978-1938548901
• See all details

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About the author, excerpt. © reprinted by permission. all rights reserved..

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Product details

• Publisher ‏ : ‎ Maven House (July 9, 2019)
• Language ‏ : ‎ English
• Paperback ‏ : ‎ 304 pages
• ISBN-10 ‏ : ‎ 1938548906
• ISBN-13 ‏ : ‎ 978-1938548901
• Reading age ‏ : ‎ 18 years and up
• Item Weight ‏ : ‎ 15 ounces
• Dimensions ‏ : ‎ 6 x 0.75 x 9 inches
• #2,017 in Business Decision Making
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I am an Executive & Leadership Coach. My new book is, How to Think Strategically, has many positive reviews.

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Customers find the book provides a well-defined thought process for strategic thinking and insightful information. They also describe the reading experience as great, accessible, and practical.

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Customers find the book has a well-defined thought process, a wealth of practical information, and nice substance. They say it brings strategy into the common domain, provides great examples and models, and clarifies common misunderstandings. Readers also say it's a very important contribution to the field of strategic management, and provides excellent career advice.

"...The book also shapes the reader's understanding by laying out the foundational definition of strategy, contrasts strategy with operational thinking..." Read more

"...of having strategy conversations is an important one and shares some practical questions to help managers determine their direction...." Read more

"...It brings strategy into the common domain and makes a key point that ‘strategic thinking’ is a domain that can be accessed, learned and practiced by..." Read more

"...Finally there was some excellent career advice in this book for any leader who wants to be seen as more strategic and be top of mind for promotion." Read more

Customers find the book great, practical, and accessible for strategic thinking.

"Well-structured and additionally perfect if you've ever been provided with professional feedback to improve business acumen and strategy. "..." Read more

"...This book would make an excellent corporate book club read ." Read more

" This book was amazing and different from a dry step by step book on writing a strategy. I felt this book was a strategy on creating a strategy...." Read more

"...This book is weighty and worth the read ...." Read more

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