January 1, 2009


Forward reviews books on business, economics and trade.

by Avinash K. Dixit and Barry J. Nalebuff
W. W. Norton & Co., 2008

The Art of Strategy

If I know that you know that I know that your company has no operations in lower Baluchistan, then I can win the negotiation by emphasizing the rail cars in upper Michigan that you have failed to factor into the price. If you can take that backward reasoning of chess or even the randomness of “rock, paper, scissors” out of the realm of games and into the realm of strategy, you can write a really good book—or several.

Avinash K. Dixit and Barry J. Nalebuff have independently and jointly written some of the best and most erudite business books of recent years: Investment Under Uncertainty by Dixit (with Robert S. Pindyck) and Coopetition by Nalebuff (with Adam Brandenburger). Both professors and experts in game theory, they also play games—in one case, devising the TV game show, Life: A Game, and in another, co-founding Honest Beverage, makers of Honest Tea.

The references in The Art of Strategy range from LeBron James and Winston Churchill to treasury bill auctions and the 1945 anti-trust case against Alcoa. There are enough charts to make it a serious book but not enough to make it a textbook, enough examples to make it eminently useful but not enough to make it anecdotal and, best of all, enough good writing to keep you reading.

The authors know that you know that they know you need this information but that you didn’t really understand John Nash’s beautiful equilibrium theory and don’t have time to figure it out. You’ve got a company in lower Baluchistan to sell.

What they do is help you apply strategy to the game, any game, and win. They also make the biggest point of all: “You may be thinking you are playing one game, but it is only part of a larger game. There is always a larger game.”


by Addison Wiggin and Kate Incontrera
John Wiley & Sons Inc., 2008

I.O.U.S.A.: One nation. Under stress. In debt.

I.O.U.S.A., the documentary improbably starring the former comptroller of the United States, David Walker, and even more improbably plucked from among all the entrants to be nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, has become a book.

The book, appearing at mid-year just before the economic meltdown, is now simply an exercise in “I told you so.” From people who got us into this, like Alan Greenspan, to some of the people who might get us out, like Robert Rubin, this book is one giant, 266-page gotcha.


Edited by Joseph L. Bower and Clark G. Gilbert
Oxford University Press, 2008

From Resource Allocation to Strategy

Make no mistake: this is a textbook. Whether that’s what the authors intended is beside the point. It is a slog of a read, with charts and graphs and discussions of things like “normative theories.” There are, however, flashes of insight that break through the academic verbiage and offer direction to executives trying to figure out why their resources are always just a little off, and why their supply chain and their strategy don’t match.

The authors, both then professors at Harvard Business School, began with a frustration at the slowness with which academic research was answering those questions. Thirty-five years after the publication of the seminal Managing the Resource Allocation Process, conventional theory still said that resource allocation was a bottom-up process driven by economics with little relation to organizational dynamics. Seen that way, the lack of coordination between departments would result in redundant staffing or under-resourcing, and companies would stagger along wondering what was wrong.

That is not, of course, what the authors found. Compiling 19 scholarly papers from sources such as Clayton M. Christensen, they were able to see how things have changed and offer examples of how executives successfully have intervened to shape desired outcomes.

An interesting example dates back to 1995, when the Timken Co. acquired a tapered roller bearing plant in Poland. The need for capacity and an entry into eastern Europe eventually led Timken “to a complete product market repositioning.” The company switched to a globally integrated supply chain that led to cost competitiveness in mass markets. A seemingly inconsequential acquisition reshaped the company—not, the authors say, a manifestation of the law of unintended consequences but of the need to manage strategic outcomes through the management of resources.