The global financial crisis that erupted in 2008 shows, with painful clarity, that we live in an interdependent business world. In bleak times and fair, the success of a company’s strategy often depends greatly on the strategies of its competitors. In periods of financial turmoil, for instance, the prospects—and even survival—of a bank often depend on the near-term M&A of its rivals. Similarly, the ultimate success of Boeing’s new commercial jet, the 787 Dreamliner, will depend on the way Airbus positions, markets, and sells its new and competing A380 and A350. Pfizer’s ability to sustain market share and profitability in the market for cholesterol-lowering treatments will depend on the moves of the company’s branded and generic pharmaceutical competitors, to say nothing of biotech and medical-product companies developing alternative treatments.

This strategic interdependence implies that the ability to anticipate your competitors’ strategies is essential. Yet a recent survey of business executives found that the actions and reactions of potential rivals almost never play a role in, for example, decisions to introduce and price new products.¹ An important reason for this neglect, we believe, is that strategic-planning tools, such as game theory and scenario planning, are of limited use unless a...