Picking the right play for any particular situation begins with discovering the gaps that represent the best opportunities in your overall industry. Doing homework on your industry will help you discern between a pothole, a challenging but manageable leap, and an insurmountable grand canyon. That homework can spell the difference between being lauded as a champion, being forgotten as an also-ran, or being scraped off the pavement as road kill.

An example: We all drive cars, but who do you think of as the biggest heroes of the enormous automotive industry? Car history buffs might name people like Nicolas Joseph Cugnot, Siegfried Marcus, Nikolaus August Otto.

But for the majority, the name of Henry Ford would first come to mind.

What Does Your Business Have in Common with the Model T?

Cugnot built the first automobile in 1769; it was steam powered and was a milestone even though it only managed 2-1/2 mph. In 1864, Marcus, figuring that gasoline might work better than steam, stuck a gas-powered engine on a cart and managed to drive a whole 500 feet. Three years later, Otto invented the four-stroke internal combustion engine.

All three were super-smart, pioneering guys who made tremendous contributions to our lives. Without them or others like them, we'd likely still be measuring horsepower in one-horse and two-horse units. So why don't we remember them? Why is it so much more likely (unless you're an auto industry historian) that you think of Henry Ford as the father of the modern automotive industry?

What makes the difference is that when Cugnot and Marcus and Otto were developing their important innovations, the other elements of the automotive industry just weren't there yet.

In contrast, Henry Ford found his industry gap, and it had nothing to do with engines or suspension or braking or any other automobile technology.

Whether you're setting your sights on shaking up your industry like Henry Ford, or your aspirations are more humble-say, just trying to make a lot of money-doing research on your industry and doing it right lays the groundwork for everything that follows. This research, which we call "doing your homework," helps in three ways.

• It helps you discover, define, or refine the vision that inspires you and the mission that motivates you;
• It helps you reach conclusions that define the boundaries and constraints for choosing your strategy and your operating philosophy;
• Finally, it can help define your investment priorities.

Fine. These sound like valuable goals. But what are the things you need to look at that will help you achieve them?

First, look at the developments that came before you and define the state of your industry today and the state of the other industries that support it. Ford saw scores of previous innovations that helped support the safe development and use of autos: improvements in roads, in tires, in engines, in steel.

Next, look for the openings in the dynamics of the industry. What should be happening that isn't yet? Ford saw that cars-despite all the innovations to date-were still the domain of elites or aficionados, not regular people.

Then, isolate the key economic and other levers in the industry that are required to exploit that opening. Ford recognized that reliability and cost were the key barriers and the key opportunities to reaching the mass market with automobiles.

Finally, focus all your energies, priorities and decisions on moving those levers. Ford became maniacally focused on cost and reliability and on everything needed to improve them. He made bets on scale and focused on standardization at the sacrifice of consumer choice. He focused on innovations like the conveyer belt, interchangeable parts, and mass marketing. And he delivered The Model T-the first mass produced, low cost/low price car.

Sounds like a tall order. Don't worry. Doing your own industry homework and drawing pointed observations that will inform your vision, mission, and strategy does not require you to take night school classes in economics or hire Paul Voelker or Alan Greenspan.

All you need are the few simple tools and methods outlined below.

The ABCs of Industry Opportunity

The most straightforward way of identifying the right industry challenges and opportunities or to verify those you're pursuing is to do a simple gap analysis. It will lay the groundwork for almost all the other strategic and tactical work you do. We've referred gap analysis in describing the best conditions for each play; now it's time to take a closer look at this valuable tool.

In the hundreds of companies and literally thousands of different situations we encounter, we follow a very simple three-part formula for doing a gap analysis.

The ABCs of Gap Analysis

We call this formula the ABCs. A represents the current situation, B represents the desired future, and C represents the gap you have to cross to get to that future. How you'll use this becomes clear quickly with an illustration; in this case it's from our familiar playing field, Microsoft.

This first step of the gap analysis is the A, or starting point-your current situation. In Microsoft's case in the early 1990s, the industry situation in question was what would come after the IBM PC. Back then, PCs were cheap but had significant limitations. They couldn't run big programs and they weren't easy to use.

This was frustrating for people in the computer industry. Especially when you considered the promise of the new Intel 386 chip that offered more memory, more performance, more multitasking, more programs running simultaneously, more everything. A better future was tantalizingly possible, but not yet there.

That's the next step: to define a desirable destination-a goal describing the position you want to reach. For this, we use the terminology devised by presentation expert Jerry Weissman, calling your desired destination "Point B" It's the answer to "There's gotta be a better way," an inspiring but still believable alternative for how the industry could operate.

By examining all the existing factors in the computer industry, Microsoft was able to pinpoint a spot on the map that no other company had yet chosen or been able to claim as their own: an inexpensive personal computer that would be as easy to use as a Mac. This point B was one where PCs would be so easy and accessible that in the future there would be "A Computer on Every Desktop and In Every Home."

The third step of your overall industry gap analysis is determining the C-the challenge that, if met, will allow you to bridge the gap you have identified. You have to understand the size and nature of the gap, and commit to crossing it.