Mr. Toyada was pleased to look at his business in 1983 and see that Toyota was selling Corollas, Tercels and other nice, reliable, small cars like hot cakes. But he also looked across that vast gulf between Toyota, Honda, other Japanese cars, and Mercedes, BMW and a host of other European luxury cars. He saw their tremendous margins. And he was not satisfied. Toyota had become too strong, too excellent an engineering company, and too successful a business, for him not to capture at least some of that high-end market.

So he called a top-level, top-secret meeting to plan how to create the first Japanese super luxury car, one with all the panache, performance, and fit and polish of the best that the Europeans were offering, combined with the reliability and value people had come to expect from Japan.

This was no easy task. They had to get it right. With the entry of Honda's Acura line in 1986 and Nissan's Infiniti shortly thereafter, the heat was on-and the ground was laid.

In 1989 the Lexus LS400 and ES250 hit the streets to much fanfare and admiration-supported by highly stylized branding, superb advertising, personalized service, and incredibly high-touch, low-pressure sales. By 1990, Lexus was raking in awards-including JD Powers Best Car Line and Motoring Press selection as Best Imported Car of the year. The awards kept rolling in and so did the sales. Within three years, in 1992, Lexus outpaced BMW and Mercedes-Benz to become the sales leader, number one among all luxury imports.

What seemed like the impossible has now become commonplace: the combined ideas of "Japanese" and "luxury" are now firmly established and totally natural in the car market. These days, as you may have noticed, all the players in this relatively new, highly attractive segment face off against each other continually in competition to establish or defend their dominance-using variations on the play we've labeled the Drag Race.

So it goes. That is the way of competition. The play that made so much sense originally and got you where you are makes a lot less sense once you're established there.

Of course, Lexus didn't get this extraordinary position overnight. And, of course, the original conditions had to be right for their run up the middle.

Just what were those conditions and how can you tell if you're facing similar ones in your market?

Indicated Conditions: When do You Run Up the Middle?

For one thing, there has to be a middle to run up through. Or at least, there has to be the possibility of creating one.

The middle represents a huge opportunity, but conditions really do have to be right for the play to have a chance of succeeding. To grab this juiciest of apples, it must be hanging low enough to reach, ripe enough to be worth eating, but well enough hidden that nobody has spotted it before. Where these conditions differ from the Stealth Play is that the gap has got to be big.

Where do you find this middle? Look to your playing field.

Finding that gap in the middle calls for a simple gap analysis (see Part II) for detailed tips on how to perform this in depth). The gap is the middle. Pretty simple really: The current situation involves the trade-off between two extremes. In the future, a combination of the best of these extremes could be made available. Something has to change to bring these two ends together, and you're just the folks to do it.

The playing field has to possess such a middle in all dimensions of the market landscape for you to be able to execute this Best of Both Play. Start by looking at the industry. Conditions need to be ripe at the highest level first.

Your industry has to be ready and ripe for change

Unlike the Stealth Play (where you bet on being able to continue finding small or moderate-sized gaps that you can fill peaceably), the Best of Both Play is all about finding and filling the one big gap that will really shake up the industry. But in order for you to be able to pull it off, a lot of things need to have already happened.

This play is all about change-change that may seem revolutionary, combining two ends of a trade-off that previously seemed impossible to combine. But in terms of the industry it affects, this play is actually evolutionary. As you'll see, it has to be. Otherwise such a combination would be impossible.

In order to combine two ends of an industry, look for situations where both ends have existed long =

enough for their contrast to be real and noticeable. Both ends of the trade-off have to be established and mature enough to be worth the effort to collapse them.

Take Lexus, for example: If the British and Germans hadn't developed the luxury category first, it would not have held much interest. Meanwhile, by the time that Eiji Toyada and his compatriots started dreaming of entering the luxury market, they had already put in decades of hard work to create and improve their position on the other end -moving the Japanese car beyond being just a cheap little import, to establish it as a reliable, economical, desirable alternative. Without the strong low-cost car on one end of the market, he wouldn't have dared enter the true luxury segment on the other.

Once these extremes and the trade-offs between the far points of the industry have been clarified, you face the job of figuring out how to fill the side of the trade-off that you don't already have a position in. You have to project the market into the future, beyond its current limitations. Companies that run the Best-of-Both Play are inspired by the chance to reinvigorate their market, and to reap the benefits.

Of course, it helps if there is some dynamic in the overall industry that's helping propel change-some fundamental shift that enables new things to happen in already established territory. Find that thread of forward momentum and underlying change. Grab on to it earlier and more firmly than anyone else and use it to pull yourself right up through the middle.

In his launching of the Lexus, Toyada-san followed a pattern in an industry that has seen variations of the Best-of-Both Play over and over again to segment and sub-segment its markets, allowing manufacturers the opportunity to sell more and more targeted vehicles both as replacements and as more specialized second or third family cars. The minivan, and then the whole progression of sports utility vehicles, from the originals to all their variants-the luxury SUV (Lexus, Mercedes, even Porsche), the compact SUV (the Toyota RAV4, Honda CR-V. Chevy Tracker, etc), the hybrid wagon-SUV (the Subaru Outback, Volvo XC90, Audi Allroad Crossover)-are all examples of Best-of-Both market segmentation and further subsegmentation. All are attempts to refine previous categories, increase penetration, and drive up margins by better targeting.

But these innovations didn't happen just because the manufacturers felt like doing some targeting, but because they were able to find the right combination of underlying conditions. Usually, long-term trends had to come together to favor all these variations. Otherwise we would still all still be choosing between Model Ts in black or in black. The Best-of-Both Play is all about being the first to recognize and exploit the trend. The whole point of this play is to break the mold. We've seen a few variations, but the vast majority of such change tends to focus on: change in process technology, change in regulatory environment, or some radical technology improvement.

Building model variation after model variation would seem to imply the opposite of the economies of scale generally needed to pay off all the long-term investment in R&D and capital equipment for manufacturing. But since the 1970s, manufacturing technology and methodology has gotten a lot more sophisticated. With massively improved supply chains, just-in-time production lines, standardized drive trains, and interchangeable parts, the "economic order quantity"-the minimum required number of a category's units sold to pay back the investment-has gotten smaller and smaller. This in turn has made variations off the same core components mor