What is a gap analysis, and how can you use it to get closer to your goals?
A gap analysis is a method for comparing your organization’s current performance against its desired performance, identifying the gap between the two, and planning how to close it. Organizations use it to check whether they’re meeting business objectives and using resources effectively.
The output is an action plan: once you know where the performance gaps are, you can decide what to change to improve business operations. Done properly, a gap analysis moves your organization measurably closer to its goals.
What are the types of gap analysis?
In a gap analysis, the “gap” refers to the space between a company’s actual and desired outcomes. You can identify different types of gaps with a gap analysis.
Some of the more critical gaps include the following:
- A performance gap, also called a strategy gap, is the space between actual and desired performance.
- A profit gap is the difference between targeted profit and actual profit.
- A product gap, also known as a gap, is the disparity between budgeted and actual sales.
- A manpower gap is the difference between the current number of personnel and the personnel required to complete a project. It can also mean the difference between actual and desired workforce performance.
When to use a gap analysis?
Companies can use a gap analysis to study numerous business areas, but the aim is always to understand performance gaps. That understanding lets organizations create effective strategies to reduce gaps and achieve their goals.
Organizations perform gap analysis at these levels:
- The strategic level, to compare the current output or condition of the business with industry standards
- The operational level, to compare the current state of the business’s performance with goals and projections
Gap analysis tools
Once you identify the gaps in your business, the next step is learning why they exist and how to fix them.
Some gap analysis models you can use include:
SWOT analysis
stands for strengths, weaknesses, opportunities, and threats.
This analysis helps companies identify their internal strengths and weaknesses alongside external opportunities and threats. The result is a clear view of where the company stands within its industry.
The analysis can also feed into planning and decision-making strategies.
Fishbone diagram
The fishbone diagram, also called a cause-and-effect diagram (Ishikawa diagram), helps companies identify the many possible causes of a problem or effect.
Companies can use it to structure team meetings about how to solve these issues. The diagram is useful when examining an organization’s current situation.
Common categories for investigating a company’s current situation include:
- Environment
- People
- Machines
- Measurements
- Materials
- Methods
McKinsey 7S Framework
The McKinsey 7S Framework helps organizations:
- Better understand the gaps that may appear
- Figure out which areas to optimize to boost business performance
- Determine how to align processes and departments during an acquisition or merger
- Examine the likely results of future changes within an organization
The sevens refer to two groups of essential, interrelated parts of an organization: hard and soft elements.
The hard elements are tangible and controllable. They include things like strategy, organizational structure, and daily task systems.
The soft elements are intangible and harder to control. They include staffing, employee skills, company leadership style, and shared organizational values.
Nadler-Tushman Congruence Model
This model identifies gaps based on the principle that an organization’s performance results from four elements:
- People
- Work
- Structure
- Business culture
The more compatible these elements are, the greater the performance.
The PEST analysis
stands for political, economic, social, and technological.
This analysis measures external factors that could impact a company’s profitability. It’s typically more effective for larger businesses, which are more likely to feel the effect of macro events. Businesses commonly use it together with SWOT analysis.
How to conduct a gap analysis
The following steps can help you perform a gap analysis and figure out how to meet your business goals:
Analyze your current state
Before you can devise a plan to reach your goals, choose an area of your business to focus on. Find out your company’s current state in this area—that tells you where to apply a gap analysis model and what you want from it.
For instance, if you want to improve the efficiency of your current operations, a performance gap analysis may help.
If you want to analyze staffing levels instead, a manpower gap analysis can provide detailed insight.
Identify the ideal future state
Next, determine the company’s goals and what its future should look like. Consider the company’s current state and where you want it to be within a reasonable timeframe.
Your goal should be an improvement over the current state, and it should be measurable so you’ll know when you reach it.
One way to determine your ideal future state is to look at industry standards. The track record of other companies shows the goal is possible once you’ve addressed your business problems.
Another method is to look at your company’s historical data. For example, if your sales have been growing over 10% each year but suddenly drop, your goal may be to return sales growth to 10%.
Find the gap and evaluate solutions
With your current and desired states defined, compare them to calculate the gap you’re trying to close. A small gap may only need minor tweaks to fix operations; a larger one may demand significant operational changes.
Either way, this step helps you figure out the hurdles to overcome, the extent of those challenges, and how much time the changes will take.
Create and implement a plan to bridge the gap
Once you uncover why the gap exists, decide on the course of action to close it. Because you’ve clarified the hurdles, you can prepare solutions for each one.
Two useful tools for turning findings into actions are the SWOT analysis and the fishbone diagram.
The SWOT analysis helps you organize the problem areas and the recommendations for fixing them.
The fishbone diagram lets you map the root cause of each problem and develop solutions.
Benefits of gap analysis
A gap analysis helps companies review current strategies, see what’s working, and determine what’s still needed to achieve their objectives.
Common benefits include:
- Identify weak points: If your company isn’t performing as expected, a gap analysis can uncover the root cause of the performance gaps.
- Measure current resources: If an organization has a surplus of resources, a gap analysis can determine how to allocate them more efficiently.
- Figure out potential plans: A gap analysis gives organizations the raw material for action plans tied to their goals.
Example of gap analysis
Gap analysis is a practical tool when you’re looking for ways to improve your business. Here are some real-life situations where companies perform one:
Project management
When planning projects or reviewing different stages of project management, you can use gap analysis to uncover lagging areas. This helps you allocate resources effectively.
Human resources
A gap analysis can help with hiring. It reveals what’s lacking within your team, so you can figure out what you need in a new candidate.
Product launches
Following a , you can use a gap analysis to learn why sales didn’t meet company expectations.
Customer satisfaction
To improve , use a gap analysis to determine why customers are dissatisfied and develop ways to serve them better.
Employee performance
As a team leader, you can perform a gap analysis to improve employee performance. The results help you identify best practices to boost workforce performance.
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