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GuidesMarket researchWhat is a gap analysis, and how can you use it to get closer to your goals?

What is a gap analysis, and how can you use it to get closer to your goals?

Last updated

14 May 2023

Reviewed by

Hugh Good

Organizations use gap analysis to analyze their performance and determine whether they’re meeting business objectives and using resources effectively. 

Gap analysis can aid management in creating an action plan that can assist the organization in figuring out how to fill in these performance gaps and improve business operations. 

While the process may appear complicated, it’s not as complex as it seems. When organizations do a gap analysis properly, they can move closer to their goals. 

What are the types of gap analysis?

Regarding gap analysis, the "gap" refers to the space between a company's actual and desired outcomes. However, you can identify different types of gaps with a gap analysis.

Some of the more critical gaps include the following: 

  • A performance gap is also called a strategy gap, referring to the space between actual and desired performance.  

  • A profit gap is the difference between targeted profit and actual profit.  

  • A product gap is also known as a market gap, referring to the disparity between budgeted and actual sales.

  • A manpower gap is the difference between the exact number of personnel and the required personnel to complete a project. It can also mean the difference between the actual and desired workforce performance.  

When to use a gap analysis?

While companies can use a gap analysis to study numerous business areas, the aim is to understand performance gaps. 

This ensures 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' performance with goals and projections

Gap analysis tools

Once you identify the gaps in your business, learn why they exist and how to fix them. 

Some gap analysis models you can use to complete this task include:

SWOT analysis

SWOT stands for strengths, weaknesses, opportunities, and threats. 

This analysis allows companies to identify their internal strengths and weaknesses and external opportunities and threats. This ultimately enables entities to understand their situation and determine where they stand within the industry. 

The analysis can also help companies come up with plans and decision-making strategies. 

Fishbone diagram

The fishbone diagram, also called a cause-and-effect diagram (Ishikawa diagram), helps companies identify many possible causes for a problem or effect.

Companies can use it to structure team meetings to discuss how to solve these issues. This type of diagram is useful when examining an organization's current situation. 

Common categories that investigate an entity's current situation include:

  • Environment

  • People

  • Machines

  • Measurements

  • Materials

  • Methods

McKinsey 7S Framework

The McKinsey 7S Framework helps entities:

  • Better understand the gaps that may appear

  • Figure out areas they need to optimize to boost business performance

  • Determine how to align processes and departments during an acquisition or merger

  • Examine the results of future changes within an organization

The sevens in this process refer to two groups of essential interrelated parts of an organization: Hard and soft elements. 

The hard elements are tangible and controllable. It includes things like strategy, organizational structure, and daily task systems. 

In comparison, softer elements are intangible, uncontrollable elements. They include things like staffing, employee skills, company leadership style, and shared organizational values. 

Nadler-Tushman Congruence Model

This model identifies gaps based on the principle that an entity's performance results from four elements: 

  • People

  • Work

  • Structure

  • Business culture 

Higher compatibility between these elements equals greater performance. 

The PEST analysis

PEST stands for political, economic, social, and technological. 

This analysis measures external factors that could impact a company's profitability. Typically, it’s more effective with larger businesses that are more likely to experience 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, you must choose an area of your business to focus on. Find out what your company's current state is in this area. This can help you understand where to apply a gap analysis model and what you want from it.  

For instance, if you want to enhance the efficiency of your current operations, a performance gap analysis may help. 

On the other hand, if you want to analyze staffing levels, a manpower gap analysis can provide detailed insight.

Identify the ideal future state

Next, determine the company's goals and how its future will look. To accomplish this, you’ll have to consider the company’s current state and where you want it to be within a reasonable timeframe. 

Ultimately, 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. From the track record of other companies, you’ll know this goal is possible once you’ve addressed 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 these sales to 10%. 

Find the gap and evaluate solutions

When you define your current and desired states, you need to compare them to calculate the gap you’re trying to close. If a gap is small, you may only need minor tweaks to fix operations, or you may determine that significant operational changes are necessary. 

Regardless, this step will help you figure out the hurdles to overcome, the extent of these challenges, and how much time you need to complete these changes. 

Create and implement a plan to bridge the gap

Once you uncover why the gap exists, it’s time to determine the course of action to close it. Since you clarified the hurdles to overcome, you can prepare solutions for these issues. 

Some critical gap analysis tools that can turn your findings into actions include the SWOT analysis and fishbone diagram. 

The SWOT analysis can help you organize the problem areas and the recommendations you obtained to fix these issues.

The fishbone diagram allows you to map the root cause of each problem and develop solutions. 

Benefits of gap analysis

A gap analysis can help companies in several ways, including allowing them to review current strategies and determine what is working and what’s still needed to achieve their objectives. 

Common benefits of this analysis include:

  • Identify weak points: If your company is not performing as expected, a gap analysis can help your organization discover 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 resources to use them more efficiently.

  • Figure out potential plans: When organizations create a gap analysis, they can create possible action plans for their goals.

Example of gap analysis

Gap analysis is a great tool if you’re looking for ways to improve your business. Here are some real-life examples of when companies perform gap analysis: 

Project management

When planning projects or reviewing different stages of project management, you can use gap analysis to uncover lagging areas. This can help you allocate resources effectively. 

Human resources

A gap analysis can help you with the hiring process if you're in human resources. It can reveal what’s lacking within your team, allowing you to figure out what you need in a new candidate. 

Product launches

Following a product launch, you can use a gap analysis to learn why sales didn’t meet company expectations.  

Customer satisfaction

To improve customer satisfaction, you can use a gap analysis to determine why there’s dissatisfaction and develop ways to serve customers better. 

Employee performance

As a team leader, you can perform a gap analysis to improve employee performance. The results can help you determine business best practices to boost workforce performance.

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