Table of Contents
- What Is a Gap Analysis?
- Understanding Gap Analysis
- How to Conduct a Gap Analysis
- Step 1: Define the State of the Business
- Step 2: Clarify the Company's Goals
- Step 3: Identify the Gaps
- Step 4: Prepare an Action Plan
- Step 5: Implement Change
- Types of Gap Analysis
- Gap Analysis Tools
- When to Use a Gap Analysis
- Benefits of Gap Analysis
- Gap Analysis in Finance/Asset Management
- The Bottom Line
What Is a Gap Analysis?
Let me explain gap analysis directly: it's a process you use to compare your company's current performance with what you expect or desire, then create an action plan to improve if needed.
You assess your current state by measuring time, money, and labor, and stack it against your target state. By defining and analyzing these gaps between expectation and reality, your management team can push the organization forward and close those performance gaps.
Understanding Gap Analysis
When your organization isn't maximizing its resources, capital, or technology, it can't reach full potential—that's where gap analysis comes in to help.
Sometimes called a needs analysis, it determines where you are today in terms of actual progress and where you want to be tomorrow. If there's a gap, you reexamine goals to decide if they need changing or how to get back on track to achieve them.
The process has four main steps, ending in a report that spots improvement areas and outlines an action plan to boost performance. Remember, the 'gap' is simply the space between your current position and your future aspirations.
How to Conduct a Gap Analysis
Some models break this into four processes, others expand it, but essentially, you understand your current position, decide where you want to end up, and plan how to get there.
Step 1: Define the State of the Business
Start by examining your business to find shortcomings. This means researching products, customers, locations, and employee benefits. Use quantitative data like financial records or qualitative input like surveys from stakeholders.
Often, you do this because an issue is already evident, such as poor customer feedback, and you need to investigate why and fix it. Understand why errors happen, when issues arise, and who leads change management.
Step 2: Clarify the Company's Goals
This step is crucial: identify what you want your company to become. Do it carefully, as your identity shapes the strategic steps to reach those goals.
Set specific, measurable goals for long-term success, like achieving 90% customer satisfaction in 12 months, not vague aims. Look at competitors to see what they do well and emulate it.
Step 3: Identify the Gaps
With current and future states defined, bridge the critical differences. You might find you're understaffed, staff training is lacking, or technical capabilities are insufficient for customer needs.
Step 4: Prepare an Action Plan
Define deficiencies, then develop a plan to reach your target. This could mean one solution or several changes at once, with quantifiable metrics to measure progress, like tracking customer satisfaction improvements.
Step 5: Implement Change
Choose the best ideas and put them into action to close the gap and improve in targeted areas. Follow detailed processes on a schedule, but avoid causing more harm, like overwhelming employees with training.
Monitor changes over time to sustain improvements—gap analysis can be ongoing to ensure goals are met and success is maintained.
Types of Gap Analysis
Market gap analysis studies the market to find unmet customer needs and take measures to fill them. Strategic gap analysis reviews internal performance against long-term benchmarks or competitors to find better ways to use resources.
Financial gap analysis looks at metrics like pricing and costs to spot where competitors are more efficient. Skill gap analysis checks for knowledge shortfalls in personnel and recommends training or hiring.
Compliance gap analysis evaluates adherence to regulations to avoid fines. Product development gap analysis assesses new products for potential shortfalls, especially in long development cycles.
Gap Analysis Tools
Use tools like SWOT analysis to evaluate strengths, weaknesses, opportunities, and threats, focusing on internal and external factors. A fishbone diagram helps identify causes of problems by breaking them into categories.
The McKinsey 7-S framework examines strategy, structure, systems, shared values, skills, style, and staff to align with objectives. The Nadler-Tushman model ensures components like culture and structure work together.
PEST analysis gauges external political, economic, social, and technological factors that could impact profitability.
When to Use a Gap Analysis
Evaluate products, customers, market needs, and operations constantly, but perform formal analysis during project management for long-term projects, strategic planning for budgets or acquisitions, to understand performance deficiencies, or when marketing to external parties for investment.
Benefits of Gap Analysis
It can improve profitability by preparing for shortfalls, enhance manufacturing processes for efficiency, increase market share through better sales and presence, lead to happier employees and customers by addressing issues proactively, boost operational efficiency, and decrease risks in long-term endeavors.
Gap Analysis in Finance/Asset Management
In finance, gap analysis assesses interest rate or liquidity risk by comparing rate-sensitive assets and liabilities, useful for fixed cash flows but not options. It helps ensure capital for investments and manage risks in projects.
The Bottom Line
Gap analysis evaluates your current position, sets an ideal one, and plans to bridge the performance gap. Use it if struggling or building on successes, with tools like SWOT or PEST to execute long-term plans.
Key Takeaways
- There are five steps to a gap analysis: defining the current state, clarifying goals, identifying gaps, preparing an action plan, and implementing change.
- It identifies areas where the company fails to use resources, capital, or technology fully.
- By defining the gap, management can create and act on a plan to move forward.
Other articles for you
Petty cash is a small cash reserve businesses use for minor expenses to avoid the hassle of checks or cards.
Ordinary dividends are corporate profit shares paid to shareholders and taxed as ordinary income unless qualified for lower rates.
Insolvency is a state where a business or individual cannot pay their debts, often leading to restructuring or bankruptcy, with various causes like poor management or declining sales.
Macroeconomics studies the overall behavior and performance of economies, focusing on broad factors like GDP, inflation, and unemployment.
The operating cash flow ratio measures a company's ability to cover short-term liabilities using cash generated from its operations.
Virtual currencies are unregulated digital representations of value transacted online, including cryptocurrencies and gaming tokens.
Gross Processing Margin (GPM) measures the profit difference between raw commodity costs and finished product sales, used in trading and influenced by market factors.
Private investment funds are non-public investment vehicles that avoid soliciting retail investors and operate under specific exemptions for reduced regulations.
A month-to-month tenancy allows tenants to rent property on a monthly basis without a fixed end date, offering flexibility but less security.
BHD, or Berhad, is a suffix used in Malaysia to denote public limited companies, distinguishing them from private ones marked by SDN BHD.