Gap analysis is the process of assessing and comparing the differences between actual performance and potential or desired performance to reveal areas that can be improved. Once there are expectations of performance set within a company, it’s then possible to compare that expectation with the company’s current state of performance. A gap analysis can be performed at the strategic level (focusing on the overall organization, planning, and execution work) or the operational level (focusing on the day-to-day work).
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How a gap analysis is used
Gap analysis improves efficiency and overall understanding of how to improve processes and products by pinpointing gaps present in the company then focusing resources and energy to “close the gap,” or work to achieve the target performance. Businesses that conduct a gap analysis optimize how time, money, and human resources are spent.
Other names for the process include need-gap analysis, needs analysis, and needs assessment.
If a company is not making the best use of current resources, a gap analysis makes it clear that it’s producing or performing below its potential in its current state. At its most basic level, the method evaluates three elements:
- The current state
- The ideal or target state
- What needs to be done to go from the current state to the target state
Businesses of every industry use the gap analysis process. For example, if a pool supplies company finds itself running low on inventory on a regular basis, they could perform a gap analysis to identify the reason why. A software company might conduct a gap analysis of their product to determine if the features and capabilities of the product are competitive against other available products. A newly-opened small business may use a gap analysis to figure out how to best allocate resources.
History of gap analysis
The first gap analysis process was performed in 1978 by J. Michael Scott at the University of Idaho for identifying ecosystems in need of conservation. Scott developed methods to assess endangered birds in Hawaii. He began by mapping the distribution of each species individually. From there, Scott combined the data on the individual species to create a map of species richness through Hawaii.
Before Scott created this gap analysis method, there was no way to analyze the level of protection biodiverse areas had. Through this analysis, the Hakaiau Forest National Wildlife Refuge was created. As a result, the Idaho Gap Analysis Project was born, a project to prevent the conservation crisis by facilitating conservation assessments of biotic elements. The gap analysis process then expanded into other uses, such as business performance evaluations.
Types of gap analysis
There are different approaches to a gap analysis that should be considered depending on the context and niche of the analysis:
Performance gap analysis
Measures actual performance versus expected performance. This is the most common gap analysis. It’s a high-level analysis of general or specific company goals. It evaluates how far a company has come in terms of reaching set goals and what needs to be done to reach the remaining ones. The performance gap analysis looks at the discrepancy between a company’s mission, values, and strategic objectives.
Product gap analysis
Measures actual sales versus budgeted sales (also referred to as the market gap analysis). This type of analysis is used to identify under-serviced markets. The results of this analysis allow companies to make logical, evidence-based decisions rather than subjective or observational-based decisions.
The product gap analysis is proactive; the company stays one step ahead of the market and does not allow sudden or unexpected changes to influence the strategy given by the gap analysis.
Profit gap analysis
Measures actual profit versus target profit. When forecasted profits go unreached, a gap analysis can help explain why. Many factors can affect profitability, such as shifting market trends, competition, or the general state of the economy. A profit gap analysis helps to understand the situation and outline the steps forward.
Manpower gap analysis
Measures actual size and quantified performance of workforce versus what is required. A gap analysis on the human resources of the company helps management make more informed decisions with staffing and budgeting. It gives leaders a reading on future employment requirements by identifying what staffing will be required to meet company goals and compares it to what is available with the current staffing.
A manpower gap analysis can analyze anything from employee onboarding and offboarding, training, hiring, insourcing, and outsourcing.
Gap analysis in healthcare
Gap analysis is becoming more prevalent in the healthcare industry because of its problem-solving capabilities. It’s useful to apply when problems such as the following appear:
- Patient complaints
- Underperformance on a specific metric
- Underperformance from a specific department
- Struggles with meeting healthcare compliance requirements such as HIPAA
- Noticeable differences in the current state and desired state of the organization
Conducting a gap analysis within the healthcare system at consistent intervals ensures that the unique needs of patients and stakeholders alike are met. It helps government and medical providers pinpoint what changes need to be made to deliver better service and outcomes.
Keyword gap analysis
In search engine optimization (SEO), keyword gap analysis is the process of finding keywords that drive traffic to your competitor’s website but not to your own. This gap analysis also compares your keyword rankings to another domain’s rankings to find the keywords you’re overlooking. This goal of a keyword gap analysis is to identify opportunities for creating new content to ultimately drive more traffic to your site.
Read also: What is a Business Analyst Manager?
How to perform a gap analysis
A gap analysis can be conducted at any time, but doing it strategically can maximize effectiveness. Optimal times to use gap analysis include:
- When defining the company’s strategy in how goals and objectives will be achieved
- When looking into problems in the company’s performance
- When preparing for oversight activities and needing to be proactive about closing gaps
If you decide to conduct a gap analysis, there are four steps to completion.
Step 1: Identify areas for improvement
The initial step in a gap analysis is evaluating where the gap analysis model needs to be applied and what the company will get out of it. You might want to increase efficiency of a particular operation, or you’re trying to determine if you need to hire more staff. This step essentially serves as defining the scope of the analysis.
Step 2: Analyze current state
Before creating steps in moving forward, it’s important to know the state the company currently is. This gives you a starting line for improvement. Gather as much data as possible to clarify present performance such as process documentation, interviews, KPIs, and business intelligence data.
If you’re getting complaints about slow response times, identify the quantitative number of the current average response times over a number of encounters. Record all negative factors within that analysis along with favorable factors.
Step 3: Define the target goal
Also known as the desired state, future target, or stretch goal, this is the desired, optimal state the company strives to be in. This could concern processes, technologies, policies, or the general overview of the company. The end goal should be an improvement over the current state, and it should be measurable.
To define the ideal future state, look at competitor companies or the industry standard. Also take into account historical company data. If you want to increase sales by 30 percent in two years, but your sales have been declining 5 percent each year, the goal may be too lofty or large changes need to be made.
Step 4: Identify the gaps that separate the two
After identifying where the company is and where it’d like to be, the next step is to bridge the gap. Note the problems in the current state that must be resolved in order to get to the target state. Analyze which problems will take lengthy, calculated actions and which will be quick fixes.
The gaps may exist in the processes, vendor capabilities, technologies, or other resources. This step is also used to figure out why there is a gap. Be as specific and quantifiable as possible when addressing the difference between current and target state. Ask questions about the gap until the root cause appears.
Step 5: Plan a course of action
The last step is to determine the proper course of action to close the gap. Look at the list of indicators that caused the gap and devise solutions for each. Here are a few guidelines to ensure effective improvements:
- Base improvements on the information discovered when identifying the gaps.
- Consider the cost of implementing each solution.
- Identify the end date of when you’d like to have the gaps resolved. If you specified a date on your target state, it could be used as the end date.
Gap analysis template
A gap analysis template visualizes the difference between reality and target, making it easier to show the data and pinpoint strengths and weaknesses. It can involve diagrams, charts, or other visual elements to make digesting the information easier and more appealing. There isn’t a standard template or one-size fits-all approach for gap analysis as each one has its own scope and objectives.
Image: A sample gap analysis template
If your gap analysis is data driven, then a numbers-based report is what would be most helpful. If surveys are conducted, a summary of the results would prove the most useful. Templates can come in PDF, Excel, Word, and PowerPoint form. Whichever template is most useful, almost all templates will include the following information:
- Current assessment
- Target goal
- Gaps between them
- Action items to rectify gap(s)
Read on below for examples of gap analysis tools that start out as templates.
Gap analysis tools
When performing a gap analysis, there are different ways to identify and view problems. No specific standard is set. Tools used to create gap analyses typically include charts and spreadsheets. Current state, future state, and subsequent gaps are listed in columns, so the information is easy to visually comprehend—from big picture to details.
Each tool can be used as an organizational principle in pinpointing problems and finding potential solutions. Looking for misalignments among the categories can help in identifying a root cause within a problem. Below popular tools and frameworks are outlined.
SWOT
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT analysis is a simple yet effective process for identifying positive and negative forces at work that affect the successful completion of a project or where a company stands within an industry or market.
To perform a SWOT analysis, create a box with four squares in it. Label the upper left “Strengths,” the upper right “Opportunities,” the lower left “Weaknesses,” and the lower right “Threats.”
Strengths and Weaknesses are internal factors that a team or organization has, while Opportunities and Threats are external factors with lesser control over. List the strengths and weaknesses the company has within the squares, and also list the opportunities and threats present in the industry or market. List each bullet point in order from highest priority to lowest. From here, analyze how the company can use its strengths to minimize weaknesses and combat threats, and how the company can use its opportunities to avoid threats and combat weaknesses.
Fishbone
Named for its shape and also known as the cause and effect diagram or Ishikawa diagram, a fishbone diagram works to identify the root cause of an issue or effect. The diagram looks like a fish’s skeleton, with the problems at the head and the causes for the problems listed along the spine. Once all of the causes that potentially create the problem are identified, business leaders can start analyzing possible solutions.
The fishbone diagram is especially useful for evaluating the current state of a business. The most commonly investigated categories in a fishbone diagram are:
- Environmental
- Measurements
- Materials
- People
- Machines
- Methods
McKinsey 7s
The McKinsey 7s framework analyzes a company’s organizational design. The model depicts how effectiveness can be achieved through the interactions of seven key elements:
- Structure
- Strategy
- Skill
- System
- Shared values
- Style
- Staff
The framework is based on the theory that these seven elements need to be aligned and mutually reinforcing for a business to perform well. Using the model, which has 6 S’s placed in a circle with the seventh, shared values (company goals), in the middle, companies can identify what needs to be realigned to improve performance or maintained in a situation of change.
Nadler-Tushman’s Congruence model
The Nadler-Tushman’s Congruence model is used to identify performance gaps within an organization and examines how each business process affects another. It facilitates creating a holistic picture of a company’s processes from beginning (input) to end (output). The model finds gaps by separating processes into three categories:
- Input: The company’s culture and workforce, all resources to create products and services, and the operational environment.
- Transformation: The systems, teams, and processes that take the input value and turn them into the output product.
- Output: The final product or service.
The higher the compatibility among these elements, the greater the performance will be.
Burke-Litwin Change model
The Burke-Litwin Change model is a causal change model that shows where change arises and how it affects different parts of the organization. There are 12 key factors broken down into five different levels that organizations must consider when assess change and that are interrelated:
External factors
- The external environment
Strategic factors
- Strategy/mission
- Leadership
- Organizational culture
Operating factors
- Structure
- Management practices
- Systems (policy and procedure)
Individual factors
- Individual skills and tasks
- Work unit climate
- Motivation
- Individual needs and values
Outputs
- Individual and organizational performance
PEST
Similar to SWOT, the PEST analysis identifies threats and opportunities by examining four primary factors of the business environment:
- Political
- Economic
- Sociological
- Technological
This analysis is used to gauge external factors that could impact the profitability of a company. It shows the big picture forces of change that a company is exposed to and how to best take advantage of the present opportunities.
Top 10 benefits of gap analysis
There are many advantages of performing a gap analysis, both for the present and the future. We highlight the top 10.
- Gives insight into areas that need improvement such as profitability, processes, customer satisfaction, performance, or participation
- Ensures project requirements have been met
- Uncovers the differences between perception versus reality
- Finds the most needed areas to deploy resources and focus
- Provides insight to make smarter decisions
- Lays out the areas of weakness and shortcomings and allows businesses to address them
- Provides a better understanding of key performance indicators
- Identifies gaps in the market to help businesses understand why they aren’t reaching full market potential
- Facilitates process improvement
- Gives a general overview of the entire company and/or particular functions
