If you want to grow your business, you need to know how to allocate your resources to make it happen. How do you figure out the steps you need to take, or the processes you need to implement to make it happen?
You conduct a gap analysis.
Simply put, the gap analysis is a tool designed to help you understand where you are, and what you need to do in order to get to where you want to be.
In this article, I’ll be breaking down the basics and running through a process for getting started with performing your first gap analysis.
Here’s what this Process Street article has in store:
- What is a gap analysis? In simple terms
- What’s the use of a gap analysis
- Benefits of gap analysis
- Common gap analysis examples
- Different types of gap analysis
- The gap analysis process
- Gap analysis tools
- How to streamline the gap analysis process
Let’s get started.
What is a gap analysis?
A gap analysis is essentially taking a look at three key elements:
- The current situation, or “performance”
- The ideal situation, or “potential”
- What needs to be done in order to get from performance to potential, or “bridging the gap”
The “gap” is what separates your current situation from your ideal situation. Other names for the gap analysis include the “need-gap analysis”, “need analysis”, or simply “needs assessment”.
Businesses that perform a gap analysis can improve their efficiency and better understand how to improve processes and products. They can help to better optimize how time, money, and human resources are spent in a business.
What’s the use of a gap analysis?
Apart from the more general benefits of “more efficiency” and “resource optimization”, a gap analysis can help to identify very specific areas for improvement, and provide guidance towards actionable steps for improving processes, products, services, or anything that is being examined within the framework.
If improving performance is about identifying and breaking down problems into well-defined, discrete steps, then the gap analysis is a tool that helps companies to figure out the right steps they need to take, faster.
A gap analysis can also be used to augment performance, even when there are no obvious inefficiencies or problems. By evaluating performance with a gap analysis, focus is placed on attributes like performance level, productivity, and employee competency.
In contrast with the future-facing tendencies of risk assessment, gap analysis is focused on the now. It seeks to examine the current state of affairs and align them with business goals and objectives.
Fundamentally, the gap analysis is a means of understanding why a company isn’t performing at its peak potential. What factors are stopping the company, person, team, product, or process from achieving their maximum capacity, and how can it be fixed?
Similar to the principles of continuous improvement harnessed in frameworks such as the Deming cycle or Six Sigma, the results of a gap analysis will most often take the form of a documented report, the results of which will be used to inform decisions intended to improve or optimize the subject of the analysis.
Benefits of gap analysis
Some of the benefits of a gap analysis include the following:
This is basically the practice of comparing documented results of a specific product or process against some kind of external criteria. For example, a company may want to compare something like their reviews with a competitor, or perhaps they might want to compare the implementation of their quality management system with the standards of ISO 9001:2015 for quality management.
Profit percentage analysis
When a forecast profit percentage isn’t reached, a gap analysis may be conducted to determine the reason why the target wasn’t hit. The cause may be anything from poor resource allocation, unexpected competition, or a whole myriad of factors – and a gap analysis can help to understand why.
Everyone uses processes, whether they realize or not – it’s just that many processes are simply poorly designed (or not considered at all). As such, a gap analysis can help to reveal the areas of improvement for all kinds of processes, and help to bridge the gap between actual and expected outputs.
Understanding key performance indicators
KPIs like customer acquisition, return on investment (ROI), and sales targets can be the focus of a gap analysis. For example, a sales team could look for the reasons they missed their quarterly goals, and plan accordingly so that they don’t make the same mistake in the future.
Identifying gaps in the market
This is basically the difference between the current and potential market size for a product or service. Performing a gap analysis here can help organizations to understand how and why they aren’t reaching full market potential, when the capacity exists for further expansion.
Common gap analysis examples
In reality, the gap analysis method can be used in all types of situations and business areas. The examples below are intended to showcase the wide range of applications companies can find for a gap analysis.
Launching a new product
A gap analysis can be useful for companies leading up to or after a new product launch. For example, looking at the current feature set and comparing it with design goals (pre) or why sales weren’t as good as expected (post).
Productivity in a factory
Throughput, or the rate of production of a factory, is determined by the interplay of employees, processes, and resources. Examining each of these elements and understanding what adjustments to make is one of the most effective ways to improve productivity.
A gap analysis can help to determine where to focus optimization efforts; other insights include a better understanding of customer needs, or specific business requirements relating to factory productivity.
Supply chain management
In supply chain management, things change fast – and having gaps in your knowledge can limit your ability to compete. That’s why a gap analysis can be so useful – to keep up-to-date on mission-critical information and know what changes to make to drive your supply chain strategy.
For example, if a business is running short of supplies on a regular basis, a gap analysis could help them to understand the reason why.
Other common supply chain “gaps” include:
- Poorly informed vendor selection
- Poorly informed outsourcing vs in-house solutions
- Poor understanding of supply and demand
Sales “gaps” are very much tied to the sales process. Sales gap analyses depend on the thorough examination of every step of the sales process, from both the sales and buyer’s perspective.
Different types of gap analysis
While the term “gap analysis” is relatively straightforward in how it refers to the process of looking at where you are, and comparing it to where you want to be, there are a few different approaches that should be considered, depending on the context and niche of the analysis.
There are a few different types of “gap” to consider, all of which are pretty straightforward:
- Performance (or strategy) gap: Actual versus expected performance
- Product (or market) gap: Actual versus budgeted sales
- Profit gap: Actual versus target profit
- Manpower gap: Actual number and quantified performance of workforce versus that which is required
Each of these gap analysis approaches will result in their own unique solutions.
Performance gap analysis
This is perhaps the most common understanding of gap analysis.
It refers to a high-level analysis of general (or specific) company goals; how far a company has come in terms of completed goals, and what it still needs to do to reach the remaining ones.
Sometimes referred to as the “strategy gap”, it implies the variance between a company’s mission, values, and strategic objectives. In this context, the “gap” represents a threat (in the sense of a SWOT analysis) to the company’s future performance indicators, growth rate, and ultimately their survival as a business.
Product (or market) gap analysis
Think of this one as a way to research sales opportunities where demand is greater than supply.
Performed either internally or externally, this process can be useful to identify and capitalize on under-serviced markets. By deploying a product/market gap analysis, businesses can make logical, evidence-based decisions, rather than just observational or opinion-based decisions.
This is different to market research because, unlike market research, a market gap analysis is proactive, as opposed to reactive. That means keeping one step ahead of the market, and not allowing sudden, unexpected changes to influence your strategy.
Profit gap analysis
When profit forecasts are over-shot, a gap analysis can help to understand what went wrong.
Problems with profit forecasting, for example, might be related to either planning or execution – or perhaps even both. Many factors, from shifting market trends, aggressive competition, or unforeseen political implications can impact profit.
Performing a profit gap analysis can help to understand the situation, and the best course of action to ensure the same mistake isn’t repeated.
Manpower (or HR) gap analysis
No matter the size of the organization, performing a gap analysis on the human resources department can help to make more informed decisions regarding staffing and budgeting.
Results of a HR gap analysis can inform everything from employee onboarding, offboarding, training, hiring, in-sourcing and outsourcing. Such results can provide invaluable insight into how best to utilize employee’s skills, tying them directly to strategic and performance objectives.
Such a gap analysis also provides management with a clear overview of workforce competencies, and where this current reality sits in relation to their corporate strategic vision.
Gap analysis process: How to do a gap analysis
The gap analysis process can be broken down into four simple components:
- Current state
- Future state
Below I’ll attempt to outline the basic approach for each of them.
Where are you now? Understanding the current state
The first step of each and every gap analysis is to take a look at the current situation.
Of course, this assumes you have decided what type of gap analysis you’ll be using, and that you already have a clear understanding of what you’re analyzing.
That is, you know what to look for, and how to read all of the quantifiable metrics, KPIs, data, and pretty much anything at your disposal in order to reasonably and objectively assess the current situation of your business.
If that’s too conceptual, here’s a simple process to follow:
- Decide what you’ll be analyzing
- Determine methods for assessing the current situation (i.e. how you know that it’s good, if it is in fact good)
- As specifically as possible, record all factors and attributes that are currently impacting your businesses success or failure, and describe why each of them are either positive or negative
The analysis doesn’t have to be all data and metrics (quantitative) – you can also incorporate qualitative insight – just be sure to clearly specify how it ties to your perception of the current situation.
Here are some sources you might consider using to inform this step of the process:
- Employee interviews
- Customer feedback
- Internal process documentation
- Sales figures
Where do you want to be? Understanding the ideal state
The next step is to consider where you want to be, ideally. This might take the form of business goals and objectives you’ve already set, specific profit or revenue figures, growth targets, expanding into new locations, or even personal goals tied in with specific business performance.
In any case, the ideal state represents the picture-perfect future you want for your business.
When considering the ideal state, you can be as specific or general as you want. The importance is that you understand how that ideal state can be translated into specific actions or processes within your business (more on this in the last step).
Understanding and defining the gap
You know where you are, you know where you want to be; the next step is to understand the “gap” between these two strategic locations.
Try and link the factors you listed about your current situation with the factors listed for the ideal situation. The goal here is to understand where the holes, or “gaps” in your strategy are. What are you doing wrong? What could you be doing better? This step is all about understanding opportunities for improvement.
It’s possible that your “gap” may be small, or even appear that there is none at all (e.g. you could be exceeding your targets). In this case, you should ask yourself how exactly you achieved these results, in order to better understand the factors contributing to your success.
Remember that even a well-oiled machine can still be optimized; there is always room for continuous improvement and this step is important regardless of your performance.
Some questions to consider at this point include:
- What resources are required in order to bridge the gap?
- Do we need to modify or set new objectives?
- What key events and critical decisions led to this point?
- What did we do well?
- What could we have done differently?
Record all of your observations as clearly as possible, linking current with ideal factors where possible.
Bridging the gap
Finally, you must consider the actionable steps required to go from your current state to your desired state.
This might take the form of a brainstorming session – be sure to keep solutions specific, and the more actionable and direct, the better.
You should utilize all information gathered during the previous steps to inform strategic action; try to utilize this information as a starting point, building upon each point in an attempt to discover a complete solution.
Consider also the cost of implementing your solution; do you actually have the resources required to achieve the desired outcome? Outside-the-box thinking is a must here.
Also remember to consider the time-frame within which you intend to bridge the gap. Set deadlines, or else you risk overlooking or under-prioritizing all of the strategic action you spent so much time and effort preparing.
Setting deadlines can be a great motivator, but actually enforcing them can prove troublesome, especially if you’re using paper. Process Street lets you use dynamic due dates to set and enforce deadlines automatically, so you’ll be able to focus on the process and save more time and money in the long run.
Check out this webinar for a great introduction and more in-depth look at what you can do with Process Street:
Gap analysis tools
As well as Process Street, there are a number of tools (or rather, methodologies) that can be used to gain supplemental insight into the current and future situations of the organization. These tools will also help you understand the actionable steps required to “bridge the gap”.
SWOT (Strengths, Weaknesses, Opportunities, Threats) is an approach that helps identify qualitative and quantitative aspects of a project or part of your business.
Similar to a gap analysis, the point of a SWOT analysis is to gain insight into the current situation and use that insight to improve things.
FMEA has two main components: Failure modes, and effects analysis.
Failure modes are the ways problems could potentially occur (or fail). Identifying these can help you understand weaknesses in your current situation, and ultimately help you avoid the pitfalls that could otherwise prevent you from reaching your ideal situation.
Effects analysis is the process of identifying the impact of each of these potential failure modes, and ordering them by priority. This way, you can understand which of the problems present more serious risk, and which should be dealt with in order to progress toward the desired ideal state.
Here’s a free FMEA template for you to get started ASAP:
McKinsey 7-S model
Simply put, McKinsey’s 7-S model identifies seven factors and the interrelationships between them, in order to better understand the actionable steps you need to take to progress toward your ideal business situation.
The seven factors are:
- Shared values
We’ve written about this one extensively in our post on change management models.
This approach assesses a company’s performance in terms of its inputs and outputs using four key aspects:
Similar to the SWOT approach, the Nadler-Tushman model identifies strengths and weaknesses of each aspect, and compares them to the other areas.
The goal here is to determine whether or not work effort is equally distributed across each aspect, and identify weak points in the different areas of the company.
Fishbone diagram (Ishikawa diagram)
Also known as the cause-and-effect diagram, or Ishikawa diagram (after Kaoru Ishikawa), this tool is used to visualize the cause and effect of potential problems, and could be useful when attempting to understand the current situation, as well as the factors detrimental to achieving the ideal state.
We mention this in more detail over in this post on the DMAIC process.
How to streamline the gap analysis process
A good process is essential, but it’s no use if it’s not actionable. That’s why you should consider using a bpm software like Process Street to streamline recurring tasks and eliminate manual work with automation.
Process Street’s mission statement is to make recurring work fun, fast, and faultless. By breaking down a process into bite-sized tasks, you can get more done and stay on top of your workload.
Process Street also has features like rich form fields and custom role assignments to make your processes robust and highly flexible.
And, providing you spend time building good, solid processes, you’ll be able to dramatically reduce the amount of human error, because features like conditional logic and role assignments allow your processes to keep-up with the needs of the people using them.
Sign up today for a free Process Street trial.
Did you find this article useful? Perhaps you have a different approach to performing gap analysis – let us know in the comments below!