In business and economics, gap analysis is a tool that helps a company to compare its actual

performance with its potential performance. At its core are two questions: "Where are we?" and
"Where do we want to be?" If a company or organization is not making the best use of its current
resources or is forgoing investment in capital or technology, then it may be producing or
performing at a level below its potential. This concept is similar to the base case of being below
one's production possibilities frontier.

The goal of gap analysis is to identify the gap between the optimized allocation and integration
of the inputs, and the current level of allocation. This helps provide the company with insight
into areas which could be improved. The gap analysis process involves determining,
documenting and approving the variance between business requirements and current capabilities.
Gap analysis naturally flows from benchmarking and other assessments. Once the general
expectation of performance in the industry is understood, it is possible to compare that
expectation with the company's current level of performance. This comparison becomes the gap
analysis. Such analysis can be performed at the strategic or operational level of an organization.

Gap analysis is a formal study of what a business is doing currently and where it wants to go in
the future. It can be conducted, in different perspectives, as follows:

1. Organization (e.g., human resources)

2. Business direction
3. Business processes
4. Information technology

Gap analysis and new products

The need for new products or additions to existing lines may have emerged from portfolio
analyses, in particular from the use of the Boston Consulting Group Growth-share matrix, or the
need will have emerged from the regular process of following trends in the requirements of
consumers. At some point a gap will have emerged between what the existing products offer the
consumer and what the consumer demands. That gap has to be filled if the organization is to
survive and grow.

To identify a gap in the market, the technique of gap analysis can be used. Thus an examination
of what profits are forecasted for the organization as a whole compared with where the
organization (in particular its shareholders) 'wants' those profits to be represents what is called
the 'planning gap': this shows what is needed of new activities in general and of new products in
particular.

What is Gap Analysis?

Your next step is to close the gap. Firstly decide whether you view from a strategic or an
operational/tactical perspective. If you are writing strategy, you will go on to write tactics - see
the lesson on marketing plans. The diagram below uses Ansoff's matrix to bridge the gap using
strategies:

Strategic Gap Analysis

You can close the gap by using tactical approaches. The marketing mix is ideal for this. So
effectively, you modify the mix so that you get to where you want to be. That is to say you
change price, or promotion to move from where you are today (or in fact any or all of the
elements of the marketing mix).
Tactical Gap Analysis

This is how you close the gap by deciding upon strategies and tactics - and that's gap analysis

Definition

Technique for determining the steps to be taken in moving from a current state to a
desired future-state. It begins with (1) listing of characteristic factors (such as
attributes, competencies, performance levels) of the present situation ("what is"), (2)
cross-lists factors required to achieve the future objectives ("what should be"), and
then (3) highlights the 'gaps' that exist and need to be 'filled.' Also called need-gap
analysis, needs analysis, and needs assessment.

Business gap analysis can be used to help achieve certain goals. This analysis includes a description of the company's
current situation, and what the company wants to achieve in the future. The difference between these two items is the gap.
The analysis includes specific action steps the company must complete to close this gap and achieve its goals.

For example, Company X is the top doll distributor in New York state. Company X wants to be the top doll distributor in
all of the United States. Company X completes an analysis illustrating how it got to be the top New York doll distributor.
This would include an overview of every aspect of the business that contributes to the Company X's success, including
marketing, accounting, information technology, management, and other departments.

Company X would then outline the advantages of achieving its goal of becoming the top distributor in the country. Goals
should be specific and measurable. In this case, Company X will become the top nationwide doll distributor within three
years. Company X would then study what it needs to do to arrive at this goal. The outcome of Company X's analysis
would be a complete plan, or gap analysis document, that includes information on how to become the top nationwide doll
distributor.
The analysis can include a review of business documents, files and financial information, as well as interviews with staff
members in various departments. Once all information has been gathered, a gap analysis report is created. This document
usually includes an introduction that states the purpose of the analysis and the methods used to complete the study.

The introduction is typically followed by a summary of the current situation, the goals the company wants to achieve, and
the detailed plan to achieve these goals. This plan would include detailed action steps for each area of the business, a
schedule to complete each step, and a budget that outlines how much the plan will cost. An appendix of documents
supporting any claims or statistics in the final document may also be included.

The next step would be for management to approve the action plan and budget. If approved, the plan is put into action.
Tracking of each step is required to ensure that the plan remains on schedule and within budget. If successful, the
company will achieve the goal stated in the gap analysis report.

Businesses can use gap analysis to achieve company-wide goals, or those for a specific department or area. For example, a
company that wants to lower overhead costs could complete a financial gap analysis. Or a firm that wants to expand its
product distribution may create a marketing analysis. Gap analysis can help businesses remain competitive and help
measure the potential profitability of a goal. This can help management and staff to understand, and be enthusiastic about,
plans outlined in the analysis.

Gap 1

 Inadequate market research orientation

 Lack of upward communication

 Insufficient relationship focus

Gap 2

 Absence of customer driven standards

 Inadequate service leadership

 Poor service design

Gap 3

 Deficiencies of human resource policies

 Failure to match supply and demand

 Customers not fulfilling roles

Gap 4

 Ineffective management of customer

expectations
 Overpromising

 Inadequate horizontal communications