Business Gap Analysis

Where are we now? Vs Where we want to be?

DEFINITION
Gap Analysis is the comparison of actual
performance with potential or desired
performance; That is the current state and
the future state.
- Wikipedia

 Gap Analysis is the process of comparing two

states & determine the difference or gap that
exists between them
Once the gap is understood, the steps
required to bridge the gap can be determined
Core of the Concept-just two simple questions:
Where are we? & Where do we want to be?

Where can it be applied?

Gap analysis can be used to compare the two
different states in any field - not only in business
public institutions, community, class rooms and
even personal finance.
In business and economics, as a tool that helps to
compare actual performance with potential
performance it is a broad concept.
Broad concept, in a sense its applicable to any
aspect of business where performance
improvement is desired.

Gap analysis can be used in many areas, such as:

sales
financial performance
human resource management
productivity
quality assurance
cost control
employee satisfaction
energy conservation
market competitiveness
management skills
The list is endless.

Example Quality Level

The product quality gap could be measured by the
difference between the quality level of products
expected by customers and the actual delivered
quality level. That is the difference
between customer expectation and actual customer
experience in the delivery of a product/service.
The analysis as a tool narrows the difference between
perceptions and reality, thus enabling enhancement of
customer satisfaction

Analysis of the Gap

The basic idea on the business gaps can be analyzed
by asking some specific questions, such as:
What exactly is the gap?
What are the consequences of the gap?
What is the timing? Who is responsible?
What are the options?
What are the costs?
Once all possible reasons for a gap are known, studied, and the
root cause recognized, then suitable actions can be identified to
remove, fill or mitigate the gap

Key Components of Gap Analysis

As said earlier, Gap Analysis compares the gap between an
organizations actual performance against its potential
performance.
So, you typically list out the organizations current state, its
desired state, and a comprehensive plan to fill out the gap
between these two states.
Gap analysis is more organic and flexible than most other
tools. It can be done by using simple excel worksheets or
flowcharts.
You have much more freedom & flexibility in choosing what
to focus on.
At the same time, every gap analysis template must have a
few essential components.

Step I
Decide the area/business unit youre going to do the Gap
Analysis on? That is, finalize the challenge you want to
tackle:
So, start your gap analysis template with a column
labelled Objectives.
Sample Areas:
Revenue/Profitability
Market Share
Product Functionality/Features
Cost Control
Employee Performance

Step II
Identify your Current State. That is defining where you are
right now and it has to be based on metrics or attributes.
So, actual analysis starts with introspection, that defines
your current state.
List out all the attributes you want to improve. Your focus
can be as wide (ex: the whole business) or narrow (ex: HR
policies) based on the objective mentioned in Step I.
It can be quantitative (currently get 50 orders per day),
qualitative (lack of employee morale in workplace) or
both.
The key thing is to be specific, measurable and factual with
an emphasis on identifying weaknesses.

Step III
Identify where youd like to be over a specific time frame.
The future state represents the ideal condition youd want
your organization to be in.
This state can be highly specific (ex: increase order count
to 100 per day) or generic (enhance employee morale).
Your gap analysis template should record all the idealized
attributes as they correspond to the current state.
Sometimes, you may not even have a clear conception of
an idealized future state and might be conducting a gap
analysis as an exercise towards self-improvement. In this
case, you can record N/A under the future state column.

Step IV
Identify & describe the gap between where you are and
where you want to be, based on Step III.
1. Gap Identification: Next column in the template
should record whether a gap exists or not. A simple
Yes or No will suffix.
2. Gap Description: The gap description should record all
the elements that make up the gap between the
current and future state.
Thus, this where you identify and describe the gap before
finding ways for remedy

Points to be noted:
The gap description should be consistent with the current
and future state.
It can be either quantitative (50 orders/day is difference
between current and ideal state) or qualitative (employee
morale is below average)
This should only serve as a description, not as a remedy

Step V
Determining how the Gap should be filled. This is the final
& vital step in the entire process and this is where the real
challenge is.

Factors Responsible for Gap: First you should identify

the factors responsible for the difference between your
current & future performance.

All the factors responsible for the gap should be listed in this
column of the template
The list should be specific, objective, relevant & exhaustive (like
flawed order processing or outdated employee manual).
This data will help come up with remedies and action plans
required to tackle the gap.

Based on the factors mentioned above, the remedies are

to be proposed.

Remedial Actions & Proposals: The final & vital step

in the gap analysis is listing out all the possible
remedies for bridging the gap between the current
and ideal state.

The remedies and proposals should directly address the factors

mentioned in the previous column.
The same should be specific, action oriented & time bound
(training of relevant staff or update the technology not just
effective measures to improve order processing).

Suggested Techniques & Methods:

Effective usage of the resources - 6 Ms :
Manpower - human resources you need
Methods - processes you need
Metrics - measurements you need
Machines - automation or technology you need
Materials - material resources you need
Minutes - time you need
SWOT Analysis template and simply list out your:
Strengths, Weakness, Opportunities and Threats related to filling the gap
Develop an action oriented Business Plan with relevance to the above gap

Heres a simple Gap Analysis Chart:

Gap
Gap
Future State Identificat
Objective
Description
ion
To increase 10
25
Yes
15

annual
million/annum million/annum
million/annu
revenue
by next three
m is the
years
difference

Current
State

Profitability
to be @ 8%
on sales
Employee
morale

Average 8%
on sales

Lack of
employee
morale at
workplace
Product
Limited
feature
features &
&functionali functionalities
ties

Factors

Remedial Action

Sales personnel are

not proficient with
latest tools
Flawed processing

of orders at Sales
Office

Average 8%
on sales

No

N/A

N/A

Employee
morale to be
enhanced

Yes

Lack of clarity Outdated HR Manual

in HR policy

To improve
the same by
next year

Yes

Does not
have
uniqueness

Review &
Training based
on the same
Update the
order
processing
software

N/A

Update the HR
Manual in sync with
current environs

Product just launched so Conduct review

it has limited features & among existing
functionalities
customers & improve
the product based
on the same

Top Management & Gap Analysis

As with any strategic initiative, gap analysis can only be fully
effective if top management exhibits total commitment to the
effort towards a change.
Top management will be solely responsible for initiating a gap
analysis planning process, for example; bringing all relevant
employees on board, overseeing the process, and making final
decisions about the analysis outcomes and implications.
Management must make the gap analysis a prime issue, and
must encourage employees, at all levels of the organization,
to achieve excellence.
Employees often emulate the behaviour of top management.
If the leadership shows no real interest in the gap analysis and
its implications, managers and employees throughout the
company are likely to feel the same way.

Benefits of Gap Analysis

Gap analysis looks to improve inefficient business processes
by optimizing allocation of all resources and inputs. Many
companies are performing below their potential because they
either misuse resources or lack the correct investment in
technology or capital. Gap analysis highlights these
inefficiencies and offers options for improvement.
Effective gap analysis should increase an organizations
production and performance, resulting in higher-quality
products /services at a lower cost.
Gap analysis also measures the amount of time, money and
resources needed to fulfil an organizations potential and
reach the desired state and helps in cost reduction.
If successfully accomplished, you can establish a competitive
advantage over your competition in the marketplace.

Conclusion
Ultimately, the analysis will outline a companys current
position, the desired future position, and the gap in
between.
The performance of the target area should be closely
monitored - looking for change in performance level, which
should shed light on the effectiveness of the program.
Gap analysis can be used in time of crisis to find solutions for
obvious problems; however, the tool has more potential than
just being a damage-control technique.
Using gap analysis on various departments and business units
on regular basis can help organizations continually improve
the efficiency of their operations while cutting costs and
delivering a consistently higher quality product or service