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 it’s 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
organization’s actual performance against its potential
performance.
• So, you typically list out the organization’s 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 you’re 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 you’d like to be over a specific time frame.
The ‘future state’ represents the ideal condition you’d 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 M’s” :
•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
Here’s a simple Gap Analysis Chart:

Gap
Current Gap
Future State Identificat Factors Remedial Action
Objective State Description
ion
To increase 10 25 Yes 15  Sales personnel are  Review &
annual million/annum million/annum million/annu not proficient with Training based
revenue by next three m is the latest tools on the same
years difference  Flawed processing  Update the
of orders at Sales order
Office processing
software
Profitability Average 8% Average 8% No N/A N/A N/A
to be @ 8% on sales on sales
on sales
Employee Lack of Employee Yes Lack of clarity Outdated HR Manual Update the HR
morale employee morale to be in HR policy Manual in sync with
morale at enhanced current environs
workplace
Product Limited To improve Yes Does not Product just launched so Conduct review
feature features & the same by have it has limited features & among existing
&functionali functionalities next year uniqueness functionalities customers & improve
ties 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 organization’s
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 organization’s 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 company’s ‘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…