What is a gap analysis?

Planning the activities of a company is not an easy task as it requires good organization, knowledge and overcoming many challenges. For this reason, several companies, despite having the resources to succeed, are unable to fulfill their goals. A gap analysis can help them by bridging the gap between changes in the market environment and the company’s strategy. Read on to find out more.

What is a gap analysis? – table of contents:

1. What is a gap analysis?
2. 3 effective gap analysis tools
3. How to conduct a gap analysis?
4. Pros and cons of a gap analysis
5. When to use a gap analysis?
6. Summary

What is a gap analysis?

A strategic gap refers to a situation when a company’s actual outcome significantly differs from the desired one. Identifying the causes of problems and developing solutions is referred to as a strategic gap analysis. Paying attention to the current state and the target state, as well as the discrepancy between the two, will enable you to use resources efficiently and improve the profitability of the company.

Depending on the area that you want to improve, it’s worth asking the following questions that will help us determine its potential and possible limitations:

• Where are you as a company?
• Where would you like to be?
• What aspects keep you from reaching your target position?
• How to prevent these problems?
• How can you allocate the resources you have (financial, human, etc.) to improve your position?

3 effective gap analysis tools

In order to make the analysis process easier, you can use a number of available assessment tools. It’s worth testing a few of them to look at your business from different perspectives. For example, these may include:

PEST analysis

It is based on the study of external determinants – political and legal, economic, as well as social and technological, which can influence the existence of given strategic gaps.

SWOT analysis

It allows us to determine the current situation of the company in the market. It highlights strengths, weaknesses, opportunities and threats.

McKinsey’s 7s model

McKinsey’s 7s refer to the elements of an organization that can be divided into “hard” elements (tangible factors that can be controlled) and “soft” elements (intangible factors that can’t be controlled):

• Strategy – the company’s action plan,
• Structure – the company’s organizational structure,
• Systems – technical and business knowledge necessary to perform tasks,
• Style – a leadership style,
• Staff – human capital, being an asset of the company,
• Skills – employee competencies,
• Shared values – a set of characteristics that determine each individual’s attitudes and behavior in a company.

Using it, you are able to specify the areas that are related to the strategic gap and decide about the changes that are worth making in order to achieve the set goals.

How to conduct a gap analysis?

The process can be done in 4 steps, however, it can be expanded when needed:

Identify the current situation

The analysis starts with identifying the current situation of the company or a specific department – where do problems arise? You can also present this by a specific value – sales volume, growth rate, etc. You can get the necessary information from financial statements or by conducting a survey among the stakeholders.

For example, a person who makes handmade jewelry and sells 2,000 pieces in a given financial period will express their state as “2,000”. On the other hand, a wholesaler who achieves a 5% growth rate will record it as “5%.”

Identify where you want to be

Next, you need to specify what goals you would like to achieve – write down specific goals adjusted to your capabilities (use the SMART framework to set them), for example, selling 20000 products in a given year or achieving a 7% growth rate. Also, think about the constraints that may prevent you from implementing these plans and look at what your competitors are doing.

Identify the strategic gap

Being familiar with the current situation and the desired situation, you can compare them and see the differences between them. Consider what the reasons for these inconsistencies might be.

Eliminate the strategic gap

Once you have identified the factors contributing to the strategic gap, develop possible solutions and a way to measure the results of the implemented changes. Consult your suggestions with the rest of the team and create a recovery plan.

Pros and cons of a gap analysis

Although the strategic gap analysis has valuable benefits, it is not a perfect technique. Take a look at its pros and cons!

Pros

• Conducting the analysis periodically allows you to observe the results and progress of activities,
• Improving the quality of all or some of the business activities,
• Increasing your profitability,
• Reducing risk – by learning about your needs and weaknesses, you can make improvements or prevent future problems,
• Greater market share – by achieving better results, you will strengthen your competitive advantage,
• Customer and staff satisfaction,
• Prioritization.

Cons

• Due to the dynamic changes in the market, the results of the analysis may be inadequate to the current situation,
• If you don’t explore the reasons for the identified gaps sufficiently, the analysis may not reveal the complexity of the problem at hand,
• The effectiveness of the analysis depends on the level of knowledge and commitment of the entire team.

When to use a gap analysis?

Your enterprise can use the described method to, among others:

• Improve sales performance – you can control the results of the sales department and use this information to maximize future profits,
• Evaluate an existing or new product category – finding reasons for unmet sales targets,
• Conduct a competitive analysis,
• Getting to know the employees’ needs,
• Assessing key success factors (KSF).

Summary

A strategic gap analysis can support many areas of your business – ensure higher profits, increase productivity and competitive advantage. Identifying the gap between the actual and target state will broaden your perspective, so you can create a strategy that eliminates factors slowing down the growth of your business.

Read also: What is a strategic analysis?

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