What is Gap Analysis?
Gap Analysis refers to the process where companies compare their current performance with their desired targets. This allows organizations to see whether they are on the right path and whether they are utilizing their resources – time, money, and labor – efficiently.
Gap analysis enables a company to chart out its current state, pinpoint areas that need improvement, and strategize an action plan to reach its objectives.
Key Takeaways
- Through gap analysis, an organization examines its current performance versus its target performance.
- It’s useful for identifying whether resources are being used to their full potential.
- It helps in crafting a strategic plan to close performance gaps.
- The process involves four essential steps: defining goals, benchmarking the current state, analyzing the gaps, and compiling a detailed report.
- It can also assess the difference between rate-sensitive assets and liabilities in financial contexts.
Understanding Gap Analysis
Gap analysis, also known as needs analysis, is essential across organizational performance contexts. It helps companies recognize where they stand and assess their progress towards future goals.
Originally gaining prominence in the 1980s, gap analysis is still useful for understanding exposure to various term structure movements despite being less common today.
The Four Steps of Gap Analysis
Gap analysis concludes with a detailed report outlining areas for improvement, serving as a guide for increasing organizational performance.
The ‘gap’ in this analysis signifies the difference between where the organization is and where it aims to be in the future.
Conducting a Gap Analysis
Step 1: Identify Your Current State
Begin by focusing on the current state of operations – from the products offered and markets reached to employee benefits. This involves both quantitative data (e.g., financial records) and qualitative data (e.g., surveys from key stakeholders).
Often, gap analysis stems from an identifiable issue, such as poor customer feedback, prompting further investigation and improvement.
Step 2: Identify Your Future State
This pivotal step requires the company to set specific and measurable goals. Instead of ambiguous goals like ‘improve customer service,’ more precise targets like ‘achieve customer satisfaction of 90% within 12 months’ should be set.
Analyzing competitor performance might also offer insights and set benchmarks.
Step 3: Identify the Gaps
By defining the current state and future state, key discrepancies become apparent. For example, realizing inadequate staffing or insufficient resources to maintain customer service standards.
Step 4: Evaluate Solutions
Solutions to identified gaps are explored, some more quantifiable than others. For instance, defining customer satisfaction through percentage metrics.
Types of Gap Analysis
Market Gap Analysis
Also known as product gap analysis, this evaluates market conditions to identify unmet customer needs. External consultants can provide expertise.
Strategic Gap Analysis
Focusing on long-term benchmarks, this type shows how a company compares against its strategic plan or competitors and unearths more resourceful utilization patterns.
Financial/Profit Gap Analysis
Directly analyzes financial efficiency metrics and compares these with competitors, ideal for understanding financial shortfalls.
Skill Gap Analysis
Identifies shortfalls in workforce knowledge and expertise, crucial for innovative companies or small enterprises.
Compliance Gap Analysis
Often leveraging internal audits, this analysis ensures that the organization meets external regulatory requirements.
Product Development Gap Analysis
Used in product development, especially in software, this helps ensure projects meet ongoing market demand.
Gap Analysis Tools
SWOT Analysis
SWOT analysis evaluates strengths, weaknesses, opportunities, and threats, blending internal and external factors into the gap strategy.
Fishbone Diagram
This cause-and-effect diagram helps dissect complex problems into manageable contributors and is ideal for creative problem-solving.
McKinsey 7S
The McKinsey 7S framework assesses seven crucial elements – strategy, structure, systems, shared values, skills, style, and staff.
Nadler-Tushman Model
Enhances understanding of company underperformance and identifies solutions aligned under culture, work structure, and people components.
PEST Analysis
Evaluates political, economic, social, and technological factors affecting the company’s growth avenues and risk exposure.
When to Use Gap Analysis
Gap Analysis is beneficial in various scenarios:
- During Project Management: Ensures that long-term projects continually have sufficient resources from start to finish.
- Strategic Planning: Assists during budget planning, restructurings, or business expansion analysis to conclusively underline key resource areas.
- Identifying Performance Deficiencies: Pinpoints and resolves operational blockages that hamper smoother run of operations.
- Marketing to External Parties: Demonstrates thorough planning through gap analysis, making companies more attractive to potential investors.
Benefits of Gap Analysis
Gap Analysis provides numerous benefits:
- Improved profitability: It optimizes spending, resource allocation, and operational efficiency.
- Better Manufacturing Processes: Identifies and streamlines bottlenecks in production cycles, resulting in better logistics and fewer delays.
- Increased Market Share: Boosts sales, revenue, customer base, and market presence.
- Satisfied Employees and Customers: Proactively addresses issues, improving morale and customer satisfaction.
- Operational Efficiency: Refines day-to-day business functions to achieve smoother operations.
- Reduced Risks for Long-Term Projects: Prepares for contingencies, reducing project risks and unforeseen challenges.
Example: GameStop’s Gap Analysis
For years, GameStop held its position as a leading video game retailer, offering trade-in and purchases of video games, consoles, and related merchandise.
In July 2022, GameStop launched a non-fungible token (NFT) marketplace, anticipated to expand into gaming NFTs.
Here’s how GameStop might have conducted its gap analysis:
- Current Position: Recognized digital transformation threats, identified physical stores might not be sustainable long-term.
- Future Goals: Desired to maintain industry leadership in the emerging digital gaming market.
- Strategy for Change: Developed the NFT marketplace alongside other anticipated strategic changes.
- Execution: Developed relationships with Ethereum Layer 2 entities while hiring staff knowledgeable in blockchain and digital assets.
This example infers that GameStop leveraged a gap analysis to transform its business models proactively.
The Bottom Line
Gap analysis is a crucial tool for organizations striving to assess current performance, determine their aspirational targets, and craft plans to bridge those gaps. Whether operational improvements or strategic shifts, there are numerous tools like PEST(LE), SWOT Analysis, and Fishbone Diagrams to help implement a successful plan.
Related Terms: SWOT analysis, PEST analysis, McKinsey 7S, Fishbone Diagram.
References
- GameStop Investor Relations. “GameStop Launches NFT Marketplace”.
- GameStop Investor Relations. “GameStop Forms Partnership with FTX”.
