Gap Analysis Overview
Most of us have at least a rough vision of where we'd like to take our organization. But sometimes, knowing where and how to begin can be challenging. This is where the process of gap analysis comes into play.
Gap analysis is a great strategic analysis tool that gives us a broad framework for defining not just where we are today, but more importantly where we want to be and how we're going to get there.
In this article we cover:
- What is a Gap Analysis
- What are the benefits of a Gap Analysis
- How to do a Gap Analysis: The 5 Step Process
- Gap Analysis Template
What is Gap Analysis
A gap analysis is the process of comparing your current state to your desired future state. This process includes assessing the internal performance of business functions to determine whether goals or objectives are being met and, if not, creating a series of actions that will bridge the identified gap.
It's a great tool to use as part of an internal analysis of your organization. Almost all major businesses usually assign the completion of a gap analysis template to project managers or business analysts.
In conjunction with this guide, we've also created a free gap analysis template which you can download and fill in as you work through the guide.
Performing a gap analysis for your organization is actually surprisingly easy. The gap analysis approach to strategic planning is one of the best ways to start thinking about your goals in a structured and meaningful way.
What are the Benefits of a Gap Analysis?
The main benefit of a gap analysis is that it forces you to think about your current state, your desired future state, the gaps between the two, and your action plan in a very clear and structured form.
It also provides a framework for people to collaborate on the first steps of creating a strategic plan. One of the challenges of having multiple people involved in strategic planning is that the various approaches they take can sometimes be incompatible.
A gap analysis template solves this by requiring people to answer specific questions which can be brought together into a cohesive strategic plan.
Finally, a gap analysis can also be used as a means of analyzing historical performance. The first time you run a gap analysis process, you will explicitly capture the current state of your business (in both qualitative and quantitative forms).
This means that the next time you perform one, you will have a baseline against which to benchmark your most recent performance.
Gap Analysis Example
The gap analysis process doesn't have to be hard - but there are a few things that you'll need to commit to before you get started:
- Be honest about your deficiencies. It can be hard to admit your failures - but to perform an effective gap analysis, you'll need to be brutally honest about the things that are not working in your organization.
- Also, be honest about your strengths. Don't be too humble about what you've accomplished. You need to understand the positive aspects of your business to help you focus on the negative ones.
- Be realistic. In the later part of your gap analysis process, you'll start setting goals for the future. These goals must be realistic and pragmatic given your known constraints.
- Be specific. For every part of your gap analysis (current state, desired future state, and action plan), you'll need to avoid vague statements or intangible outcomes.
Be sure to include a mixture of qualitative and quantitative measures for both your current and future states.
Once you feel comfortable proceeding with your gap analysis, work through the following steps in order. You'll probably want to grab our Gap Analysis Template to take notes as you go.
1. Define Your Focus Areas
Before getting into the detail of creating a gap analysis, it's important to set some boundaries. You can also think of this step as defining the scope of your analysis.
It would be easy to talk about your desired future state in general grandiose terms:
My desired future state is to the biggest and best company in Asia!!!
Obviously, there's little value in these kinds of exercises. Instead, you need to have a rough idea of the areas in which you want to improve.
We've written extensively about how to create strategic focus areas - but if you need a quick bit of inspiration, some typical focus areas that people often settle on include:
- Financial growth
- Customer excellence
- Employee happiness
- Scientific achievement
- Community impact
How to find your areas of focus1) No longer than 6 words each
Long-winded strategic focus areas are an oxymoron - if you can't distil your focus into 6 words or less, keep refining it until you can - it needs to be simple and memorable.2) Not too broad
Don't cheat by creating strategic focus areas that are too broad, like 'Be profitable'.
Unless this really is a specific focus (e.g. for new startups) - this defeats the point of the exercise and doesn't help you to focus at all!3) No jargon
Avoid ambiguous terms like 'maximize' or 'succeed' - state what you are trying to achieve as an outcome, not how you are going to do it.4) No metrics
Conversely, it might be tempting to add specific targets or metrics to your focus areas - avoid this. Metrics will absolutely come into play for your plan, but not at this stage.
Keep things high level for now, but still outcome-focused.
This list is by no means exhaustive, so do check out our focus areas article if you need more help with this part of your gap analysis.
Once you've settled on 3 or 4 strategic focus areas for your business, you're ready to move on to the next part of your analysis.
2. Identify Your Desired Future State
Whoa...hang on a second - shouldn't we be starting with the current state rather than the future state? You'd think so wouldn't you - and indeed most of the other gap analysis guides tell you to do that. But there's a problem...
Your organization doesn't have one single current state - it has thousands depending on which team, which measure, or even which person you're talking about.
So despite what you might read in other gap analysis guides, defining your current state without any idea of your future state is at best a useless process (and at worst an impossible one).
So instead, we start our own gap analysis process with the definition of our future state.
This is where having strategic focus areas really comes into play. Let's assume that you selected 'Innovation' as one of your focus areas.
You'll want to start by framing your desired future state for Innovation in fairly broad terms (we'll be getting more specific later on).
Broadly speaking, my desired future state for Innovation is:
To be recognized as one of the most innovative SaaS platforms in the industry.
Remember, we're keeping things fairly high-level at this stage - so try to avoid adding any specific KPIs or measures to this part of your gap analysis.
Here are a few more examples of desired future states for a range of focus areas:
My desired future state for Customer Excellence is:
To achieve market-leading customer retention and referrals.
My desired future state for Community Impact is:
To make lasting & meaningful changes to the lives of people in the community.
Once you've finished identifying a high-level desired future state for each of your focus areas, it's time to move into the next part of our analysis process.
3. Assess Your Current State
The next part of performing a gap analysis involves getting a better understanding of where you are today - your current state.
Once again we'll be using the focus areas that we defined in Step 1 to scope our gap analysis. We'll be starting off high level and then getting more specific in Step 4.
For each of your focus areas, write a sentence that gives a realistic summary of your current state. Try to use similar language and structure to the one you used when defining your desired future state above.
For example, for our Innovation focus area, we might summarize our current state as:
We are not currently known for innovation, however our software does contain a couple of unique features.
For our Customer Excellence focus area we might say:
We have high customer satisfaction and retention in our Enterprise segment, but our smaller customers are significantly less satisfied with their experience.
Or finally for our Community Impact focus area we might say:
Most members of the local community are not currently aware of our presence.
Remember that for this part of your gap analysis, it's more important than ever to be 100% honest and realistic about your strengths and weaknesses. And the best way to do it is to perform a SWOT analysis.
SWOT means strengths, weaknesses, opportunities, and threats analysis. It assesses external, internal, current, and future opportunities.
It gives a realistic and fact-based look at how the organization positions itself within the industry. For it to be successful, it needs to focus on real-life evidence and contexts.
- What is your organization famous for?
- What qualities do you or your products have that set you apart from competitors?
- What physical assets do you have which might put you ahead of the competition?
- What intellectual property do you own?
- What internal resources (such as staff) do you have that you're particularly proud of?
- What major failures have you had in the past 12 months, and why?
- What physical resources do you lack?
- What internal / skill-based resources do you lack?
- What do your competitors do better than you?
- How would people rate your products? What issues would they raise?
- What is your cash-flow position?
- Are you missing opportunities to make additional revenue from existing leads or customers?
- Are there any countries or markets that you could enter with your existing products with little effort?
- Are there any markets with a poor competitor showing that you could take advantage of?
- Are there any emerging trends that you could take advantage of?
- What new product ideas do you have?
- Are there any merger or acquisition opportunities that make sense to exploit?
- The emergence of new competitors
- Shifts in trends that could affect demand for your product or service
- Changes to the regulatory environment
- Poor public relations or market perception
- Staff morale or the possible loss of key people in your team
- Reduced investor appetite
- Macro-economic issues
The most challenging part of the SWOT analysis is determining threats and opportunities. Without understanding the industry, we can easily end up guessing. Then the whole model just won’t add up and provide the needed value for our gap analysis.
One way to improve our broader understanding is with pestle or pest analysis. Here’s what it shortly stands for:
By researching each of the elements above, you’ll get a better idea of threats and opportunities within your industry. It is a birds-eye view of the entire environment that’s much needed for an accurate assessment of your current state.
So far, we've defined our focus areas, specified our desired future state, and given a high-level assessment of our current state. Now it's time to get specific about what we want to achieve and how we're going to do it...
4. Apply Measures / KPIs To Your Gap Analysis
You'll notice that so far, our gap analysis has been very general in both how we've tackled our desired future state and our current state. That changes in this step - as it's time to start adding some specific measures (KPIs) for each one of our focus areas.
Let's start with a few tips on how to select the right KPIs for your gap analysis, then go into some examples:
- Select KPIs which you can actually measure, and decide on your measurement approach as part of selecting the KPI.
- Only choose KPIs which you have a baseline for today so that you can easily measure the gap which you need to bridge.
- Try to apply a mix of both leading and lagging KPIs to give you a complete set of measures for each of your focus areas.
Let's dive into some specific KPI examples that you might use as part of your gap analysis. Once again, we'll be doing this for each of our focus areas.
We'll start by defining the targets for our desired future state, and underneath write down how this looks for our current state.
For our Innovation focus area, we might select two KPIs as follows:
Dedicate at least 50% of our developer resources to creating new features.
(current state: <10% of developer resources are on creating new features)
Achieve an 'Innovation' score of over 80% on at least one customer review website.
(current state: Our 'Innovation' score on g2crowd.com is less than 60%)
For our Customer Excellence focus area, we might select two KPIs as follows:
Customers give us an NPS score of at least +7 on average.
(current state: Our NPS score is less than 3 on average)
Our overall gross % customer churn is less than 10% per annum.
(current state: Our gross % customer churn is greater than 20% per annum)
And finally, for our Community Impact focus area, we might select two KPIs as follows:
Our community awareness is over 70%.
(current state: Our community awareness is less than 20%)
At least 3 major political initiatives can be directly traced to our involvement.
(current state: No major political initiatives can be directly traced to our involvement)
It goes without saying that the 'gap' component of your gap analysis is of course the variance between the KPIs of your current state and your desired future state.
For example, you could say that we have a gap of 50% between our current level of community awareness (20%) and our desired future state of community awareness (70%).
If you haven't already downloaded our gap analysis template, you'll probably want to do that now as it makes it much easier to track the KPIs you're starting to create.
5. Create a Gap Analysis Action Plan
The last step in creating a gap analysis is arguably one of the hardest. This is where you'll formulate a specific action plan to address the gaps that you've identified.
The way to think about your gap analysis action plan, is as a series of projects for each of your focus areas, that when completed, will most likely result in the closing of the gap which you identified in Step 4.
Precisely how many projects you want to create for each gap is up to you, but usually, you'll have at least 2 for each gap. You'll also need to use your own best judgment about whether these projects will most likely close the gap!
Let's look at some specific examples of gap analysis action plans that you could implement.
We'll start off with our Innovation focus area - and specifically, look at some projects that could help us to close the 40% gap between the amount of developer resource we have on new features in our current state (10%) vs what we set as our desired future state (50%).
Hire an additional 4 developers and dedicate them to new feature development.
Implement a new 'Innovation Check' for all new features that we create to ensure that they meet our own definition of something 'Innovative'.
Let's look at a gap analysis example with an action plan for our Customer Excellence focus area. Specifically, we'll address the gap of 10% in our gross % of customer churn that we identified.
Launch a new automated survey to all canceling customers to ask for a 'reason for cancellation'.
Create a dedicated retention team in our customer service area to handle customer cancellation requests.
And finally, let's look at our Community Impact focus area - and specifically look at some projects that could help close the 50% gap in our level of community awareness.
Launch a local TV advertising campaign.
Increase our spend on online advertising by $5,000 per month.
As you can see, creating action plans to bridge the gaps that we identified as part of our gap analysis is actually quite easy - as a result of the hard work we did in Steps 1 to 4 where we clearly defined our current state, desired future state, and gaps.
Bonus Step: Prioritization
Whilst not strictly part of the gap analysis process, you'll likely find it helpful to start prioritizing your actions based on how easy they are to implement and how much potential impact they could have on bridging our gaps.
Adding a prioritization layer to your gap analysis will help you feel less overwhelmed by all the new projects and KPIs you're now tracking!
Gap Analysis Template Downloads
Gap analysis for business process improvement template
Gap analysis is often used for improving business processes. However, the framework needs some adjustment. We are introducing a bit different approach that’s best used for optimizing business processes.
Nadler-Tushman model examines how each business process affects another - from culture to people, work, and structure. The goal is to find out if the work being done in each area supports the others.
It creates an end-to-end, holistic view of your organization’s operational processes (or as the model describes it: from input to output). Here are the three segments of the model:
- Input: Entire company culture and workforce, all resources used to create product/service, and operational environment.
- Transformation process: The systems, teams, and processes that take the input value(s) and turn them into the output product.
- Output: The final product or service
Skills gap analysis template for your team
Businesses use the skills gap analysis to identify the skills that an individual employee (or a team) needs but doesn’t necessarily have to perform certain jobs effectively.
With a skills gap analysis, organizations can uncover gaps in their teams and set career development goals. Thus, it is mainly done by the HR department.
The process is fairly simple and it’s mostly focused on identifying the current state. Create an assessment scale for each skill.
Then assign points to your employees for every skill. It’s the fastest way to identify which skills are underdeveloped on the organizational level.
Once you’ve identified the missing skills, you can implement training plans or set up your hiring plan accordingly.
Product gap analysis template
Product gap analysis is used to highlight the gap between your product and customers’ expectations. It will help you prioritize the next steps and meet those expectations set in the first place. Download here!
Financial gap analysis template
Financial gap analysis pretty much follows the standard template. However, we added some finance-related examples for easier navigation. Download here!
Gap Analysis Tools
The gap analysis template that we've created is a great starting point. But there are a few different frameworks and tools that you can also use to help you get more specific about the gaps you're trying to resolve.
In terms of gap analysis frameworks, we're talking here about conceptual approaches that you can 'layer' onto your organization to help you categorize your activities and more easily identify gaps.
For example, the balanced scorecard is a useful tool for categorizing your business activities into a series of outcome-focused quadrants (the "perspectives" - Financial / Customers / Process / People).
You can then mirror these same quadrants to categorize and prioritize your gaps and their associated action plans.
Another example of a gap analysis framework would be McKinsey's Three Horizons of Growth.
This framework forces you to think about your business progression over a series of time-based horizons that help you isolate your mandatory business-as-usual activities from your truly innovative drivers of growth.
Note these frameworks are not substitutes for performing a gap analysis, but can rather add an additional layer of depth on top of your gap analysis.