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’ll cover:
- What is Gap Analysis
- What are the benefits of a Gap Analysis
- Gap Analysis Examples (Use Cases)
- How to do a Gap Analysis in Excel: The 5-Step Process
- Gap Analysis Templates
Speaking of gaps, the gap between team members & C-Suite executives keeps getting bigger. We partnered with Momentive, SurveyMonkey’s business arm, to survey 1,750 people on their approach to strategy. Check out what we found in the state of strategy report!
What is Gap Analysis
A gap analysis is a 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.
A gap analysis for your organization is actually quite simple. This approach to strategic planning offers a structured and meaningful way to assess your goals.
What are the Benefits of a Gap Analysis?
Gap analysis forces you to think about your current situation, your desired future state, the gaps between the two, and your action plan in a very structured and clear manner.
Furthermore, it presents a framework for collaborating on creating a strategic plan. When multiple people are involved in strategic planning, their different approaches can sometimes conflict with each other.
The gap analysis template provides a structured approach to dealing with this by requiring responses to specific questions that can be integrated into a cohesive strategic plan.
Finally, a gap analysis can also be used as a way to analyze historical performance. The first time you run a gap analysis process, you will explicitly capture the current performance of your business (in both qualitative and quantitative forms).
Therefore, the next time you do one, you will have a benchmark against which you can compare your most recent performance.
Gap Analysis Examples (Use Cases)
When is the best time to go through gap analysis process?
Gap analysis is most useful when you need to:
- Create a new strategy for your team and want to understand where you currently sit
- Figure out the right areas of focus for your team
- Uncover the gap between your product and customers’ expectations
- Find out why you aren't meeting important KPIs and strategic objectives
- Develop a change management strategy but you need first to identify the gap between the current and desired state.
- Identify opportunities to improve existing processes
- Prepare for an audit and showcase how are you proactively addressing any gaps
- Prepare a strategic plan and prioritize resources
How to do a Gap Analysis in Excel: The 5-Step Process
Before we dive in, grab our free Gap analysis template to have a better idea of what the final outcome should look like. You can use it to fill it with your own data or as a reference to build your own template.
Step 1: Define Your Focus Areas
The first step in creating a gap analysis is to set some boundaries. You can also think of this 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 be the biggest and best company in Asia!!!”
There's little value in these kinds of exercises. Instead, you should have a rough idea of which areas you want to improve.
While we've written extensively about how to create strategic focus areas, here are some typical areas that people often settle on:
- Financial growth
- Customer excellence
- Employee happiness
- Scientific achievement
- Community impact
In short, focus areas should quickly describe what you are trying to improve with your gap analysis.
Step 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 have identified a high-level desired future state for each of your focus areas, it's time to move on to the next stage of our analysis process.
Step 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.
SWOT Analysis Template to identify Strengths, Weaknesses, Opportunities, Threats.
Check this article where you can learn more about SWOT analysis and grab FREE SWOT Analysis Template.
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. The acronym stands for:
As you research each of these elements, you'll gain a better understanding 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...
Step 4: Apply Metrics / 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 you can actually measure, and decide on your measurement approach as part of selecting the KPI.
- Choose KPIs you already have a baseline for, so that the gap you need to bridge can be easily measured.
- Make sure you apply both leading and lagging KPIs to achieve 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:
Leading KPI: Dedicate at least 50% of our developer resources to creating new features.
(current state: <10% of developer resources are on creating new features)
Lagging KPI: 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:
Leading KPI: Customers give us an NPS score of at least +7 on average.
(current state: Our NPS score is less than 3 on average)
Lagging KPI: 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:
Leading KPI: Our community awareness is over 70%.
(current state: Our community awareness is less than 20%)
Lagging KPI: 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.
Step 5: Create An Action Plan
In creating a gap analysis, your final step is arguably the most challenging one. This is where you formulate a specific action plan to address the gaps you've identified.
You can think of your gap analysis action plan as a series of projects for each of your focus areas, which, when finished, will most likely result in closing the gap that you identified in Step 4.
It's up to you how many projects you want to create, but typically, you'll have at least two for every gap. You'll also have to use your own best judgment about whether these projects are likely to close the gap!
Let's brainstorm 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: Don’t stop at planning
Congrats, you have developed your action plan and set targets and KPIs to measure success. But what’s next?
Your plan will come to life only with careful execution.
Monitor your progress and adjust your plan accordingly. You could do this with spreadsheets, but in an era when change is the new normal, that simply won't cut it.
With the right tracking tool, you can keep track of progress in real-time, while maintaining a high-level view across multiple projects.
For example, at Cascade, we help you to monitor progress toward set targets and identify performance gaps before it’s too late.
By using strategy execution software like Cascade, you can easily access all relevant data with a click of a button instead of digging through endless spreadsheets full of outdated information.
Want to learn more about strategy execution software? Check this resource.
Gap Analysis Template Downloads
The following are additional gap analysis templates you may find useful, depending on your needs:
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.
Skills gap analysis template for your team
Businesses use gap analysis to identify the skills that an individual team member (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 & Frameworks
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, a 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.
Close the gap through execution
The gap analysis is a great tool for identifying gaps and deciding what you should do to improve performance. However, the gap analysis should not stop at strategic planning. If it does, then you will miss out on great opportunities. Such as great products that match market needs, new revenue streams, or building an organization that's resilient to change.
The most important thing is to remember that no matter how good your action plan is, it's the strategy execution that counts the most.
So, are you ready to set the foundation for your strategy?
Download your FREE gap analysis template, make an action plan and turn your strategy into reality.