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How To Perform A Gap Analysis: 5-Step Process (+ Free Template)

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Article by 
Tom Wright
  —  Published 
July 21, 2023
November 14, 2023

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.

Download the gap analysis template.  Utilize our free gap analysis template to kickstart your strategic analysis! Download Now
In this article we’ll cover:

What Is A Gap Analysis?

A gap analysis is a process of comparing your current state to your desired future state. This process includes assessing the actual performance of your organization to determine whether business goals or objectives are being met and, if not, creating an action plan that will bridge the identified gap.

It's a great tool to use as part of the internal analysis of your company. Almost all major businesses usually assign the completion of a gap analysis template to project managers or business analysts.

Conducting a gap analysis is actually quite simple, but it can also have its challenges. That’s why it’s useful to follow a step-by-step approach to ensure your strategic planning is well-structured and meaningful in assessing your business goals.

What Are The Benefits Of A Gap Analysis?

Gap analysis forces you to think about your current situation, your desired future state, the root causes of the gaps between the two, and the action plan to bridge that gap in a very structured and clear manner.

Think about it as the bridge that will get you from point A (your current state) to point B (your desired state).

gap analysis diagram
Gap Analysis Diagram

But apart from that, it presents a framework for collaborating on creating a strategic plan and a common execution roadmap that is visible and aligned with all stakeholders. When multiple people are involved in strategic planning and execution, their different approaches can sometimes conflict with each other.

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). So the next time you do one, you will have a benchmark against which you can compare your most recent performance to efficiently set goals.

To streamline your gap analysis process, we've developed a free gap analysis template. This handy tool poses thought-provoking questions that guide you in developing a robust strategic plan, integrating all the pieces seamlessly.

Gap Analysis Use Cases & Examples

So, everything sounds great. But, when is the best time to go through the 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 to achieve your business goals
  • Develop a new product understanding the gap between your current offer and what customers want
  • 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 current processes or workflows
  • Prepare for an audit and showcase how you are proactively addressing any gaps
  • Prepare a strategic plan and prioritize resource allocation

These are, of course, just some use cases... Gap analysis is a versatile tool that can be applied to multiple different scenarios. The best part is that it’s suitable for companies and teams of all sizes and industries.

Let’s check out some “real-life” scenarios where a gap analysis would be a great option:

Example 1: Technology Company New Product Launch

A technology company plans to launch a new mobile app to expand its product offerings and reach a wider audience. To ensure the app's success, they conduct a gap analysis to evaluate their current app development processes, features, and user interface compared to competitors in the app market.

By identifying gaps and areas for improvement, they refine the app's functionalities, enhance user experience, and align it better with customer needs, positioning it as a standout solution in the competitive app market.

Example 2: Human Resources Strategic Plan

The Human Resources (HR) team at a medium-sized organization faces challenges with employee retention and satisfaction. To improve the HR department's performance, they conduct a gap analysis to assess their current practices, employee feedback mechanisms, and talent management strategies.

By pinpointing gaps between existing practices and desired outcomes, they develop a strategic action plan. This plan includes implementing effective employee engagement programs, talent development initiatives, and performance management systems, leading to improved retention rates and increased employee satisfaction.

Example 3: Digital Transformation In Manufacturing

A manufacturing company aims to undergo a digital transformation to enhance operational efficiency and adapt to evolving industry demands. They perform a gap analysis to evaluate their current technology infrastructure, data management processes, and workforce skills in relation to the digital transformation objectives.

By identifying gaps in technology and skills, they develop a comprehensive digital transformation strategy. This includes upgrading technological capabilities, implementing data analytics systems, and providing relevant training to employees, facilitating a successful transition to an advanced and digitally enabled manufacturing environment.

In each of these scenarios, gap analysis plays a crucial role in identifying areas for improvement and guiding strategic decisions. By bridging the identified gaps, these organizations can effectively meet their goals, improve their overall performance, and stay competitive in their respective industries.

Types Of Gap Analysis

As you can probably imagine from the previous examples, gap analysis comes in different forms, and each serves a unique purpose to tackle specific challenges and opportunities within an organization.

Here are some types of gap analysis you might find helpful:

  • Performance Gap Analysis: Evaluates the difference between an organization's current performance and its desired future state to identify areas for improvement and enhance overall efficiency and effectiveness.
  • Market Gap Analysis: Focuses on analyzing the gap between customer expectations and the products or services offered by a company, helping to identify opportunities to meet market demands and gain a competitive edge.
  • Product Gap Analysis: Assesses the features, pricing, and qualities of a product or service against customer needs and expectations to identify gaps and prioritize improvements or innovations.
  • Skills Gap Analysis: Analyzes the existing skill sets of employees in an organization and compares them with the skills required to meet organizational goals, leading to targeted training and development initiatives.
  • Compliance Gap Analysis: Evaluates an organization's adherence to relevant laws, regulations, and industry standards, identifying areas of non-compliance and guiding efforts to meet legal requirements.
  • Financial Gap Analysis: Compares an organization's current financial performance with its financial objectives, uncovering discrepancies and guiding financial planning and decision-making.
  • Technology Gap Analysis: Assesses an organization's technology infrastructure, systems, and capabilities, comparing them with the technology required to support its strategic goals and digital transformation initiatives.
  • Environmental and Social Gap Analysis: Focuses on an organization's environmental and social impact, identifying gaps in sustainability practices and providing insights for implementing responsible and eco-friendly strategies.

How To Do A Gap Analysis: 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. Follow the step-by-step guide below and fill the template with your own data or use it as a reference to build your own template.

gap analysis 5 steps process
The 5-Step Process of gap analysis

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
  • Innovation
  • Employee happiness
  • Scientific achievement
  • Community impact

In short, focus areas should quickly describe what you are trying to improve with your gap analysis.

🤓 Want to dive deeper into focus areas? Read our go-to guide on how to define focus areas.

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 in handy. 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.

You might already be aware of your current state because you’re experiencing a particular problem you’re trying to solve (a specific gap you’re trying to close). But it’s not always the case.

🔎There are numerous tools, methodologies, and internal/external analysis frameworks you can use to assess your current state (like SWOT Analysis, PEST, McKinsey 7-S, etc). These do not replace your gap analysis but rather help you make a good diagnosis of your company to clearly see where your gaps are. We’ll cover some of these tools in the following section: Gap Analysis Tools & Frameworks.

Step 4: Apply metrics / KPIs to your gap analysis

It's time to get specific about what we want to achieve and how we're going to do it by adding some specific metrics or KPIs (Key Performance Indicators) for each one of our focus areas.

Here are a few tips on how to select the right KPIs for your gap analysis:

  • Select KPIs you can actually measure, and decide on your measurement approach
  • Choose KPIs you already have a baseline for, so that the gap can be easily measured
  • Apply both leading and lagging KPIs to achieve a complete set of measures for each focus area

Let's dive into some specific KPI examples that you can use as part of your gap analysis. We'll start by defining the targets for our desired future state, and underneath write down how this looks for our current state.

Focus area 1: 'Innovation'

1. 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)

2. 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%)

Focus area 2: 'Customer Excellence'

1. Leading KPI: Achieve an average customer NPS score of at least +7.

(current state: Our NPS score is less than 3 on average)

2. Lagging KPI: Decrease our overall gross % customer churn to less than 10% per annum.

(current state: Our gross % customer churn is greater than 20% per annum)

Focus area 3: 'Community Impact'

1. Leading KPI: Raise our community awareness to 70%.

(current state: Our community awareness is less than 20%)

2. Lagging KPI: Get directly involved in at least 3 major political initiatives.

(current state: We’re not participating in any political initiatives currently)

The 'gap' component of your gap analysis is 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%).

Download the gap analysis template.  Utilize our free gap analysis template to kickstart your strategic analysis! Download Now

Step 5: Create an execution-ready action plan and roadmap

Creating a gap analysis leads to the crucial step of formulating an action plan and roadmap to address the identified gaps. This process involves defining specific projects for each focus area, aiming to close the gaps identified in Step 4.

Think of your gap analysis action plan as a series of projects that directly contribute to achieving the Key Performance Indicators (KPIs) set in the previous step for each focus area.

Let's brainstorm some specific examples of projects you could add to yout action plans for each focus area:


Focus area 1: 'Innovation'

  • Project 1: Hire four additional developers dedicated to new feature development.
  • Project 2: Implement an 'Innovation Check' for all new features to ensure they meet the definition of “innovation”.

Focus area 2: 'Customer Excellence'

  • Project 1: Launch an automated survey to gather reasons for customer cancellations.
  • Project 2: Establish a dedicated retention team in customer service to handle cancellation requests.

Focus area 3: 'Community Impact'

  • Project 1: Launch a local TV advertising campaign.
  • Project 2: Increase our spend on online advertising by $5,000 per month.
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!‍

Now, let's talk about the roadmap.

As you create the action plan, it's essential to establish a clear time frame for each project and determine realistic deadlines and milestones to track progress effectively. This roadmap will guide your organization on the sequence of actions to take, the allocation of resources, and the expected time frames for achieving those significant milestones. Having a well-defined roadmap will help your team stay focused, organized, and motivated throughout the implementation process.

🎁Bonus step: Execute, monitor and adapt your plan

Congrats! You’ve developed your action plan and set targets and KPIs to measure success.

What’s next?

Well, now it's all about the execution – the heartbeat of your plan.

Make sure everyone in your organization is on board and has clear visibility over the plan. But it's not just about sharing the big picture; you’ll have to provide clarity on the specific actions needed to close the gaps you identified during your analysis. Encourage a collaborative spirit where different teams are accountable for the KPIs that drive progress.

Now, here's the secret sauce: continuous monitoring of your progress and being open to adapt when needed. Keep a close watch on how things are unfolding, and if they don't go as planned, don't panic! Be ready to tweak your plan swiftly to get back on track.

You can monitor and track your results with spreadsheets, but in an era when change is the new normal, simply relying on them may not be enough. It will be hard to keep everyone on the same page and adapt quickly.

Our suggestion? Check out Cascade 😉

Cascade is your organization’s brain. It is the only platform that spans the entirety of your ecosystem to understand the relationships between your business inputs (e.g., metrics, initiatives, investments) and outputs (e.g., expected results, forecasted revenue, margins, etc.).

For example, Cascade helps you to monitor progress toward your targets and identify performance gaps before it’s too late. And even though it has tracking functionalities that allow you to track your progress in real-time, like dashboards and reports, it’s not just another tracking tool like the ones out there... It’s the key to centralized visibility over your execution engine.

👉🏻Learn more about strategy execution software here!

Want to take Cascade for a spin? Sign up today for a free forever plan or book a guided 1:1 tour with one of our Cascade in-house strategy execution experts.

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.

These frameworks are conceptual approaches that you can 'layer' onto your organization to help you categorize your activities and more easily identify gaps.

SWOT analysis

SWOT means strengths, weaknesses, opportunities, and threats analysis. It assesses both internal and external factors, offering insights into current and future opportunities.

SWOT analysis serves as a solid foundation for the gap analysis process by offering a comprehensive snapshot of your organization's current state since 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.

👉🏻Check out this article where you can learn more about SWOT analysis and grab a FREE SWOT Analysis Template.

swot matrix template
SWOT Analysis Template to identify Strengths, Weaknesses, Opportunities, Threats. 

PEST/PESTLE analysis

pestle analysis cascade
PESTLE Analysis

Understanding industry threats and opportunities can be challenging in a SWOT analysis without proper industry knowledge. But a PESTLE or PEST analysis can enhance your understanding of external factors by considering the following aspects:

  • Political
  • Economic
  • Social
  • Technological
  • Environmental
  • Legal

As you research each of these elements, you'll gain a better understanding of threats and opportunities within your industry and a birds-eye view of the entire environment to accurately assess your current state.

PESTLE analysis is particularly valuable in guiding strategic decision-making and identifying gaps related to changes in the external environment.

👉🏻Check out this article to learn more about PESTLE analysis.

McKinsey 7-S Framework

McKinsey 7-S framework

The McKinsey 7-S framework is a management model that assesses seven interconnected elements within your organization to understand its effectiveness and alignment.

These elements include:

  • Strategy
  • Structure
  • Systems
  • Shared Values
  • Skills
  • Style
  • Staff

The framework emphasizes the importance of considering all these components together, as they are interdependent.

When conducting a gap analysis using the McKinsey 7-S framework, you can identify discrepancies in how these elements are aligned and how they impact the overall performance and success of your organization.

👉🏻Check out this article where you can learn more about McKinsey 7-S framework.

Nadler-Tushman model

Nadler-Tushman model
Nadler-Tushman model

The Nadler-Tushman model is another organizational framework that focuses on inputs, transformational processes, and outputs to assess organizational effectiveness. The model examines how inputs like people, technology, and resources are transformed into outputs such as products, services, and outcomes.

By using this model for gap analysis, organizations can pinpoint areas where processes may be inefficient or ineffective, leading to gaps in performance or output.

Fishbone Diagram

fishbone diagram
Fishbone Diagram

The fishbone diagram, also known as the Ishikawa or cause-and-effect diagram, helps identify potential root causes of a problem or gap in the organization. It is particularly useful for identifying complex and interconnected factors that contribute to the identified gap.

By visually mapping out all possible causes, organizations can better understand the underlying issues and develop targeted solutions.

McKinsey’s Three Horizons

mckinsey 3 horizons
McKinsey's Three Horizons of Growth

Another framework for complementing your gap analysis could 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.

The 3 Horizons are:

  1. Horizon 1: Maintain and defend the core business
  2. Horizon 2: Nurture emerging business
  3. Horizon 3: Create genuinely new business

By using this framework, organizations can identify gaps in their growth plans and ensure a balanced approach to innovation and sustainability.

👉🏻Check out this article where you can learn more about McKinsey’s Three Horizons.

Balanced Scorecard

balanced scorecard
Balanced Scorecard

A balanced scorecard is a useful tool for categorizing your business activities into a series of outcome-focused quadrants (also named "perspectives"):

  1. Financial
  2. Customers
  3. Process
  4. People

You can then mirror these same quadrants to categorize and prioritize your gaps and their associated action plans.

By using the balanced scorecard for gap analysis, organizations can identify gaps in each perspective, understand how they relate to the overall strategy, and prioritize actions to address these gaps effectively.

👉🏻Check out this article where you can learn more about the Balanced Scorecard.

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.

Free Gap Analysis Templates To Download

The following are additional gap analysis templates you may find useful, depending on your needs:

Gap analysis template for business process improvement

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.

👉🏻Download the free Gap analysis template for business process improvement

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 don’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 Human Resources (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.

👉🏻Download the free skills gap analysis template here!

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 the product gap analysis 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 the financial gap analysis here!

Close The Gap Through Execution 🚀

Gap analysis is a great tool for identifying gaps and deciding what you should do to improve performance. However, it’s only half the work!

Once you've conducted the analysis, identified gaps, and created a well-crafted action plan and roadmap, the real work begins. You need to execute those projects and make steady progress toward the metrics and KPIs that will lead you to achieve your business goals - ultimately closing the gap.

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 here are our recommended steps to ensure you effectively close the gaps:

  1. Download your FREE gap analysis template to streamline your gap analysis process
  2. Put your action plan into Cascade (for FREE!) to achieve centralized observability and effective execution

By combining a well-structured action plan with robust execution through tools like Cascade, you equip your organization with the resources needed to close the gap and achieve your desired outcomes.

Download the gap analysis template.  Utilize our free gap analysis template to kickstart your strategic analysis! Download Now

FAQs

What is a ‘needs analysis’ and how is it related to gap analysis?

A needs analysis is a process of identifying specific requirements and deficiencies within an organization to address challenges and meet objectives. It focuses on understanding what is lacking or needs improvement.

Needs analysis is related to gap analysis as both methods assess the current situation compared to the desired future state. However, needs analysis is more focused on identifying specific needs and improvement areas, while gap analysis helps develop action plans to close the gaps between the current and desired states.

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