Among the sea of useful analytical tools to enhance business performance, gap analysis is one of the simplest ones to start with. A gap analysis allows you to identify gaps between reality and expectations, formulate practical strategies, and track performances.
Whether you are a new business owner or a marketer, this method will be useful. Our team at Business2Community has carefully put together this guide to help you use gap analysis for your company’s advantage. Let’s explore how this analytical tool can influence your next successful business model.
Gap Analysis – Key Takeaways
- A gap analysis aims to identify gaps between your business’ reality and expectations.
- This method can process both qualitative and quantitative data.
- SWOT and a fishbone diagram are excellent gap analysis tools to use together with a gap analysis for the best results.
What Is a Gap Analysis?
A gap analysis is an assessment to evaluate your company’s current performance compared to your expectations. As its name suggests, this analytical method is done to investigate your performance gap and help find effective solutions to address the disparities.
The existence of a gap likely implies an inefficient allocation of resources or a misjudgment of the company’s capabilities. The longer you leave the gaps unattended, the more resources you will waste and the more potential profits you will forgo.
By highlighting the internal and external factors responsible for the gaps, you can better distribute resources and maximize efforts. It is a great tool for assessing the efficiency and effectiveness of your business strategies and operations.
Depending on your needs, a gap analysis can be qualitative or quantitative. Companies widely adopt this technique to measure how far they may deviate from the desired state.
After listing out the possible contributing factors, you can work on improving the outcomes. Using this method can bridge the gap between reality and expectations, allowing you to formulate profitable business plans.
Who Needs to do a Gap Analysis?
Entrepreneurs, marketers, traders, and everyone doing business will find the gap analysis process to be a useful tool. It is a simple method for small businesses to locate feasible strategies without a huge price tag.
Incorporating this method in your strategic planning builds the foundation for more complex analyses and sustainable growth. Whether you’re starting a business or trying to evaluate your company’s current state, the gap analysis can bring invaluable insight into operational efficiency.
How to Perform a Gap Analysis
To perform a gap analysis, you need to understand the elements you’re dealing with and how to fit them in a business context.
Components of a Gap Analysis
The three main components needed to perform a gap analysis are:
- Reality: What are the actual performance statistics of the company right now?
- Expectations: What are the future business goals? How far are you from the future state?
- Solutions: How can you achieve the desired outcomes? What are some actionable plans?
Reality looks into the actual state your company is in. It is based on data points collected and facts observed. There is no assumption involved in recording the state of reality. Reality can be qualitative, such as opinions about your customer service teams, or quantitative such as sales figures.
Expectations touch on your goals for the business. They include your target objectives and the expected period to achieve the results.
Although you should always dream big, a sensible gap analysis doesn’t encourage unrealistic expectations. For example, it is unreasonable for a startup to expect to top Google in sales within a year. Having an impractical goal voids the purpose of this analysis.
The goals you set should be sensible, time-sensitive, and specific. You need to think about the big picture and where your company is to develop suitable blueprints for the future.
Solutions are feasible business strategies used to move your business to its target state. They need to consider your company’s production capacities and capabilities.
Guide to the Gap Analysis Process
First, you need to identify areas to focus on. Let’s say you are on the sales team at a fashion brand and you want to improve the customer satisfaction rate. You can distribute surveys to record responses from clients.
Next, you need to set measurable goals for the future state. Avoid using vague terms like “improve service quality in the future” in a gap analysis model because they do not set standards for your team to follow.
Suitable gap analysis goals look like:
- Reach 95% of customer satisfaction rates within 6 months
- Increase sales by 50% in the next quarter
After comparing the current and desired states, you need to investigate the reasons for the deviation. Perhaps team members are not given enough regular training or consumers find a certain product line inappropriate.
Then, you can brainstorm viable business strategies to close the gap. A proposed solution must be doable and logical. You need to make sure the company has sufficient resources to execute the plan.
A good solution can meet your customer needs and expose weaknesses of the current operations. It helps your teams to learn about the obstacles hindering growth and how to combat them.
Types of Gap Analysis
Gap analyses are widely adopted in the business world. There are various types of this technique concerning different operational aspects. Here are some of the most common types of gap analysis you will encounter.
Performance Gap Analysis
Also known as a strategic gap analysis, a performance gap analysis works on the underdelivering areas in your business.
For example, your furniture workshop production output and sales volume are dropping, compared to your competitors, and you will want to locate the causes for the performance gaps. In your factory, you can measure the current output levels, demand, and competitors’ sales to establish short-term goals to work on.
The identified gap may be due to the lack of available staff and outdated equipment. You can discuss with your human resources teams to attract new talent and carry out a digital transformation to ease the workload of existing staff.
Market Gap Analysis
A market gap analysis, or product gap analysis, aims to align your efforts to customer needs. The process addresses disparities between the budgeted sales and the actual sales by producing practical marketing plans. It reveals the desired features and trending product designs your clients seek.
A successful market gap analysis leads to remarkable growth rates and attracts more returning customers. It can be conducted whenever you are reviewing sales figures.
Profit Gap Analysis
A profit gap analysis is as straightforward as it sounds. It measures the differences between expected profits and actual profits. Individual product profit charts, production levels per factory, and costs per unit are all great tools for assessing how a company performs during a specific period.
Skills Gap Analysis
Hiring managers often have to evaluate workers’ deliverables to see if they are meeting expectations. Conducting a detailed portfolio analysis of each employee and candidate can identify gaps between the expected qualities for these positions and the actual qualities.
Depending on the survey results, the gap analysis report may encourage team leaders to provide adequate training to staff and hire through selected channels to achieve the desired outcome.
Examples of Gap Analysis
Now that we’ve covered the gap analysis process and the various types you can use for specific business goals, it is time to dive into its real-life applications. These gap analysis examples demonstrate how using this technique can refine your company’s strategy for the next season.
Example 1: Use a Strategic Gap Analysis to Identify Competition
Imagine you’re collaborating with your business analysts to understand why your digital services company is not doing well while others are succeeding. By carrying out a strategic gap analysis, you can gain insight into your competitors, including their production methods and features. You can bridge the gap by keeping up with trends or by taking the lead on new trends.
Example 2: Refine the User Experience for Employees and Customers
Assume you run a dance studio and are not happy about the current process as it leads to low morale among users. You want to conduct a gap analysis to find out the culprits. You can distribute surveys to different stakeholders like clients, students, employees, and other users of the facilities to collect data.
If the results reveal that updating your systems or redecorating the performance space are sought-after changes, you can take measures accordingly to deliver a better user experience.
Example 3: Develop Innovative Products With a Product Gap Analysis
A product gap analysis offers insights into trending products and in-demand features. Product designers rely on these figures to innovate and create best-selling products. Your sales team can utilize resources more efficiently for popular profit-generating areas.
Gap Analysis Templates
If you have been asked to do a gap analysis, here are some gap analysis templates to make things easier.
Visual collaboration software firm Creately provided this template for qualitative analysis.
In this template, you can write down your objectives on the left-hand side column and proceed to each step from left to right. Separate each objective and write down the corresponding remedies. It systematically presents your findings for every team member to review.
It also put together another gap analysis template specifically for quantitative work. You can write down the observed scores/costs/quantities in each category and the respective initiatives.
How to Adjust a Gap Analysis
Gap analyses are very time-sensitive. In this evergreen business world, you will likely need gap analysis updates regularly. Fortunately, adjusting this technique is simple, as long as you have access to the relevant data points.
To perform a gap analysis update, you first need to decide whether there is a change in the current state or the future state. If there is a change in the current state, you will have to redo the whole process.
Gather updated information about the current state and see if adjusting future expectations is necessary. Identify contributing reasons for the gaps and brainstorm effective solutions.
You can also adjust the future state without correcting the current state. All you have to do is compare the differences between the two states and create new solutions.
Limitations of Gap Analysis
A gap analysis pushes you to think about solutions to target your business’s challenges and obstacles. While it’s a handy method for meeting business requirements, there are several disadvantages to using this technique.
It Does Not Tell You How to Bridge the Gap Effectively
A gap analysis is based on logical reasoning only, which can lead to judgment mistakes. To successfully map out blueprints for your operations, a SWOT, PESTEL analysis, and the fishbone diagram are common tools to aid the analysis.
A SWOT analysis dissects the internal capabilities and weaknesses of the current state so you can pinpoint useful tactics.
A PESTEL analysis, sometimes reduced to a PEST analysis, reveals external factors that play a role in affecting your company’s performance.
A fishbone diagram further breaks down the correlation between causes and results. The cause-and-effect diagram enhances your gap analysis efforts by presenting the dynamics among factors.
It Does Not Make Predictions
When you’re addressing the future state, working with numerical data like sales projections is helpful. However, a gap analysis doesn’t make predictions, making it difficult to estimate the effectiveness of different strategies. To compensate for this, you can incorporate popular quantitative analytical tools like inferential statistics.
Statistical tools present meaningful numerical data for your management teams and investors. Utilizing these tools together offers a more well-rounded overview of your business.
It Does Not Rank Factors
Although a gap analysis involves locking in potential solutions to refine your business strategies, it doesn’t rank the importance of each factor. Some factors contribute more to the results than others.
A Pareto analysis is another gap analysis tool in understanding the root causes of each occurrence. It allows you to allocate resources more effectively.
The Value of Gap Analysis
A gap analysis is an incredibly handy tool in assessing the effectiveness of your resource allocation. It helps small businesses to identify gaps between reality and expectations, taking necessary measures to enhance performance.
With the detailed guide above, you can utilize this technique in your reporting process easily to maximize your efforts and identify profitable strategies for the future. The results could mean the difference between a thriving business and a struggling one.