Gap Analysis: The 4 Steps of How To Conduct One (With Examples)

gap analysis in business

It is the desire of every organisation to make the best use of its financial, technological, and human resources. Hence, they employ a gap analysis to know where they are falling short and how to solve the problem identified.

A gap analysis is a technique an organisation uses to analyse its current condition and compare it to its intended state by evaluating time, money, labor, and other resources. Therefore, it helps businesses assess where they are now and where they want to be in the future. Afterwards, they implement the steps to take them there.

Furthermore, “a needs analysis gap” is another name for gap analysis. The identified gap reflects the current condition of the organization and where it wants to be.

Key Takeaways

  • A gap analysis is a method used by businesses to solve the dilemma of where they are now and where they want to be. It is the process of determining the disparity between existing performance and expected performance in a company.
  • A gap analysis, also known as a needs analysis, is critical for any type of organizational performance. Organisations use it to reevaluate their objectives and determine whether they are on track to meet their goals.

How to Perform a Gap Analysis

Larger companies hire experts such as project managers, business analysts, and process improvement teams to assist them with gap analysis projects. But it can also be done by individuals or small businesses who cannot afford to hire experts by employing the use of well-designed templates.

The following are steps that are involved in performing a gap analysis.

1. Analyze the Current State.

Indeed, knowing where you are is essential before you can move forward. Hence, you must determine the existing state of affairs.

You can achieve this by compiling reports from the different departments, interviewing key sources, and brainstorming with the management team. This will allow you to gather as much data as possible in order to better analyse your present performance.

2. Determine The Future Goal

The future goal is also known as the “desired state.” At this stage, you ask questions about where the organization would like to be and what it can do to get there. Afterwards, you can now move to the next stage, which is identifying the gaps that exist between your current state and the desired state.

3. Identify Where Gap Exists

At this stage, you figure out where the gap analysis should be done and what you hope to accomplish with it.

For example, if the production unit isn’t keeping up with client needs, you may want to boost its efficiency. In that instance, the gap analysis will try to figure out why production targets were missed.

4. Determine Steps To Be Taken To Close The Gaps.

After identifying the gap, it’s now time to determine what changes will be needed to close it.

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Examples of Gap Analysis 

In its simplest form, gap analysis seeks to identify gaps that exist in a business by studying its present state in comparison to where the organization should be. And identifying the gaps and implementing solutions that close them. Therefore, it helps the organization reach the desired state.

Example 1: Angela and her Non-profit Organisation 

Angela(not real name)  was currently assigned to lead a non-profit organisation with a small staff. She has been facing a lot of challenges getting the team to work together. Now, she is confused about how to move forward in her role and meeting her deliverables. Additionally, Angela is thinking about organising training for the staff but the organisation’s resources are limited. 

So, she asks in a closed community about performing a gap analysis to help her team and organisation move forward. 

Identify the present situation 

  • Staff members are not cooperative with her style of leadership.
  • They are unwilling to work together.
  • Organisation’s resources are limited

Likewise, determine the desired goals

  • A motivated workforce.
  • Improved team spirit.
  • Improved public speaking and leadership abilities.

Furthermore, draw up activities that will close the gap

  • Angela will attend paid leadership workshops or training if she can afford them. Or research free resources that will help her be more effective at managing team members who are more challenging to her leadership style.
  • Angela will work on improving her listening skills to better support team conversations by talking openly about what works and what could be improved.
  • After gaining the requisite skills, she will be better positioned to carry out training for team members because organisation’s resources are limited. The training would be focused on helping her team become better team players and improving their commitment to work.

Example 2: The Bakery

Micheal is in his early thirties and owns a bakery. He observed just right after the first lockdown that his competitor has more customers placing orders. And he wants his business to enjoy an increase in customer patronage like his competitor’s. Afterwards, he takes the steps to perform a gap analysis to understand why he is not having more patronage.

Specifically, he took a realistic view of his business and analyzed data generated from his competitor’s activities. As a result, he was able to identify the things that he needed to do to elevate the sales level in his own bakery. 

Current State: Low level of sales

Desired State: Gain more customer patronage

Gaps:

  • Makes only two types of bread
  • Does not have a strong social media presence which his competitor has and is leveraging to drive more sales.

The decision to close identified gaps:

  • Expand product offerings to include gluten-free and multigrain bread.
  • Offer more breakfast options.
  • Increase point of sales: in-store, online, pick-up and home delivery.
  • Start online advertising and hire a social media marketing expert.
  • Offer discounts to customers who will place orders online.

Four Types of Gap Analysis

Strategic Gap Analysis

This is also known as a performance gap analysis. The purpose of this type of gap analysis is to ascertain the reason for specific performance goals that were not achieved.

Market or product  analysis

This type of analysis is concerned with evaluating the organization’s position in the marketplace. In other words, it seeks to identify the gap between actual and budgeted sales.

Manpower Analysis

This analysis seeks to identify the organization’s manpower shortages. Hence, it is used to analyze the discrepancy between the actual number of personnel on the ground and what is required to effectively and efficiently carry out organizational activities.

Profit Analysis

This is done to find the variance between actual profit and forecasted profit.

Some Tools For Performing Gap Analysis

SWOT Analysis

swot analysis a form of gap analysis

 

SWOT is an acronym for “strengths, weaknesses, opportunities, and threats.” This technique helps you to identify the internal and external threats confronting your organization and areas where you have a competitive advantage in the market. This analysis can be performed both quantitatively and qualitatively.

Fishbone diagram

Gap Analysis

It is also known as Ishkawa or cause-effect-diagram. The fishbone diagram is a cause-and-effect diagram used to figure out what causes flaws, issues, or failures in a process. The diagram is useful for analysing the current state.

The main categories of the diagram are measurements, materials, man machines, methods and environment.

Any of the categories can be used to analyse the root cause of any gap that has been identified.

PEST analysis

PEST analysis is similar to SWOT analysis. But it is entirely focused on the external environment. It helps you identify the threats and opportunities that exist in them. Because of the extent to which external factors impact their profitability, larger organizations benefit more from using the PEST analysis.

To conclude, a gap analysis can assist you in identifying where gaps exist in your firm. Additionally, it can help you increase business operations efficiency and, thus, profitability. Once you’ve completed it, you’ll be able to focus resources and attention on the areas where you’ve uncovered gaps in order to improve them.

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