Gap Analysis: An Ultimate Guide with Examples
Last updated on January 30th, 2023
In the business world, our prime focus is to generate maximum results using minimal resources. Hence attainment of efficiency is one of the main desires of every business regarding its inputs and outputs. But a question arises here. How many businesses and companies achieve their proposed or desired production or growth targets? How many companies fail to achieve their maximum business potential to reach the zenith of their organizational success?
Sometimes businesses do not meet their desired objectives and goals and there exists a void between their proposed and actual results. This void or gap is a very important factor for businesses to consider because if they ignore it, they will probably fail again due to the same negligence and deficiencies as in the past. Hence to understand and visualize this gap, a process is done which is called gap analysis. This process gives companies and businesses leverage to determine which areas they lag behind and what are the hurdles in their way to become successful in getting their proposed or desired results. To determine how to perform a gap analysis, you need to understand the gap analysis definition in the first place.
What is Gap Analysis?
Gap analysis is actually a process that gives you an opportunity to compare the actual results of any activity or practice with the desired results or outcomes. We can also define gap analysis as a way of measuring your capabilities, technological and operational practices, strengths, weaknesses, drawbacks, hurdles, limitations, structures, and strategies in a bigger picture to analyze the possibility of any mishap happening and how to avoid it.
Why Do Businesses Need Gap Analysis?
What does Gap stand for in business? Do you ever think that why some businesses are always more vibrant and adaptive to the latest updates and novelties while others fail to incorporate the needed changes in their operational and organizational structures? The difference is created through a gap analysis process. The gap analysis definition tells us what we can measure the difference between the desired and actual outcomes of any business process or activity through gap analysis. But is it the only reason why businesses perform gap analysis?
There are many other reasons that urge businesses to give immense significance to the gap analysis. Some of them are given as follows.
Benchmarks are important for businesses
A gap analysis is needed in some businesses when they need to compare their results and data with other competitors in the external market. For example, a clothing business may compare its sales and customer retention statistics with some other seller in the external market to evaluate the performance of your business and eventually set a benchmark for the next targets. Hence by comparing the data of one business with the other, data gap analysis is performed here.
Profits are driving factors
Profits are the main factor for any business as they are one of the main priorities of any company or organization. Every business tries to maximize its profits using minimum resources, time, and capital. If a business has not achieved its desired goals and objectives then what can be the possible reason for this unfortunate happening? Gap analysis allows the businesses here to perform specific measures and conduct research to find out the possible reasons for not achieving the desired business profit targets. Maybe the business was purchasing costly raw materials or was selling the products at lower prices than the market that had a harmful impact on the overall business revenue. These types of parameters are detected and defined by performing a suitable gap analysis.
Key Performance Indicators
Key performance indicators are also very important elements in business activities. Main KPIs can be ROI or Return-on-investment, customer retention rate, and average sales or order ratio. Gap analysis provides you useful insight into these parameters too. Companies in the services sector can determine why the customers shifted from their brand to the competitor’s business. Businesses like fishing industries can determine why there was not much fish yield as compared to the last month?
A curiosity arises here about how to perform a gap analysis here?
How To Do A Gap Analysis?
Gap analysis is a process that offers you useful techniques and recommendations to minimize the process gap among the business activities. This gap can be any stage from operations to marketing, from sales to research and development. Any stage can b victim to this undesirable aspect and hence you need to take effective steps to minimize the chances of any gap or barrier among the business practices. Your business practices must be synchronized with each other creating a harmonious structure.
The gap analysis process starts with a strategic planning process. At this stage, as the business is defining its future goals and realistic objectives, a gap analysis will further strengthen the planning process by giving a practical and customized approach related to your business situation in order to help you avoid any hurdles in the execution stage of various business activities.
You can align the goals and strategies of the industry with the actual processes and try to minimize the occurrence of any unexpected misfortunes. The process is given as follows.
Step 1. Identification of the area that needs to be analyzed
If you run an operational business and produce some products, you may want to know why your business is not producing enough products. Identifying the main reasons for the slow production can be the areas that need to be analyzed.
Step 2. Imagine the ideal stage of accomplishment
Imagine what will be the results of your process? What will be the most ideal outcome that you want to achieve?
Step 3. Analyze the current mechanism
Here you try to find out the current scenario of your business and figure out what are the main characteristics of the present situation. You can determine the skill level of the employees here. You can analyze the need for various technological equipment and necessary training for the staff. Did the production flow cause the slowing down of the production process? You can answer these types of questions too.
Step 4. Compare the current and ideal states
Here you compare the actual targets with the ideal targets. You determine the parameters that are necessary to accomplish the goals of desired outcomes. You compare the possibilities of matching the specific requirements of the ideal state so that you will be able to reach the possible ideal structure in the desired timeline using efficient, and basic gap analysis.
Step 5. Evaluate and implement
The final stage is the valuation stage where you finally accumulate all the results and conduct a final assessment. You can summarize the whole process into a gap analysis diagram or gap analysis chart. This activity will allow you to identify the areas that need the desired work and locate the loopholes. Different departments can collaborate here to conduct joint ventures in order to implement the desired changes derived from gap analysis. Hence gap assessment allows you to measure the target locations that are vulnerable and need specific attention to streamline the business activities.
Examples of Gap Analysis
There can be various industry examples through which you can understand the idea of performing the gap analysis and how it plays a vital part in a business’s success.
New launches of the products
A new product launch by a business, for example, may need to identify why there are not expected sales coming in? What is the possible reason for low customer engagement?
For increasing productivity
A factory may need to identify the reasons for not enough production during the last month. It may also need to incorporate certain measures to enhance its productivity using the existing facilities. That’s why gap analysis may come in handy here to help out businesses to reach their desired production goals.
Supply Chain Management
The gap analysis may prove to be fruitful in situations where a constant supply of raw materials, products, and service is necessary. Hospitals, for example, need a constant supply of medical equipment, commodities, and medicines. If any hospital is finding issues in its supply chain. It can conduct a gap analysis to find out the possible reasons to eradicate the barriers in supply chain management. Hence the usage of specific gap detection and eradication techniques in hospitals and medical centers is a prominent example of gap analysis in the healthcare business.
Individual Assessment Process
The individuals can also perform a gap analysis on themselves to measure their shortcomings and deficiencies. For example, the CEO of a sales firm can conduct a specific gap analysis on each and every salesperson in the firm to find out the strengths and weaknesses of each individual. In his way, he will be able to locate possible reasons for failure in achieving the targets of the business by locating the potential problems in the personal traits of the individuals. These individuals can be trained further or provided with enough guidance to streamline their work activities, solve their problems, and ultimately contribute positively to the business sales and revenue generation process.
Gap Analysis is the process of finding possible loopholes and deficiencies in the business to evaluate the actual results of the business activities with respect to the targeted or desired results. By locating certain barriers and hurdles in the organizational process, businesses can improve their production, customer retention and engagement rate, and overall growth rate. Profits are boosted and key performance indicators are achieved through proper implementation of the results of an effective gap analysis. Businesses can leverage this process in increasing their productivity, improving supply management, be more efficient on project management, assessing individual professionals, and making successful new product launches.