Definition: Gap analysis is a means of attaining the aspired goals by figuring out the changes required to meet the difference between the present and future state of an organization, process or operations. In other words, it simply states the course of action required for meeting the desired standards or benchmark.
A gap in general terms seen as a space between two elements; in business, these elements are the current state and the desired future state.
Content: Gap Analysis
- Types of Gaps
- Process
- Tools
- Benefits
- Limitations
- Example
Types of Gaps
Many a time the organization fails to even reach nearby to the benchmarks it has set, creating a difference between expected and actual results. This gap can be of four different types:
Performance Gap: The performance gap emphasizes the extent to which an organizational goal is attained. Moreover, it provides the reasons behind these objectives not being accomplished in the desired manner.
Manpower Gap: This gap is usually seen as a disbalance in the human resource component of any organization. It focuses on the staffing requirements, hiring, outsourcing, promotion, training, onboarding and offboarding of employees.
Profit Gap: Sometimes, the company is unable to reach the expected profit levels either due to inappropriate planning or its poor execution. Some unforeseen events may also result in a profit gap such as political influence, change in market trends, economic downturn, new entrants, etc.
Product/Market Gap: As we go through the product performance in the market, research and analysis become a crucial process. Thus, any shortcomings while product launch or performance in the relevant market are determined under this form of the gap.
Gap Analysis Process
To begin with gap analysis, an organization should consider the following elementary steps in the process:
- The foremost thing is to know the problem area restricting the organization to reach its esteemed goal.
- Next is to decide your intention or future position that you aspire when things fall in place.
- At this stage, you need to find out your present situation by inspecting the performance and process thoroughly.
- Now, you need to match the current situation with the future position to discover the difference between the two.
- The difference found in the above step is considered a gap. Here you need to analyze the density of these gaps and their causes.
- Then comes the corrective part, where you have to decide the measures for improvement and gap filling.
- Chalk out a robust set of actions which can be applied to shorten the gap between the desired and the actual performance.
- The recommendations and the possible results or outcomes of the gap analysis should be compiled in a report for authorization of the management.
Gap Analysis Tools
There are distinct analytical tools for identifying the cause of any problem at different stages of an organization. Some of the commonly chosen methods are:
Ishikawa/Fishbone Diagram: The most renowned fishbone analysis studies the various factors behind any organizational issue i.e., machines, manpower, material, methods, measurement and mother nature.
Burke-Litwin Causal Model: While implementing a change in the organization, it becomes essential to understand the impact of such a modulation over different elements of the organization. This is what the Burke-Litwin casual model does.
SWOT Analysis: The SWOT (Strengths, Weaknesses, Opportunities and Threats) tool emphasizes on utilizing the competencies and overcomings the loopholes, to endeavour the chances of growth and manage the risk involved in business operations.
PEST Analysis: To control the impact of various external factors (i.e., Political, Economic, Social and Technological) over the organization’s performance and health, PEST analysis is taken into consideration.
McKinsey 7S Framework: When PEST analysis focuses on external factors, while McKinsey 7S framework takes account of internal elements responsible for business performance and effectiveness. These are system, structure, strategy, shared values, staff, style and skills.
Nadler-Tushman Congruence Model: Here, all the business processes are studied to figure out the operational efficiency of any organization in terms of structure, people, work and culture. It analyzes the input i.e., resources and workplace environment; transformation i.e., steps required for conversion of these inputs into desired results or output.
Benefits of Gap Analysis
Gap analysis can save organizations from the downfall or even business shutdown. To understand its importance, read below:
- Streamline Business Process: Gap analysis aids the company in fixing the business process and performance loopholes in the way of goal attainment.
- Identify Market Gap: It even figures out the customer’s preference, product’s market performance, need for process improvement and competitor’s strategy.
- External Benchmarking: When the organization deems to meet the standards set by other companies in terms of products, quality or process, gap analysis can do wonders.
- Determine KPIs: The organizational teams can review their mistakes or failures in goal accomplishment, by measuring their performance throughout.
- Skill Development: Since, gap analysis aims at an overall improvement of the product, process or performance, it ensures rigorous learning and growth of the employees.
- Profit Percentage Analysis: When the desired profit levels are not met, gap analysis work out the reasons behind such underperformance of an organization.
Limitations of Gap Analysis
Gap analysis may not be a fruitful strategy for all kind of organizations. It is prone to various shortcomings as discussed below:
- Impact of Government: Certain rules and laws formulated by the government prevent the organization from filling the gaps identified during the process.
- Impractical At Times: The steps suggested under gap analysis may lack practical implication due to limited information and a wider scope of the investigation.
- Cost and Time Consuming: Since in many cases the organization requires to hire expensive experts for the gap analysis, it becomes a costly and time-consuming affair.
- Seasonal Changes: Some factors related to business cycles or seasons hindering the business activities are beyond the control of any organization. Therefore, such gaps are difficult to fill.
- May Demotivate Employees: When the employees are pinpointed for being responsible for creating a performance gap, they get disappointed and discouraged.
- Urge for Technology: There may arise a need for technological innovation to fulfil certain gaps beyond the control of a particular organization.
- Competitor’s Strategy: The competitor’s moves cannot be determined under gap analysis, leading to incomplete research, since a company’s market performance is highly influenced by that of its competitors’.
- Raise Job Insecurity: While the external aid is considered to proceed with gap analysis, existing employees fear the loss of a job.
Example
A textile company found that its production efficiency is quite low when compared to that of its competitors. The management performed a gap analysis to discover the cause of this problem.
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Given below is the findings of gap analysis:
It was seen that since the company has not yet adopted the new technology for production, it is facing issues of low productivity, high cost of production and excessive wastage.
It finally decided to adopt advanced technology and replacing its labour with machinery. The management applied the Burke-Litwin casual model to determine the feasibility of implementing such a change.