What Is a Gap Analysis?
Also known as a needs analysis, a gap analysis examines why you aren’t achieving your business goals. It gives you a bird’s eye view of your business, revealing the gap between your current state and desired outcome and giving you concrete steps to take to close that gap.
It’s easy for executives to get caught up in the day-to-day activities of managing their businesses. A gap analysis gives them a space to pause and look at the bigger picture.
Types of Gap Analyses
There are many types of gap analyses. Each spotlights a particular obstacle hindering your business from reaching its end goal.
Market/Product Gap Analysis
A market gap analysis examines a particular market to assess customers’ unmet needs. By identifying the areas in which your products or services are lacking, you can determine what you need to start offering. You can ask an external consultant to perform this type of analysis for you, especially if they’re an expert in a market that you’re not operating in but want to pursue.
Strategic Gap Analysis
A strategic gap analysis is sometimes called a performance gap analysis. That’s because it looks at how your company is performing against its five- or 10-year plan. Compared to the other types of gap analyses, this one is very high level.
Financial/Profit Gap Analysis
A financial or profit gap analysis compares your company with your competitors, looking strictly at financial data. This data can be anything money-related, such as overhead costs and offering prices. Use this data to answer this simple question: are there areas where other companies are being more financially efficient? Knowing the answer to this question can empower you to make better financial decisions.
Skill Gap Analysis
A skills gap analysis identifies entire teams or individual team members lacking critical knowledge and expertise. This process can unearth certain skills you need in your workforce to achieve your business targets. But, don’t immediately assume you have to hire someone if there’s a skills gap. Sometimes, you can fill holes by training existing employees.
How To Conduct a Gap Analysis
A gap analysis is only successful if you’re honest about your company’s current state. Keep that top of mind as you follow these step-by-step instructions:
1. Identify Your Current State
Set the tone for the rest of the process by starting with where your company is currently. Ask yourself questions, such as:
- Is our company performing at its full potential?
- What internal or external challenges are impeding our progress?
- What are our brand’s biggest strengths?
These questions look at your business as a whole. If you are performing a gap analysis of a specific part of your business, zoom in on it. For example, you might ask specific sales and product questions for a market gap analysis.
2. Identify Your Desired State
The next step is to identify your desired end state. Be specific but realistic.
For example, a specific goal might be: to capture 25% of the market share for nonprofit management software in two years. Maybe you are at 1% now after being in business for one year. In that case, reaching 25% in two years is probably not realistic. You can keep the same template but change the percentage, year or both. Maybe the new goal is: to capture 15% of the market share for nonprofit management software in five years.
3. Define the Gaps
The disparity between your current state and desired state should be apparent after completing the first two steps, but take the time to write it down anyway. Then, look at data to find the root issues that have led to this. Consider:
- Employee feedback
- Customer reviews
- Competitors
4. Create a Plan To Address the Gaps
The final step is to define and implement strategies to solve for the root causes of the gaps. This is also where you set up how you plan to monitor progress. You can turn your goals into data points that you track alongside other metrics.
Free Gap Analysis Template
Although a gap analysis sounds complicated and intimidating, you can simplify it with a template. Here is a template you can customize:
| Focus Area | Current State | Desired State | Gaps | Action Items | Start Date | End Date | Owner |
Here is a brief overview of what to include in each column:
- Focus area: Indicate what your gap analysis is focusing on.
- Current state: Explain the current state of your area of focus, thinking about strengths and weaknesses.
- Desired state: Explain where you want your area of focus to be in the future. Mention goals that are specific and realistic.
- Gaps: Identify the gaps preventing you from reaching your desired state. Briefly explain why those gaps exist.
- Action items: List strategies to fill your gaps and achieve your desired state. This doesn’t have to be an exhaustive list; simply indicate the top steps you need to take.
- Start date: Determine when to start with your action items.
- End date: Choose a deadline for when to be done with your action items to have reached your desired state.
- Owner: Specify the primary person responsible for implementing the action items. If an entire team is involved, list the team leader.
Why Conduct a Gap Analysis
A gap analysis is a powerful tool for business success. If done correctly, it can do the following:
- Identify inefficient areas in your business.
- Provide a foundation for strategic planning and decision-making.
- Increase profitability.
- Make your business more competitive.
- Support employee learning and development.
- Boost recruiting and hiring strategies
- Enhance product development processes.
Even with all of the above benefits, it is important to note that a gap analysis doesn’t work for every business, team or scenario. A couple disadvantages of doing one are the following:
- Requires a big time commitment, which may be more than fast-paced, understaffed teams can handle
- Costs money to hire external consultants to help, which may be out of reach for budget-conscious businesses
When To Conduct a Gap Analysis
You can conduct a gap analysis at any time. However, there are strategic times when it makes the most sense. One good time is during the planning phase of a project. Say your company is launching a new product. Performing a market analysis during the planning phase can tell you what customers in the market want but aren’t getting from other products. That way, you can plan to create a product that meets those needs.
Another common time for a gap analysis is when a project falls short of its goals. Perform a skills gap analysis to shed light on the knowledge, training or expertise your team needs to successfully complete a similar project in the future.
Gap Analysis Frameworks and Tools
Conducting a gap analysis is easier with a tool. The right tool provides guidance on what to investigate, gather and ask during your assessment. Below are some frameworks and models to consider using.
McKinsey 7-S Framework
This framework was developed in the 1970s by McKinsey consultants. It’s based on the premise that seven internal elements dictate a company’s future well-being and success. These elements fall into two categories: hard and soft. Here’s each element and its classification:
Hard elements:
- Structure
- Strategy
- Systems
Soft elements:
- Skills
- Staff
- Shared values
- Style
The goal of this tool is to identify where your business excels and where it needs help to reach maximum efficiency and performance.
Nadler-Tushman Congruence Model
This model empowers you to examine four business components: structure, culture, work and people. The idea is that these aspects must work together for an organization to succeed. Here is an example of how the Nadler-Tushman Congruence model works:
Perhaps you have brilliant people at your company, but the work they’re doing doesn’t align with their strengths. The result is underperforming employees. The Nadler-Tushman Congruence model highlights this people issue during your gap analysis so that you can come up with and implement solutions.
SWOT Analysis
A SWOT analysis is a framework that asks you to assess your company’s strengths, weaknesses, opportunities and threats. This is a popular resource for business planning.
All you have to do is create a four-quadrant grid and designate an element of the SWOT analysis to each quadrant. You start with your strengths and weaknesses, which look inward at your company. The next step is analyzing your threats and opportunities. These elements look at external forces outside of your control, such as the economy, government regulations and competitors.
PEST(EL) Analysis
A PEST(EL) analysis is a tool that assesses and tracks the macro-environmental factors influencing your industry or company. These factors are:
- Political
- Economic
- Social
- Technological
- Environmental
- Legal
This method can help you identify threats and plan accordingly. It is especially beneficial today when disruptive technology, economic uncertainty, geopolitical tensions and climate issues are becoming more prevalent.
Fishbone Diagram
The Fishbone diagram is a visualization tool that spotlights and categorizes potential causes of a problem. It helps you uncover root issues, making it easier to brainstorm a suitable action plan to solve them.
Using this visualization tool starts with drawing a fish-like diagram. Here is a simple one:
Write the problem that you’re studying on the head of the fish. Then, identify the overarching causes of this problem, and place them at the ends of the ribs. The final step is to dive deeper into each overarching cause and write potential reasons for its existence along the rib.
PERT Method
PERT stands for program evaluation review technique. It’s a visual representation of a project’s timeline, including all of the tasks necessary to complete it. The clear project breakdown that the PERT method provides makes it helpful for creating a timeline for the action items in your gap analysis.
Burke-Litwin Change Model
The Burke-Litwin Change model looks at 12 factors that influence organizational change. These factors are:
- Leadership
- Mission and strategy
- External environment
- Structure
- Organizational culture
- Tasks
- Work climate
- Systems
- Management practices
- Performance
- Individual needs and values
- Motivation
Assessing these elements can be helpful for large businesses that are facing major shifts and need to identify gaps hindering success. However, because there are so many factors to examine, this gap analysis tool may be too complex for small changes within small businesses.
The Bottom Line
A gap analysis is a project management tool that compares where your business is now to where you want it to be, providing concrete steps to bridge the gap. To get the most out of a gap analysis, perform them at key moments for your business, including at the beginning and end of projects.
Frequently Asked Questions About Gap Analysis Templates
Some common reasons to conduct a gap analysis include:
- Improving product development
- Increasing profit
- Supporting employee learning and development
There are many types of gap analyses, but the main ones include: market/product gap analysis, strategic gap analysis, financial/profit gap analysis and skills gap analysis.
The end goal of a gap analysis is to identify a path forward to bridge the gap between your current state and your ideal future.
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