Gap analysis is a business tool and assessment method that companies use to evaluate the gap between current, actual performance and future, desired performance. Successful gap analysis should not only highlight the differences in performance but should also give insight into how to make improvements so the company can move from the present state and arrive at the desired state. Gap analysis basically asks two important questions: how are we currently operating and how do we want to be operating in the future?
The most basic and fundamental requirement of gap analysis is constant, effective and proactive management. The effective management is required throughout the planning stage, implementation stage, and the transformation stage from present state to desired state. Without this, gap analysis has no chance of delivering the benefits desired by the company. The next most important requirement of gap analysis is the extensive research a company must undergo about both internal operations and the external business environment. This research provides the necessary information to better understand the present state as well as the knowledge needed to properly plan for the amount of time, money and resources needed to accomplish certain business goals and objectives that lead the company towards the desired state. Another requirement for successful business gap analysis is developing and implementing quantifiable success factors that can frequently measure progress towards the desired state. Critical success factors must be measurable and represent the difference between success and failure of the business.
The organization must have a complete understanding of the current position of the business. They must know why they are in the current position, how they got into that position, how to improve or get out of that position, as well as specific critical success factors that the company is concerned with. These critical success factors usually reflect aspects of business such as:
- customer service
- market share
- and/or growth
Common critical success factors differ between certain industries and business processes: manufacturing companies focus on aspects such as cycle time and number of defects while service industries focus on factors like customer satisfaction and number of repeat customers.
The desired state of the company is where the company wants to be in the future. There can be both short-term and long-term goals: reduce production costs by 15 percent next year, increase process outputs by 10 percent in the next five years, or increase sales by 5 percent each year. The desired state of a company also refers to the size of the company, such as number of stores, employees, or expected growth, additional product lines, new proprietary technology, and desired market share.
Although the concept of gap analysis can be used with almost any business perspective, the most common and popular types of gap analysis are concerned with market usage gap and product gap. Market usage gap focuses on the external business environment and the difference between the current market and the future, potential market, highlighting the possibilities of growth. Product gap looks for improvements internally, concentrating on how to improve efficiency, quality, innovation and cycle times.
Gap analysis can hinder a company’s performance if the following requirements aren’t met: conducting extensive, correct, and helpful research, the dedication of plentiful resources and time and constant proactive management.