Business Gap Analysis
Where are we now? Vs Where we want to be?
DEFINITION
Gap Analysis is the comparison of actual performance with potential or desired performance; That is the ‘current state’ and the ‘future state’.
- Wikipedia
· Gap Analysis is the process of comparing two states & determine the difference or gap that exists between them
· Once the gap is understood, the steps required to bridge the gap can be determined
Core of the Concept-just two simple questions:
Where are we? & Where do we want to be?
Where can it be applied?
· Gap analysis can be used to compare the two different states in any field - not only in business – public institutions, community, class rooms and even personal finance.
· Gap analysis is the quantitative and qualitative comparison of a company or individual’s current performance (i.e., present state) with potential performance (i.e., future or target state).
· Broad concept, in a sense it’s applicable to any aspect of business where performance improvement is desired.
· Effort — what MacArthur Genius Grant winner Angela Duckworth famously dubbed “grit” — is essential to success. However, what unlocks potential is not so much brute force, but a wide-eyed recognition of (1) where we are and (2) a vision for where we want to be.
Gap analysis can be used in many areas where a change is needed, such as:
· sales
· financial performance
· human resource management
· productivity
· quality assurance
· cost control
· employee satisfaction
· energy conservation
· market competitiveness
· management skills
The list is endless….
Example – Quality Level
• The product quality gap could be measured by the difference between the quality level of products expected by customers and the actual delivered quality level. That is the difference between customer expectation and actual customer experience in the delivery of a product/service.
The analysis as a tool narrows the difference between perceptions and reality, thus enabling enhancement of customer satisfaction
Analysis of the Gap
The basic idea on the business gaps can be analyzed by asking some specific questions, such as:
· What exactly is the gap?
· What are the consequences of the gap?
· What is the timing? Who is responsible?
· What are the options?
· What are the costs?
Once all possible reasons for a gap are known, studied, and the root cause recognized, then suitable actions can be identified to – remove, fill or mitigate the gap
Key Components of Gap Analysis
· As said earlier, Gap Analysis compares the gap between an organization’s actual performance against its potential performance.
· So, you typically list out the organization’s current state, its desired state, and a comprehensive plan to fill out the gap between these two states.
· Gap analysis is more organic and flexible than most other tools. It can be done by using simple excel worksheets or flowcharts.
· You have much more freedom & flexibility in choosing what to focus on.
· At the same time, every gap analysis template must have a few essential components.
Decide the area/business unit you’re going to do the Gap Analysis on? That is, finalize the challenge you want to tackle:
So, start your gap analysis template with a column labelled ‘Objectives’.
Sample Areas:
· Revenue/Profitability
· Market Share
· Product Functionality/Features
· Cost Control
· Employee Performance
· Identify your ‘Current State’. That is defining where you are right now and it has to be based on metrics or attributes.
· So, actual analysis starts with introspection, that defines your current state.
· List out all the attributes you want to improve. Your focus can be as wide (ex: the whole business) or narrow (ex: HR policies) based on the objective mentioned in Step I.
· It can be quantitative (‘currently get 50 orders per day’), qualitative (‘lack of employee morale in workplace’) or both.
· The key thing is to be specific, measurable and factual with an emphasis on identifying weaknesses.
· Identify where you’d like to be over a specific time frame. The ‘future state’ represents the ideal condition you’d want your organization to be in.
· This state can be highly specific (ex: ‘increase order count to 100 per day’) or generic (‘enhance employee morale’).
· Your gap analysis template should record all the idealized attributes as they correspond to the current state.
· Sometimes, you may not even have a clear conception of an idealized future state and might be conducting a gap analysis as an exercise towards self-improvement. In this case, you can record ‘N/A’ under the future state column.
Identify & describe the gap between ‘where you are’ and ‘where you want to be’, based on Step III.
1. Gap Identification: Next column in the template should record whether a gap exists or not. A simple ‘Yes’ or ‘No’ will suffix.
2. Gap Description: The gap description should record all the elements that make up the gap between the current and future state.
Thus, this where you identify and describe the gap before finding ways for remedy
Step I
Step I
Step IV
Points to be noted:
•
The gap description should be consistent with the current
and future state.
•
It can be either quantitative (50 orders/day is difference
between current and ideal state) or qualitative (employee
morale is below average)
•
This should only serve as a description, not as a remedy
Step V
Determining how the Gap should be filled. This is the final & vital step in the entire process and this is where the real challenge is.
· Factors Responsible for Gap: First you should identify the factors responsible for the difference between your current & future performance.
•All the factors responsible for the gap should be listed in this column of the template
•The list should be specific, objective, relevant & exhaustive (like ‘flawed order processing’ or ‘outdated employee manual’).
•This data will help come up with remedies and action plans required to tackle the gap.
Based on the factors mentioned above, the remedies are to be proposed.
· Remedial Actions & Proposals: The final & vital step in the gap analysis is listing out all the possible remedies for bridging the gap between the current and ideal state.
•The remedies and proposals should directly address the factors mentioned in the previous column.
•The same should be specific, action oriented & time bound (‘training of relevant staff or update the technology’ not just ‘effective measures to improve order processing’).
Suggested Techniques & Methods:
Effective usage of the resources
-
“
6
M
’
s
” :
•
Manpower
-
human resources you need
•
Methods
-
processes you need
•
Metrics
-
measurements you need
•
Machines
-
automation or technology you need
•
Materials
-
material resources you need
•
Minutes
-
time you need
SWOT
Analysis
template and simply list out your:
•
S
trengths,
W
eakness,
O
pportunities and
T
hreats related to filling the gap
Develop an action oriented
Business Plan
with relevance to the above gap
Here’s a simple Gap Analysis Chart:
Objective
Current
State
Future State
Gap
Identificat
ion
Gap
Description
Factors
Remedial Action
To increase
annual
revenue
10
million/annum
25
million/annum
by next three
years
Yes
15
million/annu
m is the
difference
Sales personnel are
not proficient with
latest tools
Flawed processing
of orders at Sales
Office
Review &
Training based
on the same
Update the
order
processing
software
Profitability
to be @ 8%
on sales
Average 8%
on sales
Average 8%
on sales
No
N/A
N/A
N/A
Employee
morale
Lack of
employee
morale at
workplace
Employee
morale to be
enhanced
Yes
Lack of clarity
in HR policy
Outdated HR Manual
Update the HR
Manual in sync with
current environs
Product
feature
&functionali
ties
Limited
features &
functionalities
To improve
the same by
next year
Yes
Does not
have
uniqueness
Product just launched so
it has limited features &
functionalities
Conduct review
among existing
customers & improve
the product based
on the same
Top Management & Gap Analysis
· As with any strategic initiative, gap analysis can only be fully effective if top management exhibits total commitment to the effort towards a change.
· Top management will be solely responsible for initiating a gap analysis planning process, for example; bringing all relevant employees on board, overseeing the process, and making final decisions about the analysis’ outcomes and implications.
· Management must make the gap analysis a prime issue, and must encourage employees, at all levels of the organization, to achieve excellence.
· Employees often emulate the behavior of top management. If the leadership shows no real interest in the gap analysis and its implications, managers and employees throughout the company are likely to feel the same way.
Benefits of Gap Analysis
· Gap analysis looks to improve inefficient business processes by optimizing allocation of all resources and inputs. Many companies are performing below their potential because they either misuse resources or lack the correct investment in technology or capital. Gap analysis highlights these inefficiencies and offers options for improvement.
· Effective gap analysis should increase an organization’s production and performance, resulting in higher-quality products /services at a lower cost.
· Gap analysis also measures the amount of time, money and resources needed to fulfil an organization’s potential and reach the desired state and helps in cost reduction.
· If successfully accomplished, you can establish a competitive advantage over your competition in the marketplace.
Conclusion
· Ultimately, the analysis will outline a company’s ‘current position’, the ‘desired future position’, and the gap in between.
· The performance of the target area should be closely monitored - looking for ‘change in performance level’, which should shed light on the effectiveness of the program.
· Gap analysis can be used in time of crisis to find solutions for obvious problems; however, the tool has more potential than just being a damage-control technique.
· Using gap analysis on various departments and business units on regular basis can help organizations continually improve the efficiency of their operations while cutting costs and delivering a consistently higher quality product or service…