As an industrial engineer who became a lean management consultant, I’ve worked with many businesses that just aren’t operating as efficiently as they could be. Gap analysis is one of the most impactful resources you can use to improve your operations. It’s not only to find issues – it’s to find opportunities. Discover how this basic, yet powerful tool can change your business and help you achieve results.
Assessing Business Performance Disparities
It is a strategic exercise businesses use to evaluate the gap between where they’re currently at and where they want to be. Essentially, it helps them identify what they’re not doing well and determine how they can improve. I’ve leveraged gap analyses throughout my career to help businesses of all sizes maximize their performance.
Gap analyses became popular in the 1980s. Here’s why they became a staple:
- Increased global competition required companies to become more efficient.
- Quality management movements, such as Total Quality Management (TQM), stressed the importance of continual improvement.
- The technological revolution in the 1980s created new ways to optimize processes.
- Economic pressures in the 1980s forced businesses to minimize costs.
At its core, a gap analysis involves defining the current state, evaluating the future state, and measuring the gap between the two. This process can reveal many types of gaps, like a performance gap, a market gap, or a skills gap.
There are several benefits to conducting a analysis. First, it provides a crystal-clear snapshot of how your business is performing relative to where you want it to be. With this information, you can make tactical improvements, allocate resources more efficiently, and set a smarter strategy. I’ve even seen businesses use it to optimize their operations, reduce costs, and stay ahead of the competition.
Evaluating Business Discrepancies
Here is a step-by-step process for performing a gap analysis:
- Identify the current state.
- Define the desired future state.
- Measure the gap from the current to the future state.
- Analyze the root cause of the gaps.
- Prioritize the gaps.
To identify the current state, collect data on the performance metrics, processes, and resources in your business. Be as comprehensive and unbiased as possible in your assessment.
Defining the desired future state requires setting specific, measurable goals. These goals should be aligned with your broader strategy and industry best practices.
Measuring the gap is simply comparing where you are today to where you want to be. This might be quantitative data (e.g., sales numbers) or qualitative data (e.g., customer satisfaction).
Analyzing the root cause is key here. Try to look beyond the initial symptoms to diagnose what’s really causing the problem.
Prioritize the gaps based on the business impact and the feasibility. In other words, where can you make the biggest improvements with the resources you have?
Tools and Techniques for Gap Analysis
SWOT analysis:
SWOT analysis is a general gap analysis tool that can identify internal strengths and weaknesses and external opportunities and threats.
Fishbone diagrams (Ishikawa diagrams):
Fishbone diagrams are excellent for identifying root causes. They allow you to map out all potential causes of an issue, helping you determine what’s most important.
Benchmarking:
Benchmarking is another excellent technique. You can compare your company with industry leaders or best practices to find areas where you fall short.
Key Performance Indicators (KPIs):
KPIs are also central to performing a good analysis. KPIs provide quantifiable benchmarks to analyze where you are today and how far you’re progressing to where you want to be.
There are many software and templates dedicated to gap analysis. Using these tools can make the process more efficient, and they provide visual displays of your gaps.
Applying in Different Business Areas
Gap analysis is a versatile tool that can be used in various business functions. Within strategic planning, It ensures your current capabilities are in line with your future goals.
In marketing, gap analysis highlights the gap between your marketing efforts and what the customer needs from you. Then, you can improve your marketing strategy to better fulfill the customer needs.
In finance, it reveals the disparity between your financial performance today and where you want to be. Then, you can identify areas of overspending and cut them out.
In operations, it helps you improve efficiency and productivity. For example, I used gap analysis in a manufacturing plant to reduce waste and increase output.
In HR and skills planning, it shows the gap between the skills of your workforce today and what they need to do in the future. Then, you can make better decisions about training and hiring.
In product development, gap analysis ensures your product is what the market needs and is superior to the competition.
- Gap analysis can be applied across various business functions.
- In strategic planning it helps align your current capabilities with long-term goals.
- Marketing gap analysis identifies discrepancies between your marketing efforts and customer expectations.
- It can reveal opportunities to improve your marketing strategy and better meet customer needs.
- Financial gap analysis examines the difference between your current financial performance and your financial goals.
- This can uncover areas where you’re overspending or underperforming.
- Operational gap analysis focuses on improving efficiency and productivity in your day-to-day operations.
- I’ve used this to help manufacturing plants reduce waste and increase output.
- Human resources and skills gap analysis identifies mismatches between your current workforce capabilities and the skills needed for future success.
- This can guide training and hiring decisions.
- In product development it helps ensure your products meet market demands and stay ahead of competitors.
Interpreting Gap Analysis Results
When analyzing your gap analysis results, you need to examine both quantitative and qualitative data. While the numbers don’t lie, qualitative data can help you understand why you aren’t hitting the mark.
Look for commonalities in the results. If you see the same theme repeated over and over again, this likely indicates a systematic issue.
Rank the gaps by impact and ease of implementation. Some might be more important, but if the cost or scale required to implement a solution isn’t feasible, it might not be the right choice.
If you have several gaps, you need to think strategically about which to tackle first. Consider:
- How the gaps interrelate.
- Resource limitations.
- What you could solve today to make progress vs. what’s a longer-term project.
- What will help you achieve your overall business objective.
For example, here’s a recent consulting example: A tax firm was taking 55 minutes on average to file a return, while the industry standard was 35 minutes. This was a 20-minute gap in efficiency per return. We analyzed their processes and made targeted adjustments to reduce this time to 40 minutes. The result was a more efficient operation and happier clients.
Developing Action Plans
Once you’ve identified your gaps and ranked them in order of priority, it’s time to create action plans. Establish SMART (Specific Measurable Achievable Relevant Time-bound) goals to address each gap.
- Assign clear action items to specific individuals with deadlines to hold each person accountable and ensure the gap is actually closed.
- Consider the necessary resources, both human and financial, to execute your action plans.
- Check in regularly to monitor progress and be willing to change course if necessary. Gap analysis is not a one-time activity, but rather an ongoing commitment to continuous improvement.
- Integrate it into your normal business cadence to keep everyone focused on improvement and ensure you’re always making progress toward your goals.
Typical Obstacles in Identifying Operational Disparities
Data collection and accuracy
- Data collection and accuracy are common challenges with gap analysis. Make sure you’re using reliable data sources and have a strong data collection method.
Resistance to change
- If a analysis reveals major changes to the business, you’ll likely encounter resistance to change. Clear communication and stakeholder buy-in can help alleviate this challenge.
Unrealistic expectations
- If the team sets unrealistic goals based on the analysis, you won’t make meaningful progress. Set aggressive goals, but ensure they’re realistic based on the data from the gap analysis.
Lack of stakeholder buy-in
- If your team doesn’t buy into the changes from the analysis, you won’t be able to implement the action steps to improve the business. Involve other stakeholders in the so they know what to expect at the end.
Analysis paralysis
- Analysis paralysis is a risk with gap analysis. I recommend focusing on imperfect action rather than perfect analysis.
Balancing quick wins with long-term strategic plans
- Quick wins are a great way to motivate the team, but don’t lose sight of the big picture.
Final Takeaways
Gap analysis is an excellent tool for continuous improvement. From its origin in the 1980s to its various modern applications in different business functions, it has stood the test of time. Just remember that the main objective isn’t only to identify gaps, but also to do something about them.
Whether you’re simplifying the process to file taxes or addressing more complex strategic challenges, it offers a systematic way to make progress in your business. If you stay dedicated to the process, you will make progress.
