The Complete Guide to Gap Analysis

Smartsheet Contributor Joe Weller

October 17, 2018 (updated October 8, 2021)

A gap analysis is a tool that can help businesses identify where they aren’t living up to their potential, and then use that information to plan ways for improvement. Learn how gap analyses work, find examples, and follow our step-by-step guide to perform one for your company.

What Can a Gap Analysis Do for You?

A gap analysis measures actual against expected results to identify suboptimal or missing strategies, processes, technologies, or skills. Use the results of a gap analysis to recommend actions that your company should take to meet its goals.

By comparing the current state with the target state, companies, business units, or teams can determine what they need to work on to make their performance or results better and get on the right path quicker. Companies can also use the gap analysis process to elevate individual or team performance, and look at attributes such as task competency, performance level, and productivity. Other names for the process include need-gap analysis, needs analysis, and needs assessment.

As opposed to a risk assessment, which tend to be forward-looking, a gap analysis examines the current state. ANSI (American National Standards Institute), ASIS (American Society for Industrial Security), and RIMS (Risk and Insurance Management Society) standards say that risk assessment includes the identification, analysis, and evaluation of uncertainties to objectives and outcomes of an organization.

You can also look at a gap analysis as a means of comparing performance to potential. In other words, how far did a person, group, or product fall from their capacity? Did the resources fall short of the needs?

Gap analysis is a process that, when applied to other business processes, becomes a reporting process used for improvement. When applied to manufacturing or production, a gap analysis can help balance the allotment and integration of resources from their current allocation level closer to an optimal level. Those resources can be time, money, material or human resources.

Concrete vs. Conceptual

You can perform a concrete gap analysis thats looks at the real world, or a conceptual one that examines hypothetical scenarios. While you can use the same template in both exercises, when performing a conceptual gap analysis, you’ll need to make assumptions about which parameters to use. Conversely, use real facts and data for a concrete analysis.

Strategic vs. Operational

A gap analysis can be strategic and focus on the overall organization and the planning and execution at that level, or it can be operational and focus on the day-to-day work of a team or department. Since both methods are based on real-world situations, there’s no need to make assumptions.

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Gap Analysis Examples

Many business departments use the gap analysis process, including accounting, sales, customer service, and human resources. Below you’ll find a few specific examples of scenarios in which a company can use a gap analysis:

  • New Product Launch: After a company launches a new product, they might do a gap analysis to determine why sales didn’t meet forecasts.

  • Productivity: When a factory’s productivity is not meeting expectations, targeted customer needs, or the set of business requirements that were laid out a gap analysis can help determine what process to fix.

  • Supply Management: If a hospital finds itself running short of supplies on a regular basis, they could perform a gap analysis to identify the reason why.

  • Sales Performance: A manufacturer can look at the sales performance of their catalog of products to make sure they are producing the right mix, and use the result to maximize their production–possibility frontier.

  • Individual Assessment: A team leader at an accounting firm can have each member perform a gap analysis on themselves, and use those results not only to find targets to improve each person’s performance, but also to draw out the best practices that everyone can adopt.

  • Product Evaluation: A software company might perform a gap analysis of their product to ensure that all features and functions outlined in the business requirements are present and working as expected.

Why Do Businesses Perform a Gap Analysis?

Businesses perform gap analyses to identify the difference between where they are with where they want to be. You can use a gap analysis to evaluate those differences, identify the causes, and inform the steps needed to bridge the gap.

In project management, the difference between the way a company is performing a task or activity and the ideal way it could be performed is called CΔV (pronounced “C delta-V”), or the current gap vision. The difference between a target for a metric and the actual metric performance is called AΔT (pronounced “A delta-T”), or the actual gap target.

Below are some reasons that a company might perform a gap analysis:

  • Benchmarking: Comparing results against external criteria. A computer company may want to see where they stand against industry performance criteria, or a candy company may want to compare their reputation with their competitors.

  • Portfolio Analysis: Examining their product portfolio to look for new sales opportunities, a company can use a gap analysis to identify new products to sell. In the opposite direction, they can also look for existing products that are not selling well, use a gap analysis to find out why, then promote them (e.g. feature them more promentilty in marketing or put them on sale), change them to better meet customer needs, or remove them from their portfolio.

  • Profits: If a forecast profit percentage isn’t reached, a company can use a gap analysis to determine what went wrong, and whether it was in planning or execution. Was the organization paying higher-than-expected expenses for materials, or having to lower prices due to unexpected competition?

  • Processes: A gap analysis can help reveal the shortcomings of processes, so that the real outcomes match the expected outcomes. A shipping firm could examine their AP process to see why so many of their vendors are not getting paid on time, or examine their billing processes to see why many of their suppliers don’t get their invoices until after the due date.

  • Performance Indicators: A gap analysis can also be applied to key performance indicators like new customer acquisition, average order amount, or return on investment (ROI). A mobile carrier could look for the reasons that caused them to miss their customer acquisition goal, or a seafood company could seek the reasons they didn’t process as much salmon as expected.

  • Usage Gaps: A usage gap is the difference between current market size for a product or service, and the potential market size. A gap analysis in this area can help an organization see why they are not reaching the full potential. Is a company's reputation pushing down sales? Or did management misread the demand for a product?

What Is a Market Gap Analysis?

A market gap analysis is a method of researching sales opportunities where the demand outweighs the supply. An organization can use these analyses, which can be performed internally or externally, to make decisions based on market facts, rather than opinion.

A market gap analysis differs from market research in that it’s proactive rather than reactive. Business to consumer (B2C) companies take advantage of this process often. The market they might investigate can be geographic (there’s nobody selling anything like our product on the west coast), product based (there was a time when no one was selling mobile phone cases that doubled as wallets), service based (there may a lot of dogs in a city, but not many dog walkers or other pet care businesses), or look for a way to better utilize existing resources (think of Uber launching Uber Eats).

What Is a Strategic Gap Analysis?

A strategic gap analysis compares a company’s strategy to that of its competitors. A business can then adopt the top-performing aspects of its competitors’ approaches and integrate these aspects within the most successful parts of its own existing strategy.

When to Perform a Gap Analysis

A company can perform a gap analysis at any time, but be thoughtful about timing to maximize its effectiveness. Conduct gap analyses on a regular basis, before a period of strategic planning, or whenever a department or venture is underperforming.

A gap analysis is often a key part of strategic planning, which is a process that helps an organization define a strategy to accomplish its goals. By looking for issues via a gap analysis, the business can adjust its strategy to better fit the situation, or update the company's processes to align with the strategy.

When an organization is looking for problems with their performance, a gap analysis can be a key tool in identifying where things are falling short. For example, if a company wants to start a marketing campaign to improve their reputation or apply for a loan, they could perform a market gap analysis to help determine their impact on the their local economy and use that data as part of their campaign or loan application. Similarly, when a company is preparing for an audit or other oversight activities, a gap analysis is a proactive way of showing the auditors which regulations the company is complying with, and that it has a plan to meet the rest.

Benefits and Challenges of a Gap Analysis

Gap analyses benefit organizations in many ways, such as identifying growth opportunities and prioritizing resources. They can also be difficult and time consuming, and require in-depth knowledge of the department they’re targeting. We’ve outlined the top benefits and challenges below:

  • Insight into areas that need improvement, such as efficiency, products, profitability, processes, customer satisfaction, performance, participation, and competitive advantage

  • Ensuring that project requirements have been met

  • Finding areas of weakness and shortcomings to address

  • Uncovering differences in perception vs. reality

  • Providing information to guide decision makers, which can lead to better decisions

  • Finding the best places to deploy resources and focus energy

  • Prioritization of needs

  • If performed well, the results of a gap analysis are clear and easy to understand

While valuable, gap analyses are not perfect. Some challenges related to the gap analysis process include the following:

  • Successful completion depends on knowledge and persistence of the people involved in the process.

  • While the process may expose some causes, if it doesn't go deep enough, the proposed resolutions will not address the real root cause or can miss the complexities behind them. For example, when evaluating sales performance, an analysis might conclude that sales reps are not offering a new product enough, but may not find out why. Are they not familiar enough with the product? Are customers unwilling to change from an exsisiitng product? Or does the new product not work as advertised?

  • The analysis can be inaccurate, as the ground is constantly shifting (especially in large organizations or in fast-moving industries)

How to Perform a Gap Analysis

Performing a gap analysis is straightforward. First, identify the area to evaluate and state its ideal outcome. Next, analyze its current state. Compare that with the ideal results, and quantify the difference. Finally, make a plan to bridge the gap.

In larger organizations, the gap analysis process is generally the responsibility of business analysts, project managers, process improvement teams, or management. But with a little training, and a well-designed gap analysis template, anyone can work through the process.

Some organizations may already have a process outlined that you can follow. However, the basic steps for performing a gap analysis are explained below.

  1. Identify the area to be analyzed and identify the goals to be accomplished.
    For example, you may want to figure out why your factory is not meeting its output target. The goal will be to discover the causes that contributed to targets not being met, and recommend how to remove the causes.

  2. Establish the ideal future state. If everything worked according to plan, where would you be?

  3. Analyze the current state. What causes contributed to the targets being missed? For example, were the workers not trained well enough? Was the production floor short-staffed? Were required materials consistnelty available? Did the layout of the production floor slow things down?

  4. Compare the current state with the ideal state. How far from the target was actual production? For example, did you expect to produce 1,000 units per hour, but only managed to produce 800 units per hour?

  5. Describe the gap and quantify the difference. In the unit production example (described in step 4), there would be a 20 percent shortfall. After researching the potential causes, outline the contribution of each to the gap. In this example, we may find that insufficient training caused 5 percent of the gap, staffing problems caused 7 percent, material shortages caused 2 percent, and inefficient layout of the factory floor caused 14 percent. Companies can use other ratings systems to quantify the difference that can be as basic as simple terminology like good, fair, and poor, to something more detailed like a 1-50 scale.

  6. Summarize the recommendations and create plan to bridge the gaps. Decide what needs to be changed and determine what steps need to be taken to fix things. In this example, the team performing the analysis may decide the layout issue is the easiest to tackle and will have the greatest impact, so they might recommend ways to address it. Then they could work with the supply chain and staffing teams to create recommendations for those issues as well. They would summarize their ideas and present it to management to begin planning the improvements.

Gap Analysis Best Practices

When performing a gap analysis, be thoughtful about which areas, items, and processes to analyze, and which recommendations to adopt. Understand that the changes you make may affect others. Ensure your goals are specific, measurable, achievable, relevant, and time-bound (SMART).

Back up your recommendations with supporting data from your analysis to increase the likelihood that your company will adopt them. Use charts to illustrate your data and make it easier to understand. It’s also imperative to consider cost, resources, and consequences when recommending problems to address and solutions. Remember, if a solution is out of reach, the company is unlikely to adopt it.

Assign an owner to each part of the process to ensure that you complete each step. By digging deep into the proposed solution, you’ll find it might not be easy to achieve. Look beyond the obvious to see if there are other possible solutions. 

Learn more about how creating SMART goals can ensure that your gap analysis is as effective as possible.

Frameworks for Gap Analysis

You can use a framework for your gap analysis, like the Nadler-Tushman Model and the PESTEL framework, to simplify the process. Use each framework listed below as an organizing principle for both the causes you discover and your proposed solutions.

McKinsey 7Ss Framework
The McKinsey framework has seven categories: strategy, structure, systems, shared values, skills, style, and staff. The first three are considered “hard” and the rest are considered “soft.”

An example of a misalignment might be if a production line requires 20 people to operate at full capacity, but the graveyard shift only has 15 people available. In this case, there's a misalignment between systems and staff.

 

gap analysis McKinsey 7S framework

Nadler-Tushman Congruence Framework
This model breaks a company's’ performance into four areas: work, people, structure, and culture. Note each area’s strengths and weaknesses, and then compare them to the other areas. The goal is to find out if the work being done in each area supports the others. For example, if a compliance group is performing their tasks at a high level and finds areas where the company is not following certain laws and regulations, but the company’s organization doesn't have any way to implement these changes, the people and structure are not congruent.

 

gap analysis Nadler Tushman framework

SWOT Framework
SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats. While some experts see gap analysis and SWOT analysis as separate tools, SWOT is a useful tool for organizing both the the causes and the recommendations. However, the threat portion veers into risk assessment, and as mentioned previously, a gap analysis is not a risk assessment.

 

gap analysis SWOT framework

Download a free SWOT analysis template to get started with this framework.

PESTEL Framework
PESTEL is another acronym and stands for political, economic, social, technological, environmental, and legal. While it can be a standalone analysis, a company can also use it as a gap analysis framework.

 

gap analysis PESTEL framework

Fishbone Framework
The fishbone diagram is a tool created by Kaoru Ishikawa, a Japanese quality control expert. The method is designed to identify problem causes and divide them into categories, similar to the other frameworks above.
While the image above illustrates six categories that are used in manufacturing, there are other sets of categories that other business areas use. A couple of these are outlined below.

 

gap analysis fishbone framework

The 8 Ps of Product Marketing

  • Product

  • Price

  • Promotion

  • Place

  • Process

  • People

  • Physical evidence

  • Performance

The 4 Ss of Service

  • Surroundings

  • Suppliers

  • Systems

  • Skills

What Is a Gap Analysis for a Bank?

In the banking sector, a gap analysis evaluates risk by looking at the balance of assets and liabilities. The analysis determines if there is a negative gap (when liabilities exceed assets) or a positive gap (when assets exceed liabilities).

The banking gap analysis doesn’t take potential interest rate changes into account, and generally focuses on near-future time periods (one month out, three months out), so it is a limited tool.

What Is a Gap Analysis in the Pharmaceutical Industry?

A gap analysis (also known as validation gap analysis) in the pharmaceutical industry looks at the difference between regulatory requirements affecting a company, and the practices and processes that a company currently uses.

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