Business Gap Analysis

Where are we now? Vs Where we want to be?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 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 determinedrequired 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.

• In business and economics, as a tool that helps to • In business and economics, as a tool that helps to compare ‘actual performance’ with ‘potential performance’ it is a broad concept.

• Broad concept, in a sense it’s applicable to any aspect of business where performance improvement is desired.

Gap analysis can be used in many areas, such as:• sales• financial performance• human resource management• productivity • quality assurance• cost control• 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 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 GapThe 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 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. 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.

Step I

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:Sample Areas:• Revenue/Profitability• Market Share• Product Functionality/Features• Cost Control• Employee Performance

Step II• 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. 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.

Step III

• 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 • 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.

Step IV

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. ‘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

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 between current and ideal state) or qualitative (employee morale is below average)•This should only serve as a description, not as a remedy

Step VDetermining 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 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 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•Materials - material resources you need•Minutes - time you need

SWOT Analysis template and simply list out your:•Strengths, Weakness, Opportunities and Threats related to filling the gap

Develop an action oriented Business Plan with relevance to the above gap

Objective

Current

StateFuture State

Gap

Identificat

ion

Gap

DescriptionFactors 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

Here’s a simple Gap Analysis Chart:

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. 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 behaviour 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 • 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 • 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…