Most of us have a rough vision of where we’d like to take our organization. But sometimes, knowing where and how to begin can be challenging. This is where the process of gap analysis comes into play.
Gap analysis is a great strategic tool that gives us a broad framework for defining not just where we are today but, more importantly, where we want to be and how we will get there.
In this article, we’ll cover:
- What is Gap Analysis
- What are the benefits of a Gap Analysis
- Gap Analysis Examples (Use Cases)
- How to do a Gap Analysis in Excel: The 5-Step Process
- Gap Analysis Templates
Speaking of gaps, the gap between team members & C-Suite executives keeps getting bigger. We partnered with Momentive, SurveyMonkey’s business arm, to survey 1,750 people on their approach to strategy. Check out what we found in the state of strategy report!
What is Gap Analysis
A gap analysis is a process of comparing your current state to your desired future state. This process includes assessing the internal performance of business functions to determine whether goals or objectives are being met and, if not, creating a series of actions to bridge the identified gap.
It’s a great tool to use as part of an internal analysis of your organization. Almost all major businesses usually assign the completion of a gap analysis template to project managers or business analysts.
A gap analysis for your organization is quite simple. This approach to strategic planning offers a structured and meaningful way to assess your goals.
What are the Benefits of a Gap Analysis?
Gap analysis forces you to think about your current situation, your desired future state, the gaps between the two, and your action plan in a very structured and clear manner.
Furthermore, it presents a framework for collaborating on creating a strategic plan. When multiple people are involved in strategic planning, their different approaches can sometimes conflict.
The gap analysis template provides a structured approach to dealing with this by requiring responses to specific questions that can be integrated into a cohesive strategic plan.
Finally, a gap analysis can also be used to analyze historical performance. The first time you run a gap analysis process, you will explicitly capture the current performance of your business (in both qualitative and quantitative forms).
Therefore, the next time you do one, you will have a benchmark against which you can compare your most recent performance.
Gap Analysis Examples (Use Cases)
When is the best time to go through the gap analysis process?
Gap analysis is most useful when you need to:
- Create a new strategy for your team and want to understand where you currently sit
- Figure out the right areas of focus for your team
- Uncover the gap between your product and customers’ expectations
- Find out why you aren’t meeting important KPIs and strategic objectives
- Develop a change management strategy, but you must first identify the current and desired state gap.
- Identify opportunities to improve existing processes
- Prepare for an audit and showcase how are you proactively addressing any gaps
- Prepare a strategic plan and prioritize resources
How to do a Gap Analysis in Excel: The 5-Step Process
Step 1: Define Your Focus Areas
The first step in creating a gap analysis is to set some boundaries. You can also think of this as defining the scope of your analysis.
It would be easy to talk about your desired future state in general grandiose terms:
“My desired future state is to be the biggest and best company in Asia!!!”
There’s little value in these kinds of exercises. Instead, you should have a rough idea of areas you want to improve.
While we’ve written extensively about how to create strategic focus areas, here are some typical areas that people often settle on:
- Financial growth
- Customer excellence
- Innovation
- Employee happiness
- Scientific achievement
- Community Impact
In short, focus areas should quickly describe what you are trying to improve with your gap analysis.
Step 2: Identify Your Desired Future State
Whoa…hang on a second – shouldn’t we be starting with the current state rather than the future state? You’d think so, wouldn’t you – and indeed, most of the other gap analysis guides tell you to do that. But there’s a problem…
Your organization doesn’t have one current state – it has thousands depending on which team, measure, or even person you’re talking about.
So despite what you might read in other gap analysis guides, defining your current state without any idea of your future is at best a useless process (and at worst, an impossible one).
So instead, we start our own gap analysis process with the definition of our future state.
This is where having strategic focus areas comes into play. Let’s assume you selected ‘Innovation’ as one of your focus areas.
You’ll want to start by framing your desired future state for Innovation in fairly broad terms (we’ll be getting more specific later).
Broadly speaking, my desired future state for Innovation is:
“To be recognized as one of the most innovative SaaS platforms in the industry.”
Remember, we’re keeping things fairly high-level at this stage – so try to avoid adding specific KPIs or measures to this part of your gap analysis.
Here are a few more examples of desired future states for a range of focus areas:
My desired future state for Customer Excellence is:
“To achieve market-leading customer retention and referrals.”
My desired future state for Community Impact is:
“To make lasting & meaningful changes to the lives of people in the community.”
Once you have identified a high-level desired future state for each focus area, it’s time to move on to the next stage of our analysis process.
Step 3: Assess Your Current State
The next part of performing a gap analysis involves understanding where you are today – your current state.
Once again, we’ll use the focus areas we defined in Step 1 to scope our gap analysis. We’ll start off high level and then get more specific in Step 4.
For each of your focus areas, write a sentence that gives a realistic summary of your current state. Try to use similar language and structure to the one you used when defining your desired future state above.
For example, for our Innovation focus area, we might summarize our current state as follows:
“We are not currently known for innovation. However, our software does contain a couple of unique features.”
For our Customer Excellence focus area, we might say:
“We have high customer satisfaction and retention in our Enterprise segment, but our smaller customers are significantly less satisfied with their experience.”
Or finally, for our Community Impact focus area, we might say:
“Most local community members are not currently aware of our presence.”
Remember that for this part of your gap analysis, it’s more important than ever to be 100% honest and realistic about your strengths and weaknesses.
And the best way to do it is to perform a SWOT analysis.
SWOT Analysis
SWOT means strengths, weaknesses, opportunities, and threats analysis. It assesses external, internal, current, and future opportunities.
It gives a realistic and fact-based look at how the organization positions itself within the industry. For it to be successful, it needs to focus on real-life evidence and contexts.
SWOT Analysis Template to identify Strengths, Weaknesses, Opportunities, and Threats.
PEST Analysis
The most challenging part of the SWOT analysis is determining threats and opportunities. Without understanding the industry, we can easily end up guessing. Then the whole model won’t add up and will provide the needed value for our gap analysis.
One way to improve our broader understanding is with PESTLE or PEST analysis. The acronym stands for:
- Political
- Economic
- Social
- Technological
- Environmental
- Legal
As you research each of these elements, you’ll better understand threats and opportunities within your industry. It is a bird’s eye view of the entire environment that’s much needed to accurately assess your current state.
So far, we’ve defined our focus areas, specified our desired future state, and given a high-level assessment of our current state. Now it’s time to get specific about what we want to achieve and how we will do it…
Step 4: Apply Metrics / KPIs To Your Gap Analysis
So far, our gap analysis has been very general in how we’ve tackled our desired future state and our current state. That changes in this step – as it’s time to start adding specific measures (KPIs) for each one of our focus areas.
Let’s start with a few tips on how to select the right KPIs for your gap analysis, then go into some examples:
- Select KPIs you can measure, and decide on your approach for selecting the KPI.
- Choose KPIs you already have a baseline for so that the gap you need to bridge can be easily measured.
- Make sure you apply to lead and lagging KPIs to achieve a complete set of measures for each focus area.
Let’s dive into some specific KPI examples you might use for a gap analysis. Once again, we’ll do this for each focus area.
We’ll start by defining the targets for our desired future state, and underneath write down how this looks for our current state.
For our Innovation focus area, we might select two KPIs as follows:
Leading KPI: Dedicate at least 50% of our developer resources to creating new features.
(current state: <10% of developer resources are on creating new features)
Lagging KPI: Achieve an ‘Innovation’ score of over 80% on at least one customer review website.
(current state: Our ‘Innovation’ score on g2crowd.com is less than 60%)
For our Customer Excellence focus area, we might select two KPIs as follows:
Leading KPI: Customers give us an average NPS score of at least +7.
(current state: Our NPS score is less than three on average)
Lagging KPI: Our overall gross % customer churn is less than 10% per annum.
(current state: Our gross % customer churn is greater than 20% per annum)
And finally, for our Community Impact focus area, we might select two KPIs as follows:
Leading KPI: Our community awareness is over 70%.
(current state: Our community awareness is less than 20%)
Lagging KPI: At least three major political initiatives can be directly traced to our involvement.
(current state: No major political initiatives can be directly traced to our involvement)
The ‘gap’ component of your gap analysis is the variance between the KPIs of your current state and your desired future state.
For example, you could say that we have a gap of 50% between our current level of community awareness (20%) and our desired future state of community awareness (70%).
Step 5: Create An Action Plan
Your final step in creating a gap analysis is arguably the most challenging one. This is where you formulate a specific action plan to address the gaps you’ve identified.
You can think of your gap analysis action plan as a series of projects for each of your focus areas, which, when finished, will most likely result in closing the gap that you identified in Step 4.
It’s up to you how many projects you want to create, but typically, you’ll have at least two for every gap. You’ll also have to use your best judgment about whether these projects will likely close the gap!
Let’s brainstorm some specific examples of gap analysis action plans that you could implement.
We’ll start off with our Innovation focus area – and specifically, look at some projects that could help us to close the 40% gap between the amount of developer resource we have on new features in our current state (10%) vs. what we set as our desired future state (50%).
Project 1:
Hire an additional four developers and dedicate them to new feature development.
Project 2:
Implement a new ‘Innovation Check’ for all new features we create to ensure that they meet our definition of something ‘Innovative’.
Let’s look at a gap analysis example with an action plan for our Customer Excellence focus area. Specifically, we’ll address the gap of 10% in our gross % of customer churn that we identified.
Project 1:
Launch a new automated survey to all canceling customers to ask for a ‘reason for cancellation.’
Project 2:
Create a dedicated retention team to handle customer cancellation requests in our customer service area.
And finally, let’s look at our Community Impact focus area – and specifically at some projects that could help close the 50% gap in our level of community awareness.
Project 1:
Launch a local TV advertising campaign.
Project 2:
Increase our spending on online advertising by $5,000 per month.
As you can see, creating action plans to bridge the gaps we identified as part of our gap analysis is quite easy – as a result of the hard work we did in Steps 1 to 4, where we clearly defined our current state, desired future state, and gaps.
Bonus Step: Don’t stop at planning
Congrats, you have developed your action plan and set targets and KPIs to measure success. But what’s next?
Your plan will come to life only with careful execution.
Monitor your progress and adjust your plan accordingly. You could do this with spreadsheets, but in an era when change is the new normal, that simply won’t cut it.
With the right tracking tool, you can keep track of progress in real time while maintaining a high-level view across multiple projects.
Using strategy execution software like Cascade, you can easily access all relevant data with a click of a button instead of digging through endless spreadsheets full of outdated information.
Close the gap through execution
The gap analysis is a great tool for identifying gaps and deciding what you should do to improve performance. However, the gap analysis should not stop at strategic planning. If it does, then you will miss out on great opportunities. Such as great products that match market needs, new revenue streams, or building an organization that’s resilient to change.
The most important thing is to remember that no matter how good your action plan is, it’s the strategy execution that counts the most.
So, are you ready to set the foundation for your strategy?
