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Gap Analysis: Definition, Types, Purposes, and Applications

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Gap Analysis: Definition, Types, Purposes, and Applications Gap Analysis
Table of Contents

Definition of Gap Analysis

Gap analysis is a method of performance evaluation used by organizations to identify and evaluate the gaps between their actual performance and their potential/desired performance so that plans and strategies can be developed to fill these gaps. Using gap analysis, organizations can determine whether or not their resources are being allocated effectively and the ways in which processes and outcomes can be improved to meet the organization’s goals. =

Types of Gaps

The “gap” in gap analysis refers to the space between desired and actual outcomes. There are multiple different types of gaps that can be identified using gap analysis. Some key gaps are: 

  • Performance Gaps: Also known as strategy gaps, performance gaps refer to the difference between the actual and desired performance. 
  • Profit Gaps: Difference between actual and targetted profit.
  • Product Gaps: Also known as market gaps, product gaps refer to the disparity between actual and budgeted sales. 
  • Manpower Gaps: The difference between the actual number of personnel and required number of personnel OR the difference between the actual and desired performance of the workforce. 

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The Purpose of Gap Analysis

Gap Analysis: Definition, Types, Purposes, and Applications Gap Analysis

The main purpose of gap analysis is to help organizations develop an understanding of the gaps in their performance so that they can create effective strategies to reduce or eliminate these gaps and achieve organizational goals. It does so by highlighting the organization’s shortcomings as well as its opportunities for growth.

Gap analysis can be performed at the following two scales: 

  • Strategic Level: When gap analysis is performed on a strategic level, its purpose is to compare the current output or condition of the business with that of the industry’s standards. 
  • Operational Level: When gap analysis is performed on an operational level, its purpose is to compare the current state or performance of the business with that of what is desired or what was projected. 
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Applications of Gap Analysis

Gap analysis is a versatile approach to performance evaluation and it therefore has a multitude of applications: 

  • Profit Percentage Analysis: Gap analysis can be used to determine the reasons why a forecast profit percentage could not be achieved. It can help identify causes such as high or unexpected competition and poor resource allocation, among other factors. 
  • Identifying Gaps in the Market: Gap analysis’s applications go beyond performance evaluation; it can also be used to identify the space between current and potential market size for a product/service. By identifying these gaps, organizations can understand why the full market potential isn’t being reached as well as the opportunities for further growth. 
  • External Benchmarking: External benchmarking involves comparing the results of a specific product or process against external criteria, usually through the use of a metric regarding the company’s competitors or the overall industry. 
  • Improving or Enhancing Processes: Businesses employ a myriad of processes in their day-to-day workings. Gap analysis can be used to evaluate these processes to identify opportunities for improvement to improve the quantity and/or quality of expected outputs. 
  • Understanding KPIs: Key performance indicators (KPIs) such as customer acquisition and sales targets can be better understood with the use of gap analysis. 

 

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FAQs on Gap Analysis

Gap analysis is a strategic planning tool used to evaluate the performance of businesses by identifying and evaluating the gaps between actual and potential/desired performance so that plans and strategies can be drawn to fill these gaps.

In gap analysis, a “gap” refers to the space between an organization’s actual performance and its desired performance.

Gap analysis is a versatile tool that can be used by organizations in many different ways for many different purposes. However, the main purpose gap analysis serves is that it helps organizations understand their shortcomings so that they can achieve their business goals more effectively with the optimal use of resources.

Some types of gaps in gap analysis are;

  • Product gaps: Difference between actual and desired performance.
  • Performance gaps: Difference between actual and budgeted sales.  
  • Profit gaps: Difference between actual and targetted sales. 
  • Manpower gaps: Difference between the actual and required number of workforce.
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