Gap Analysis Gap Analysis

Gap Analysis

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What is Gap Analysis?

Gap analysis, sometimes referred to as needs analysis, is a method of evaluating the performance of a business by comparing its actual performance with its desired performance (business goals and objectives). It helps businesses determine which objectives are being met, which are not, and what steps can be taken to meet them. 

Gap analysis can be performed on two different levels, namely:

  • Strategic Level: This involves comparing business performance to industry standards.
  • Operational Level: This involves comparing business performance to the business goals and expectations.

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Applications of Gap Analysis

Let’s take a look at some of the applications of gap analysis in different industries and areas of business: 

  • Information Technology: In the IT industry, gap analysis is leveraged by project managers to create the basis of an action plan aimed at inciting operational improvement. 
  • Software Development: Gap analysis can be used to identify which functions have not been included and therefore need to be developed.  
  • Compliance Initiatives: Gap analysis can be used for compliance initiatives by comparing what is being done to meet the regulation with what needs to be done. 
  • Small Organizations: Small and upcoming businesses can leverage gap analysis to aid in effective resource allocation. 
  • Human Resources: HR departments can use gap analysis as a tool to evaluate the skills present in the workforce to identify which skills would be required to meet organizational goals more effectively.  

Gap Analysis Tools

There’s a myriad of gap analysis tools that can be leveraged by businesses to assess their performance. Let’s explore two useful tools that are used commonly used by organizations to conduct a gap analysis. 

McKinsey’s 7s Framework

McKinsey  7s model is a framework that can be used to assess an organization’s design by considering 7 key internal elements. These key elements are divided into ‘soft’ and ‘hard’ areas. Hard elements (tangible factors that can be controlled) are easier to identify and manage when compared to soft elements (intangible factors that cannot be controlled). 

Hard Elements

  1. Strategy: The plan(s) developed by a business to achieve and sustain a competitive advantage within their market. 
  2. Structure: The way a business allocates responsibilities across its business divisions and units. 
  3. Systems: The processes and procedures employed by an organization that dictates the way decisions are made and operations are conducted. 

Soft Elements

  1. Staff: The type and number of employees an organization requires to meet its goals effectively. 
  2. Style: The way an organization is managed by top-level managers. 
  3. Skills: The capabilities and competencies of a business’s employees to perform well. 
  4. Shared values: The standards and norms that influence decisions and employee behaviour. Shared values are the core of the McKinsey 7 model as they act as the foundation of every organization. 

SWOT Analysis

SWOT analysis is a method of evaluation that focuses on four key aspects of a business: 

Internal Origin 

  • Strengths: The characteristics of a business that provide it with a competitive advantage in its market; things that distinguish a company from its competitors. For example; strong brand image, unique products. 
  • Weaknesses: The characteristics of a business that place it at a disadvantage relative to its competitors.  For example; lack of capital. 

Internal Origin 

  • Opportunities: Elements in the environment that can be leveraged by a business to its advantage. For example; an increase in customer-brand interactions through digital channels is leading to an increase in the online market. 
  • Threats: Elements in the environment that could cause trouble for a business.  For example; the effects of the pandemic on aggregate demand. 

 

Gap Analysis Gap Analysis

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Gap Analysis Template: Conduct Gap Analysis in Four Steps

The following gap analysis template can be used to outline the different gaps between organizational performance and organizational goals: 

  • Step One: Define Organisational Goals

The first step is to clearly define the organizational goals and targets. For example, if high employee turnover is negatively affecting your business, you may set a target to reduce employee turnover. 

  • Step Two: Measure Current Performance

The next step is to measure the current performance of your organization. In this step, you must use metrics that are relevant to your goals and targets to measure current performance. For instance, if your goal is to reduce employee turnover, you should measure your current employee turnover rate. 

  • Step Three: Analyse Collected Data

Once you’ve gathered data on the current performance of the organization, you can begin analysing it. In this step, you must assess the gaps between organizational goals and current performance. Continuing with the previous example, you will have to compare your current employee turnover rate with your targeted employee turnover rate. 

  • Step Four: Create a Report

The final step is to create a report amalgamating the quantitative and qualitative data gathered; this report must outline the different rates and metrics relevant to your goals, along with qualitative data to substantiate the reasons for the gap(s). 

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FAQs on Gap Analysis

Gap analysis is a method of evaluating businesses performance by comparing its actual performance and results with what was desired (business goals and objectives)

Gap analysis is used by businesses as a strategic management tool that allows them to assess the ways in which they can effectively bridge the gaps between their current and desired performance.

The 7 elements in McKinsey 7s model are strategy, structure, systems, staff, style, skills, and shared values.

SWOT analysis is used by businesses to determine their strengths, weaknesses, opportunities, and threats. It’s a tool that allows organizations to see where they stand so that they can devise an effective strategy for the future of the company.

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