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What is Gap Analysis?


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What is Gap Analysis?

Gap analysis is a tool that is used to evaluate the performance of an organization by comparing its actual performance to its potential or desired performance. Once an organization clearly defines the gaps in their performance, they will be able to create a strategic plan to address and eliminate these gaps and improve their performance. Gap analysis, therefore, provides organizations with information to evaluate their performance, resource use, and strategies.

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Types of Gap Analysis

As gap analysis can be used as a tool to evaluate the performance within many different aspects of a business, there are multiple different gap analysis methodologies. Let’s take a look at a few: 

  • Manpower Gap Analysis: Manpower gap analysis is used to determine the disparity between the actual number of staff with the required number of staff.  
  • Market Gap Analysis: Also known as product gap analysis, market gap analysis is used to determine the company’s position within the marketplace to evaluate the gap between actual sales and budgeted sales. 
  • Performance Gap Analysis: Performance gap analysis, also referred to as strategic gap analysis, is used to identify why performance goals were not met. It can be used to evaluate current strategies and revise them to achieve objectives more effectively.  
  • Profit Gap Analysis: Profit gap analysis is used to identify and assess the gap between actual and targeted profit. It is a useful tool to identify the ways in which profit targets can be met. 

Benefits of Performing Gap Analysis

Some key benefits of performing gap analysis are: 

  • Can Improve Profits: Gap analysis can be used to identify the different reasons as to why your organization was unable to achieve its profit targets. This information can prove to be invaluable when strategising a plan to meet profit targets.
  • Helps Determine Product Portfolio Opportunities: Organizations can use gap analysis to review their current portfolio of products and services and determine new opportunities. 
  • Outlines Areas for Improvement: By outlining the areas of the business that are underperforming, gap analysis helps identify the opportunities for process improvements. 

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Tools used to Perform Gap Analysis

There are multiple different approaches that can be taken to perform gap analysis, including:

  • Fishbone Analysis
  • SWOT Analysis
  • McKinsey 7s Framework

Fishbone Analysis

Fishbone analysis, also known as the cause-and-effect diagram, is often used by organizations to identify the root cause of an issue. The diagram focuses on the 6 Ms: 

    • Machinery 
    • Methods
    • Materials
    • Mother Nature (or External Environment)
    • Manpower 
    • Measurements

These 6 Ms help us understand the relation of these key elements of a business with a central problem. As the name suggests, the diagram mimics a fish skeleton; the central problem is placed on the fish’s head, the causes extend out to the left as the main bones, the ribs extend out of the bones as the major causes (in this case, the 6 Ms), and the sub-branches extend out of the ribs to denote the root causes of the major causes. 

SWOT Analysis

SWOT analysis is a tool that is used to scope out the internal and external factors that a business should be concerned with. The internal factors are the business’s strengths and weaknesses and their external factors are their opportunities and threats. This tool encourages the use of strategic thinking to achieve business goals and objectives. It also helps understand the business’s external environment so that the organization can capitilise on their opportunities and is always prepared for any unexpected changes that may affect them. 

McKinsey 7s Framework

The McKinsey 7s model involves assessing 7 key interrelated elements of an organization. These 7 elements are divided into hard and soft elements; hard elements are tangible and can be controlled while soft elements are tangible and cannot be controlled. These are the 7 elements:  

Hard Elements

    • Strategy: The plans that outline the ways in which your organization can achieve a competitive advantage.
    • Structure: The organizational structure.
    • Systems: The business processes and technical infrastructure by which employees perform daily tasks.

Soft Elements

    • Shared Values: This is put central to all elements as it refers to the set of beliefs the organization upholds. 
    • Style: The leadership style employed within the organization. 
    • Staff: The organization’s workforce.
    • Skills: The key skills of employees. 

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Gap analysis is a technique used to evaluate the performance of organizations by comparing their actual performance with their desired performance.

Gap analysis is leveraged by organizations to identify the gaps in their performance so that they can create an action plan to effectively address these gaps.

Some effective gap analysis tools are SWOT analysis, McKinsey 7s framework, fishbone analysis, and Nadler-Tushman Model.

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