Gap Analysis: Business Framework

Gap analysis is what businesses use to identify the obstacles between their current state of operations and where they want to be in the future. If you own or manage a business, you know how frustrating it can be to fail to meet the goals you’ve set out for your company. Often it feels like you can visualize exactly where you want to be, and yet something unseen is holding you back. How do you close the distance between where you are now and where you want to be? If you’re asking yourself this question, then what you and your business need is a gap analysis.

What Is Gap Analysis?

While it’s usually better not to define something in terms of itself, the basic gap analysis definition is pretty self-explanatory: gap analysis is a tool for understanding the gap between a business’s current state of operations and its goals or objectives. The answer to what is gap analysis can differ if we are discussing meeting specific annual financial goals or higher level strategic and market share goals.

It’s often easy to visualize where exactly you want to be: most owners have a particular goal in mind when they first start a company or launch a new product or service. Maybe you want to be the most trusted brand in your sector, or maybe you want to offer best-in-class products or services. Or maybe your goal is more quantitative—you want to clear $1 million in annual revenues, or you want to grow profits by 20% annually. And yet, there is some gap between where you want to be and where you are—maybe you’re making a great product, but your brand isn’t well known. Or maybe your revenues are growing, but so are your costs, and so profits remain stagnant.

It can be very difficult to know how to take yourself from A to B, from where you are to where you want to be. The gap analysis helps you drill down into the root causes behind your failure to meet your goals. It helps you to create a roadmap to align your current operations with your goals for the future.

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Gap Analysis Process

We saw that the basic gap analysis definition concerned understanding the gap between a business’s current state of operations and its goals or objectives. The gap analysis process, then, is quite simple and intuitive. It’s simply a logical tool for helping you to create a more formal visualization of your situation and a measurable path toward your objectives for the future. It helps ground your analysis in the realm of facts as opposed to assumptions.

1. Identify The Current State Of Your Operations

The first thing you should do is identify the current state of your operations. You can’t really begin to create basic goals until you know where you’re starting from. This can be expressed in relation to a basic kind of goal. Let’s say you know your goal is to raise profits—then the current state of your operations will be expressed in terms of costs and revenues. Or if your goal is more to do with reaching a certain number of subscribers to your service, then your current state will be expressed in terms of subscribers.

2. Identifying The Place You Want To Be

The next step in your gap analysis involves identifying the place you want to be, where you want to take your current operations and over what time frame. This can also be called a future target or a stretch goal. It should be expressed in the same qualitative or quantitative terms as your operations.

3. Visualize Your Trajectory

The third step is to come up with some way of visualizing the trajectory of your current operations as identified in Step 1, extrapolated into the future, versus the necessary trajectory to meet the goals you identified in Step 2. If your goals are quantitative, this may be easier. Comparing these trajectories will help you to visualize the nature of the gap. This is where you drill down on what the gap is, exactly. Why has it happened? What is preventing you from reaching your goal trajectory? Keep asking where these obstacles come from until you get at the root causes of the gap.

4. Solutions To Close The Gaps

Finally, you should come up with concrete solutions to close the gaps. This should be a natural outgrowth of the specific root causes you identified in Step 3. Here you will also consider the costs of enacting the solutions you imagine. You will also identify the end dates when you plan to have the gap finally closed.

There are many different kinds of gaps—and therefore gap analyses—you might run. For example, if the nature of your gaps pertains to brand reputation, then your gap analysis will involve assessing improving the reputation of your brand. If the nature of your gap has to do with your employees not having the necessary skills, then you can run a skills gap analysis.

There are also many gap analysis tools you can run to help you identify gaps and devise plans for closing them. For example, you can run a SWOT analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. This will help you identify your place relative to the competition. You can also run a PEST analysis to help you understand the external factors affecting your operations—PEST here stands for Political, Economic, Sociological, and Technological.

Gap Analysis Example

Let’s take a look at a gap analysis example to come up with a better sense of how to do a gap analysis.

Let’s say your media streaming company, Omega LLC, is not meeting your goals for new subscribers. So you run a gap analysis to figure out how to meet your goals.

1. Step 1

Assess your current state of operations. You currently have 1,000 subscribers. You are adding 100 new subscribers every month and losing 50, for a net growth of 50 subscribers per month. This means that over the course of the next year you are on track to have 1,600 subscribers.

2. Step 2

Examine your goals for the company and decide you want to have 2,200 subscribers at the end of the next 12-month period. This means you have to add 100 subscribers per month.

3. Step 3

Compare the trajectory you identified your company as being on in Step 1 against the trajectory necessary to meet your goals, as identified in Step 2. You realize that you need to double your net growth of subscribers from 50 per month to 100 per month. You also drill down into what is keeping the 100/month rate from being a reality. You see that customers all tend to love your streaming platform, so the product isn’t the issue. You run a skills gap analysis, but don’t find any notable issues here, either. You have a good team and strong technology.

However, there is steep competition as several other streaming platforms are already on the market. What is keeping more customers from choosing yours? Your prices are higher than many of your competitors. Further, your competitors are outspending you on advertising.

4. Step 4

Imagine ways to add new subscribers based on the root causes of the gaps that you identified in Step 3. You decide to run a promotion in which you will offer customers a significant monthly discount for signing up for the whole year. This will help you to add new customers and to keep old customers from leaving the service. You also decide to spend more money advertising this promotion, so it doesn’t get drowned out by the competition.

Gap Analysis Template

The gap analysis template is actually quite simple. All you really need to start with is a basic gap analysis diagram representing all four of the necessary steps. You can fill in this diagram in different ways depending on the nature of your particular gaps. Are your goals and gaps quantitative? Then you may play with data visualizations such as graphs and charts. If your gap is qualitative, your gap analysis may involve more text, anecdotes, or other kinds of media.

Feel free to download an Excel Gap Analysis Template here.

Step One: Identify the current state of operations. Express this in relation to a goal.

Step Two: Identify where you want your operations to be in the future. Be specific about what your goal is and a reasonable timeline for getting there.

Step Three: Visualize the trajectory of your goal against the trajectory of your current operations. Highlight the gap between these two trajectories. Dig deep into what is creating or maintaining this gap.

Step Four: Develop solutions to narrow or eliminate the gaps. These solutions should directly address the root causes of the gaps. Identify a date by which you want to have the gap closed.

Conclusion

Running a business involves a constant negotiation between hopes and realities. It can be very difficult to meet the goals you set out for your business, even if they seem reasonable and achievable. Often times it isn’t even remotely clear what’s stopping your business from meeting a goal that seems realistic. The gap analysis process helps you to identify the obstacles keeping your company from meeting its goals, and helps you to identify the solutions necessary to overcome those obstacles.

Additional Reading:

• Fishbone Diagram: Business Framework
• McKinsey Frameworks
• MECE Framework: Case Interview Example