Performance gaps can be measured across multiple areas of the business, including customer satisfaction, revenue generation, production capacity and supply chain cost. Measuring production cost against income generated in a business is a gap analysis method. Small businesses, in particular, can benefit from performing gap analyses when they are in the process of planning how to allocate resources. In transportation business, for instance, gap analysis tools can document which necessary services or communities that have been left out based on traffic population analysis; which services is not performing; and which additional services like restaurant and grocery stores to be developed. In statutory compliance activities, a gap analysis can compare what is required by certain authorities with what currently is being done to abide by them. In human resources (HR), a gap analysis can be done to examine which skills are present in the workforce and what additional skills are needed to improve the organisation’s competitiveness or efficiency.
The first step in conducting a gap analysis is to establish specific target objectives by looking at the company’s vision and mission statement, strategic business goals and improvement objectives, if there is any. If there is no documented vision and mission statement, the expert analyst will draw one out by probing the promoters of the business. The next step is to analyse current processes by collecting relevant data on performance levels and how resources are presently allocated to these processes. This data can be collected from a variety of sources depending on what is being analysed. For example, it may involve looking at documentation, measuring key performance indicators (KPIs) or other accomplishment metrics, conducting stakeholder interviews, brainstorming and observing project activities. After a company contrasts its target goals against its current state, it can then draw up a comprehensive plan. Such a plan outlines a step-by-step process to fill the gap between its current and future states, and to reach its target objectives. This is often referred to as strategic planning.
While gap analysis methodologies can be either concrete or conceptual, gap analysis templates often have the following fundamental components in common. A gap analysis template starts off with a column that might be labelled “Current State.” Current state lists the processes, workflows and characteristics an organisation seeks to improve, using factual and specific terms. Areas of focus can be broad, targeting the entire business; or the focus may be narrow, concentrating on a specific business process or department. The choice depends on the company’s target objectives. The analysis of these focus areas can be either quantitative, such as looking at the number of customer calls answered within a certain period of time or measuring the difference between total salaries of senior staff and those of junior staff; or qualitative, such as examining the state of cultural diversity in the workplace or gender diversity or impact of class differential.
The gap analysis report should also include a column labelled “Future State,” which outlines the target condition the company wants to achieve. Like the current state, this section can be drafted in specific, explicit and quantifiable terms, such as ‘aiming to increase the number of returned customer calls by certain percentage (say 60%) within a specified period of time (say six month), producing certain number of order (say 1,000 products requests), or it may be worded in general terms, such as working toward a more inclusive office culture or ‘becoming one of the three biggest companies in our industry”. There is also a “Gap Description” column. This column should first identify whether a gap actually exists between a company’s current and future state. If so, the gap description should outline what constitutes the gap and the root causes that contribute to it.
This column lists those reasons in objective, clear, achievable and specific terms. Like the ‘future state’ descriptions, these components can be quantitative or qualitative. They might cite factors such as lack of raw materials for poor performance or the difference between the number of currently returned customer calls and the target number of customer returned calls. This final column of a gap analysis report should list all the possible solutions that can be implemented to fill the gap between the current and future states. These objectives must be specific, directly speak to the factors listed in the gap description and be put in active and compelling terms. They should include specific objectives, measurable objectives, achievable objectives, realistic objectives and a time frame for achieving them (SMART).
Some examples of the next steps include hiring a certain number of additional employees to return customer call, instituting call volume reporting and launching specific office diversity programmes and resources. There are a variety of gap analysis tools and methodologies in the market, and the particular tool a company uses depends on the sector it belongs to and its target objectives. One of these methodologies is the McKinsey 7-S Framework. This gap analysis tool, introduced by the consulting firm McKinsey & Co., is used to determine specific departments of a company that are meeting their set targets. An analyst using the 7-S model examines the characteristics of a business through the lens of seven people-centric groupings: strategy, structure, systems, staff, style, skills, and shared values. The analyst fills in the current and future state for each category, which would then highlight where the gaps exist.
The company can then implement a targeted solution to bridge the existing gap. Gap analysis is a good and practical way of managing business successfully whether the business is green-horn, start-up, or ‘too-big-to-fail’.
