Gap analysis is an easy and versatile tool that can be used by any business, regardless of size, location or industry. A type of brainstorming framework, gap analysis has the capability to incorporate quantitative analysis, as well as the qualitative analysis common to many business strategy tools.
Gap analysis, also called “need-gap analysis,” is a management tool that looks at the “gap” between a company’s goals and its actual performance and attempts to determine how that “gap” can be closed. What makes gap analysis unique is that it combines quantitative and qualitative methodologies. Forecasts generally involve some sort of quantified, and thus objectively measured, variable, whereas “how the gap can be closed” relies on qualitative reasoning and brainstorming. This process is also called “backward chaining” logical sequences.
While gap analysis may seem like a fancy word for brainstorming ways to improve specific variants, gap analysis has many applications. For instance, gap analysis as a concept is frequently applied to marketing, both as a way to evaluate the marketing mix and as a way to identify new and/or underserved niche markets. Gap analysis is such an effective tool that its use can be seen in environmental studies and conservation biology.
Why Use Gap Analysis
This combination of qualitative and quantitative processes can give gap analysis more perceived validity than other purely qualitative processes. However, it should be remembered that goals and/or target performance levels change, and may even change while the issue is being researched. Also, the validity of gap analysis tends to be inversely related to the number of viable solutions a problem has.
Gap analysis can be used historically to measure a company’s performance against past forecasts. This can be useful in determining relative success throughout the time by looking at different periods. It can also determine the effectiveness of forecasting methods. Gap analysis can be used as a strategic-planning tool in that by looking at current performance, target performance and the difference thereof, plans can be determined and/or ruled out.
The Use of Gap Analysis
Gap analysis can be exceptionally simple. While some prefer to use statistical methods, such as to determine whether differences between performance and actual are statistically significant and/or whether correlation or causation exist, gap analysis can also be as easy as asking why the company’s sales are 10 percent below forecast. These techniques can also be used to determine niche opportunities by looking at the data relevant to the niche, or potential niche.
How to Perform Gap Analysis
To perform a gap analysis, a complete set of information on the business at present will be needed; likewise, historical data of same type will be required for the period in question if historical gap analysis is to be performed. This should include not only the financials, but also the numbers behind those financials and the strategies in place. It is necessary to have the relevant forecasts as well. The question that needs to be answered initially is “What?” meaning what are the performance levels and what were the target levels for the given period.
After this point, the question is “Why?” The performance data is compared/contrasted to the forecast data and theories are postulated as to why discrepancies exist and how to mitigate such discrepancies. Ideally, several persons from various departments and positions will have the opportunity to participate in brainstorming possible causes of discrepancies and/or developing ideas as to how to rise to the forecast. The strategies in play during the period when the performance data was generated need to be known so that their relative success/failure can be determined.
Once ideas are developed, the gap analysis team is then able to formulate informed strategies. The question at this point is “How?”
As those strategies are implemented, data is collected to determine whether said strategies were in fact successful. This, in turn, creates a type of analysis loop, which can be very useful in spotting trends.