Gap analysis is a tool that helps managers determine whether a company is performing at its fullest potential. Managers begin the analysis by evaluating a company’s present state (where it is) and its potential state (where it wants to go). They then identify and attempt to bridge existing discrepancies, or “gaps,” that are limiting the company from reaching its optimum level of performance.
Defining the Company’s Present State
Managers start the gap analysis by answering the question: "Where are we now?" To answer this question, managers identify company characteristics, such as current attributes, competencies and performance levels, throughout all departments, including management, finance, accounting, technology, sales and production. This process can include a review of business files, financial documents and staff interviews. Management then compares the company’s current characteristics to its current performance in terms of market share, sales and profits. This comparison gives managers an overview of the company’s current performance.
Revisiting the Objectives and Goals of Its Potential State
Once the present state is determined, managers answer the question, "Where do we want to be?" by revisiting the objectives and goals concerning target market share, sales and profits. Management, for example, may have set a sales target of 100,000 products by year's end. If the sales team sold only 70,000 products by this time, management will note the sales team's lackluster performance and find ways to correct the problem in the next step of the gap analysis.
Bridging the Existing “Gap”
Once the first two steps are complete, management must figure out a way to answer the question: "How are we going to get there?" Managers compare the company’s present state to its potential state and look for any discrepancies in performance, or “gaps,” that may be hindering the company's ability to reach its potential, such as the sales team performing below its target goal. To bridge a “gap,” management develops new strategic or tactical objectives that guide the company in achieving its overall goals, such as meeting a sales target of 100,000 products by year's end . Management then turns its findings and new goals into a report, which becomes the blueprint for its new overall plan. For example, if a company wants to become the number one producer of widgets in the United States but current performance levels fall short of this objective, management would develop a strategy along with a set of specific and measurable goals to accomplish its objective within a specific period of time. Management would then compile these findings in a report including its newly-crafted strategies to achieve the company’s goal. How a company implements the findings of a gap analysis can help it remain competitive against rivals as well as estimate its profitability if the overall goal is accomplished.