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Conducting A Gap Analysis: A Four-Step Template
Identify the “gaps” in your performance—and follow through on addressing them—with this gap analysis template.
It’s an age-old business dilemma: You want to grow your business, but aren’t sure where or how to allocate resources to make it happen. Sound familiar? If so, you may need to conduct a gap analysis.
In This Article
- What is a gap analysis?
- What is a gap analysis template?
- How To Conduct A Gap Analysis: 4 Steps To Completion
- What happens <em>after</em> the gap analysis?
- Using ClearPoint For Gap Analysis Tracking
- See Your Gap Analysis Through To Completion
A gap analysis is an examination and assessment of your current performance for the purpose of identifying the differences between your current state of business and where you’d like to be. It can be boiled down into a few questions:
- Where are we now?
- Where do we wish we were?
- How are we going to close the gap?
Conducting a gap analysis can help you improve your business efficiency, your product, and your profitability by allowing you to pinpoint “gaps” present in your company. Once it’s complete, you’ll be able to better focus your resources and energy on those identified areas in order to improve them.
A gap analysis template visualizes the difference between reality and target for your organization, making it easy to show employees where there is still room to grow. It is a great way to visual your data and show where your organization is struggling and thriving. In our discussion around the gap analysis template below, we’ll talk specifically about how a gap analysis can be used within a department; it can also be used for your entire business or for a single process. The four steps outlined in the template below will help ensure you know precisely what issues you’re facing and how to go about fixing them.
This may sound overwhelming, but bear with me. Do you have a strategic plan or a Balanced Scorecard? First, identify the priority of that plan or scorecard. For example, let’s say your banking organization wants to increase growth by 30% a year and has been growing at 8% per year. That puts your “current state” at 8% growth. Or, perhaps you work for a manufacturing organization that is producing revenue of $180,000 per employee, and your goal is to grow that to $250,000 per employee. That would put your current state at $180,000 per employee.
Keep in mind, your current state doesn’t have to be financial. If your nonprofit currently serves 10,000 meals a week to the homeless, that is your current state. Or, if you work for a municipal government, you might have 200 public safety incidents per 100,000 citizens per year—another example of current state.
You are likely now thinking, “We have a lot of current states!” And you’re probably right! You can actually run a gap analysis on each one. For the purposes of this article, try to stick with the current state that best represents your entire department.
This future goal is sometimes called a desired state, future target, or stretch goal. In order to accomplish this, you’ll want to think about how you are doing today in your current state (from step one) and where you really want to be within a reasonable timeframe. If you are doing a gap analysis within the context of your strategic plan, take a look at the targets on your plan. These targets may be three to five years out, which is ideal. Where are you with them? To answer that, go back to your current state areas of focus.
- Future state for your bank: 30%.
- Future state for your manufacturing organization: $250,000 in revenue per person.
- Future state for your nonprofit: 20,000 meals per week.
- Future state for your municipality: 100 safety incidents per 100,000 citizens per year.
You could even chart it out and see a clear representation of the current state and the future state.
Now that you’ve recognized where your organization is currently and where you want it to be in the future, it’s time to bridge the gap.
Take a look at the chart above; the “gap” is the gray shaded area, which demonstrates the difference between where you are and where you want to be. When identifying gaps in your department, you need to ensure that your goal and your current state exist in the same time period. So if your future goal is three years out, you need to extrapolate your current state out for three years to see the appropriate gap. For example, if you’re growing at 8% and you want to be growing at 30% a year for three years, you’ll want to consider how much revenue you have currently and how much you’ll have in 3 years at your current pace. If you currently have $100 in revenue, you would be at almost $220 with 30% growth in three years, and $126 with 8% growth in the same time period. So your gap is $94.
Some organizations do not project out three years. Instead, they may say they wish their soup kitchen was serving 25,000 meals today instead of 10,000 meals. Therefore, their gap is 15,000 meals.
This is a great time to figure out why there is a gap.
- Be specific about the gap. For example, if your revenue per employee is $70,000 less than you planned, why is that? Is there some issue with the way you work, with customers, or with your prices?
- Dig deeper and determine why this gap has occurred. Do this by asking questions—and questioning the answers to those questions—until the root causes of the gap become clear. You may have heard about asking “five whys”; below is an example:
- “Why are customers so difficult to work with?” Because they want something custom.
- “Why do they want custom work?” Because they are dealing with a different problem than our company imagined.
- “Why didn’t we imagine the problem the customer is facing?” Because we started out in the healthcare industry and now most of our customers are in the banking industry.
- “Why haven’t we built a product for the banking industry?” Because our product development team isn’t thinking about new product offerings.
- “Why aren’t we thinking about new product offerings?” Because we are too busy building custom products.
Now that you’ve discovered why the gap in your department is taking place, it’s time to figure out the proper course of action to close it. Use the following guidelines to ensure the improvements you come up with are solid:
- Base all improvements on the information you discovered while identifying the gaps. For example, if your team is too busy doing custom work, it will be difficult for them to step back and devise a new product offering. Perhaps if you stop taking on custom work for a few weeks, that will free up your team to create a scalable product for your new target clients.
- Consider the cost of implementation for each solution. Perhaps you don’t have the capability to stop working with your current customers. Can you outsource the development of a new offering? Maybe partner with another organization?
Hopefully, you’ve emerged from your gap analysis exercise with some good ideas—ideas around your performance gaps and how you might address them. But as anyone who’s ever read our blog knows, ideas are nothing without execution. Carrying out those ideas is often more challenging than people expect—especially if they don’t have a concrete way to measure and manage progress over time.
So, don’t stop short after the idea stage. A more complete gap analysis template should include a few additional steps; consider them the “boots on the ground” phase of the analysis exercise—the logistics of getting the job done. Here’s what needs to happen after the gap analysis to put those good ideas into action.
If a gap analysis reveals the problem areas, a framework helps you map them. Frameworks summarize the important parts of your plan and help you stay organized. (Many management teams fail simply because of their disorganization!) They also make it easy for everyone to see why you’re doing what you’re doing—the activities that contribute to achieving a specific goal—which is important for getting buy-in.
There are a lot of strategic planning frameworks out there; we think the Balanced Scorecard is one of the best available because of its unique approach. (Read more about that framework here.) But it’s certainly not the only one. Objectives and Key Results (OKRs), Porter’s Five Forces, and numerous others are also valid options, and any model can be customized to suit the way your business works.
Step 2: Develop your framework with the goals, measures, and projects identified in the gap analysis.
Next, you’ll start filling in the blanks of your framework with information, some of which you determined in the gap analysis:
- Goal(s)—In Step 2 of the gap analysis, you identified where you’d like to be in terms of performance. Those are your goals (also called objectives).
- Measures—Measures are indicators that signal how well you’re accomplishing these goals. You should select one or two measures for each goal.
- Projects—Sometimes referred to as “initiatives,” projects are the action programs you develop to achieve your goals. Step 4 of the gap analysis template focuses on devising solutions to close the gap; those solutions may become the projects you undertake. Most organizations implement one or two initiatives for every goal.
Now it’s time to launch your plan and periodically evaluate how things are going. Make sure you’ve allocated sufficient resources to carrying out the plan—and communicated it to everyone in your organization.
As they say, the devil is in the details. Tracking your performance can actually be quite complicated, so you need a way to manage the strategy execution process. Most organizations use some kind of performance management software, like ClearPoint, to monitor their progress toward goals. Performance management tools allow organizations to track a variety of metrics related to strategic projects to sustain their activities over the long term.
To help explain how a tool like ClearPoint can track performance and close gaps, let’s look at an example.
The performance gap: Say you’re part of the local government of a small, rural town. A gap your team identified as part of the analysis exercise is a lack of new businesses. Therefore, your goal over the next three years is to increase the number of new businesses by 10%.
Why the gap might exist: Step 3 of the gap analysis prompted discussion around why the gap might exist. Research has shown that Millennials are the age group most likely to start a new business, and data of the town’s demographics shows a surprisingly low number of Millennial residents. Other possible reasons: Some of the town’s processes around starting new businesses are very complex, and the town has no developed central area that would help businesses to thrive.
A proposed solution to close the gap: While considering how to close this gap, your team has come up with some possible plans of action, including:
- Taking steps to attract more Millennials both as residents and investors.
- Simplifying the rules for starting new businesses.
- Creating a central, walkable “town center.”
Now that your team has devised some good ideas around closing the identified gap, it’s time to put the plan into action.
Using the Balanced Scorecard as your framework, you’ll use ClearPoint to build out your strategy for improvement, including:
- Your goal: Increase the number of new businesses opening by 10% over the next three years.
- Your measures: The number of new business applicants per year and the number of new business openings per year.
- Your projects: You decide to tackle two projects related to the goal:
- Simplify the rules for starting new businesses.
- Launch an initiative to attract more Millennials as residents and entrepreneurs.
Lastly, you’ll use ClearPoint to track and report on all the information relevant to your gap analysis. You’ll want to:
Integrate ClearPoint with the appropriate data sources. ClearPoint is capable of automatically pulling in data from disparate systems around your organization, so you can view all your performance-related data in a single place.
Link proposed improvements to relevant goals and objectives. ClearPoint allows you to link proposed improvements to goals, so you can see the impact of your gap plan. Our customers frequently use summary reports for gap analyses data related to current and desired states.
Manage your projects. ClearPoint offers a simple way to stay on top of the numerous tasks associated with projects. You can create informative project dashboards and Gantt charts to visualize key data, and assign ownership and accountability to specific individuals.
Track performance to see if you’re meeting targets. You can track both qualitative and quantitative data in ClearPoint, giving you a complete picture of your performance. In addition, our RAG status feature makes it easy to see how you’re doing on your measures (using visual red, amber/yellow, or green indicators), and lets you quickly view trends over time.
Report on your measures. Give each performance measure a reporting frequency, which determines how often you will gather data and report on its progress. Reporting can be time-consuming without software, but ClearPoint has automated most of the reporting process, saving you a significant amount of time. It sends automated reminders to those responsible for updating data and populates reports automatically with data from various sources. And our simple drag-and-drop interface means you can quickly create a variety of dashboards, reports, and scorecards for different audiences.
A gap analysis is a worthwhile exercise, but it must be accompanied by an actual plan for improvement. Forward progress relies on the incremental work that gets done over time.
Tracking is part of that incremental work. Not only does tracking show how well you’re doing, but it also reveals if you’re taking the right actions. If your projects are proceeding on pace, that’s great—but if they aren’t positively impacting your measures, then you may need to reassess whether you’re tackling the right projects to begin with. In this case, you may end up attracting more Millennials to your town as a result of your efforts, but will that ultimately result in an influx of new businesses? Only time—and tracking!—will tell.
A gap analysis identifies the gap between where you are and where you want to be. A drawback, though, is that a gap analysis asses only where you are at a single point in time. It must be repeated and updated periodically. While a gap analysis also highlights current inefficiencies within your organization, it doesn’t pinpoint the cause of these weaknesses or inefficiencies.