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Conducting A Gap Analysis: A Four-Step Template
Use this four-step gap analysis template to identify the “gaps” in your performance that may be holding you back.
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.
What is a gap analysis?
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. 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.
How To Conduct A Gap Analysis: 4 Steps To Completion
Step #1: Identify the current state of your department.
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.
Step #2: Identify where you want to be with your 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.
Step #3: Identify the gaps in your department.
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.
Step #4: Devise improvements to close the gaps in your department.
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?
- Identify end dates when you’d like to have the gaps resolved. Without setting an end date for improving the customer experience, it may end up being overlooked or ignored. Set a completion date—even if it is years in the future—and then set milestones to ensure success.
In order to close gaps plan out your organization’s goals using a Three Year/Five Year Strategic Plan
Don’t leave your gap analysis on the shelf to collect dust!
Two final pieces of advice! First, once you’ve worked through this gap analysis template and created your own, be sure to follow up on the improvements. Otherwise, there’s a real risk that the solutions you’ve so carefully engineered will fall through the cracks.
Also, be careful about trying to close too many gaps at once. Sometimes they are all related and it’s easy to do so, but other times, you may end up putting too much stress on the organization and find that no gaps are being closed. A gap analysis can also be complemented by other strategic planning frameworks, including a SWOT Analysis. Using these tools together will help set your organization up for success far into the future.