Gap analysis

Gap analysis is a tool that organizational managers can use to work out the size, and sometimes the shape, of the strategic tasks to be undertaken in order to move from its current state to a desired, future state.

A very useful tool

Analysis of gaps is a very effective technique for guiding the planning team in looking for corporate strategies to achieve targeted levels of corporate performance.

This kind of analysis is a very simple procedure. So often the simplest tools are the most useful!

However certain other key things must be in place to be able to take advantage of this tool.

Requirements for effective gap analysis

Catch me at Trafeze

The things are required -

  • Clearly agreed indicators of overall corporate performance; it is highly desirable that that the indicator of overall corporate performance should be traceable through a range of business performance metrics, in the form of simple cause and effect relationships, sometimes called a value driver tree.
  • Sound data feeding the results measured by the key performance indicators (KPI) used in the organization, including data on the performance of the organization for the past few years.
  • An agreed time span for the strategic planning exercise for comparing forecast performance under different assumptions. These various sets of assumptions may be trialled in a process of scenario planning.
  • Before performing an analysis the strategic planning team needs to undertake target setting. The targets for desired future performance of the organization need to be set using the corporate performance indicator mentioned above. Target setting should be done with possible risks of corporate collapse in mind.
  • The availability of forecasting techniques, for the strategic planning team to use in the business forecasting of likely corporate results under various scenarios.  This may sometimes warrant the employment of business forecasting software.

With all of these things in place then the analysis consists of addressing two questions, and measuring the difference between the two answers.

Where do we intended to be in X years, where ‘X’ is the planning horizon, say usually at least 3 years for corporate strategic planning? This is the target setting question.

Where are we likely to be in level of corporate results, in X years if we do not do anything different to what we currently are doing? This is the business forecasting question.

The difference between the two sets of results is the ‘gap’ to be closed by changes to strategies.

A simple version of gap analysis is depicted in this diagram-

The challenge for the strategic planning team is to close the gap. The key process for finding what is required to do this is called the SWOT Analysis.

This kind of analysis can be used in many contexts. To clarity how we use the term here see What is Gap Analysis?

Further clarification of the concept can come from studying sample analyses.

Return from Gap Analysis to Corporate Objectives.

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