Performing gap analysis involves working out the size of the strategies needed to move an organization from its current state to a desired, future state.
The challenge for the strategic planning team is to close the gap.
At some point, a gap emerges between what existing strategies can achieve, and what the beneficiaries of the organization require. The organization must fill that gap to remain able to fulfil its corporate purpose.
The procedure for carrying out gap analysis is not very complicated. Key things must be in place to use this tool effectively.
With all of the above requirements met, then doing gap analysis involves asking two questions, and measuring and interpreting the difference between the two answers.
Gap analysis requires targets to be set
Where does the enterprise intend to be in X years? ‘X’ is the planning horizon; say five years for corporate strategic planning.
Doing gap analysis requires making forecasts
Where the organization is likely to be in level of corporate results, in X years if we do not do anything different to what we currently are doing.
The difference between the two sets of results is the ‘gap’ to be closed by changes to strategies.
This diagram depicts a simple version of gap analysis -
In reality, a single point target or forecast is quite unrealistic. To enable realistic accountabilities for managers a bracket of targets should be set.
Performing gap analysis requires setting two targets and making two forecasts
Now the challenge! Not only am I recommending forecasting corporate performance out over say five years; I am asking you to do two of them!
Managers go to great lengths to avoid admitting they cannot see into the future. I insist that managers make the most honest possible admission of the true range of errors. This is so that the planning team can see how vulnerable their organization is to the uncertain realities of the world in which they operate. This way of carrying out gap analysis reduces the strong psychological barriers that can lead to extremes of optimism or pessimism.
First, the planning team should set a minimum target level or Tmin. Below this level, the organization would be in danger of failing. At this level, the governing body would feel an urgent need to replace the Chief Executive Officer, or even contemplate winding up the organization. Targets should be set at a level above this, as satisfactory achievement.
Do not set single point forecasts. Set a bracket of forecasts going from worst case, pessimistic, to optimistic.
This diagram shows the double forecast, double target setup -
This may make doing gap analysis a little more complicated. This does not mean it is a very difficult exercise! See how simple and useful it can be. Try this helpful online service. This double target and forecast method of performing gap analysis has the benefit of getting the strategic planning team to acknowledge, and deal with, possible risks right at the beginning of the planning process.
A useful strategic planning process will have risk management built in throughout the process, not just treated as an add-on. For information on such a process, check out the Argenti System.
Performing gap analysis with brackets of targets and forecasts also leads to deeper insights into the organization’s strategic situation.
The result of this double forecast, when compared with the double target, is that whole ranges of strategic implications reveal themselves to the planning team. These implications can have a big influence on the selection of corporate strategies.
For one thing, they will know that they must seek a two-dimensional strategy, one that takes them to soaring heights of performance if things go well, and yet does not condemn them to the pits if things go wrong!
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