Gap Analysis: A Template for Connecting Potential with Performance

Gap Analysis: A Template for Connecting Potential with Performance

“Continuous effort,” said Winston Churchill, “not strength nor intelligence, is the key to unlocking our potential.”

At the risk of contradicting Brittain’s Bulldog … that’s only half right.

Effort — what MacArthur Genius Grant winner Angela Duckworth famously dubbed “grit” — is essential to success. However, what unlocks potential is not so much brute force, but a wide-eyed recognition of (1) where we are and (2) a vision for where we want to be.

In business, this process for unlocking potential and fueling growth is known as gap analysis.

This article walks through a simplified process for conducting just such an analysis, along with a downloadable template to guide you.

But, first …

What Is Gap Analysis?

Gap analysis is the quantitative and qualitative comparison of a company or individual’s current performance (i.e., present state) with potential performance (i.e., future or target state). 

It addresses two questions:

  • Performance: Where are we?
  • Potential: Where do we want to be?

Gap analysis goes by many names: need assessment, need analysis, or need-gap analysis. Whatever you call it, the core principle remains the same: to identify and then find solutions to the problems holding your business back.

Gap analysis: performance versus potential

While the process starts with an inward look at current versus potential performance, it doesn’t stop there. Gap analysis should also include outside sources like industry benchmarks and your market’s competitive landscape.

These type of 360-degree analyses can be performed at both strategic or operational levels. You can analyze your overall business direction or go granular into various processes or departments.

After going through the first phase of analysis — performance versus potential — you may find that your results exceed expectations. The same can also be true if your business is currently experiencing fast-paced growth. In those cases, the aim changes from finding problems to identifying success factors that can be repeated, applied to other areas of your business, and ultimately scaled.

Regardless of what you’re evaluating — be it problems or successes, human resources or logistical functions — the actual process of doing the analysis is the same. 

Let’s take a look at exactly what goes into a gap analysis … 

How to Conduct a Gap Analysis

The temptation with gap analysis is to start by going big. Unfortunately, when you try to tackle too much at once — to make everything better, all at the same — resources get stretched thin.

Instead, prioritize the areas where either (1) the biggest positive impact exists or (2) you feel the most pain.

This could be any one of a host of factors:

  1. Sales numbers
  2. Customer satisfaction
  3. Retention rates
  4. Shipping times
  5. Marketing returns
  6. Manufacturing costs
  7. International expansion

Once you’ve isolated an area big enough to make an impact, but small enough to wrap your head and hands around …

1. Identify Your States

Once you have chosen your areas of focus, your first step is to identify both where you currently are — performance — and where you want to be in the future — potential.

For illustrative purposes, let’s select:

  • Multi-channel sales as your Focus
  • Specific outlets as the Channel
  • Current monthly sales as Performance
  • Industry averages as Potential

Gap Analysis: States

(1) Your Current Performance

Every gap analysis starts with introspection. Where are you currently within the metric that you’re analyzing? The idea is to list all the attributes — in this case, Channels — that play a role in success or failure.

The attributes (and thus the analysis) can be quantitative or qualitative. The key is to be specific and factual when identifying possible weaknesses. The required data can be collected from a variety of sources depending on what gap is being analyzed:

  • Industry averages
  • Historical benchmarks
  • Internal documentation
  • Customer interviews
  • Etc. 

(2) Your Potential State

The future state represents the ideal condition in which you want your business to be. For quantitative analysis, like tracking sales numbers, you would include either data from the industry or projected sales (i.e., goals).

When planning for the future, you can be highly specific (e.g. increase sales by 40% overall by the end of Q3) or generic (e.g. start selling on Pinterest).

(3) Your Gaps

Defined quantitatively, gaps are straightforward. What are the numerical differences between where you are and where you want to be?

Qualitatively, this will take a bit more introspection and collaboration.

2. Describe the Gap

Having identified the gaps, the next step is to describe the gap to better understand the reasons behind their existence.

If you’re currently ahead of your targets, then it’s a great time to analyze what exactly made the results possible and if there are ways to use the same principles in other areas of your company.

Even a well-performing system can always be optimized, so going through this step is crucial.

Gap Analysis: Describe the Gaps

(1) Gap

This one is easy. Simply carry over the gaps you identified in the previous step, starting with the most underperforming areas first. In our example, we’ve chosen email because that’s where the widest gap between performance and potential exists.

(2) Gap Description

The point of a gap description is to record all the contributing factors responsible for the gap. Therefore, the description has to be consistent with those states. These can either be quantitative or qualitative.

However, more often than not, to address the reasons behind the gaps, you’ll use qualitative descriptions.

(3) Why?

The challenging question here is not how far your actual performance fell below target, but why the gap exists. To be of any use, this list has to be specific, objective, and relevant to the issue at hand.

It helps to brainstorm possible causes of poor performance, and then narrow those down using tools like the “five whys” analysis …

Five Whys in Gap Analysis

The “Five Whys” is an iterative technique used to explore the cause-and-effect relationships underlying a particular problem. Its primary goal is to determine the root cause of a problem by repeating the question “Why?” with each question forming the basis for the next question.

Although this technique is called the five whys, it doesn’t mean that you have to ask “Why?” five times. The idea is to repeat the process for as long as it takes to identify the root cause(s). It can take fewer or more than five “whys” before you arrive at the underlying issue.

Rather than go the multi-channel ecommerce route, let’s look at a situation where customers are unhappy because they’re being shipped products that don’t meet their expectations.

1. Why are customers being shipped bad products?

Because manufacturing built the products with materials different from what the customer expects based on advertising.

2. Why did manufacturing build the products with different materials than advertised?

Because the supply-chain manager expedites work on the shop floor by calling the head of manufacturing directly to begin production. An error occurred when the specifications were being communicated.

3. Why does the supply-chain manager call the head of manufacturing directly to start work instead of using written communication?

Because the “start work” form requires the supply-chain manager’s direct approval before work can begin.

4. Why does the form require approval from the supply-chain manager?

Because the manufacturer does not offer a digital integration with your company’s current ecommerce platform.

In this case, only four whys were required to find out that a non-value-added signature — driven by a lack of integration — caused the gap.

Five Whys Limitations

While the example analysis above did lead to a satisfactory answer, this might not always be the case. The method provides no hard and fast rules about what lines of questions to explore or how long to continue the search for additional root causes.

Thus, the outcome still depends upon the knowledge and persistence of the people involved. Plus, there are situations where a multitude of problems all play a role and it’s extremely hard to decide which one of them is the main root of the gap.

Still, the “Five Whys” can be useful in identifying underlying problems. And, by being aware of the limitations of the method beforehand, it’s possible to use it effectively while steering clear of its shortcomings.

Once we have gone through the process of identifying gaps and the reasons behind them, it’s time to start working on finding solutions.

3. Bridge the Gap

The third and final step is to brainstorm all the possible solutions to the gap and the reasons behind it. These solutions must be specific and directly impact the factors listed in the previous step.

To do that, let’s return to the multi-channel focus from before:

Gap Analysis: Solutions

By creating an exhaustive list of solutions to the gap-description summary, you enable yourself to think wide and yet position yourself for practical implementation.

When formulating possible solutions, it’s important to keep in mind that there may be implementation costs involved. Those costs can include time, money, and human resources.

Final Thoughts on Gap Analysis

In the end, gap analysis yields a detailed examination of the …

  1. Problems that exist in your current performance
  2. Reasons behind those problems
  3. Possible solutions and their associated costs

Instead of brute force — or “shooting from the hip” — you’ll have hard data on which to base your decisions along with a roadmap to guide you.

This doesn’t mean you’ll be able to avoid Churchill’s emphasis on “continuous effort.” But it does mean your effort will be intelligent.

After all, as the old cliche goes: work smarter, not harder.

About the Author

Aaron Orendorff is the Editor in Chief of Shopify Plus as well as a regular contributor to sites like Mashable, Lifehacker, Entrepreneur, Business Insider, Fast Company, The Huffington Post and more. You can connect with him on Twitter or LinkedIn.