Is the process of determining whether an organization performs specific activities in a manner that represents a best practice?

A gap analysis is a method of assessing the performance of a business unit to determine whether business requirements or objectives are being met and, if not, what steps should be taken to meet them.

A gap analysis may also be referred to as a needs analysis, needs assessment or need-gap analysis.

The "gap" in the gap analysis process refers to the space between "where we are" as a part of the business (the present state) and "where we want to be" (the target state or desired state).

Gap analysis applications

In information technology, gap analysis reports often are used by project managers and process improvement teams as the starting point for an action plan to produce operational improvement. The gap analysis also helps in benchmarking actual business performance so it can be measured against optimal performance levels.

Performance gaps can be measured across multiple areas of the business, including customer satisfaction, revenue generation, productivity and supply chain cost.

Small businesses, in particular, can benefit from performing gap analyses when they're in the process of figuring out how to allocate resources.

In software development, gap analysis tools can document which services or functions have been accidentally left out; which have been deliberately eliminated; and which still need to be developed.

In compliance initiatives, a gap analysis can compare what is required by certain regulations with what currently is being done to abide by them.

In human resources (HR), a gap analysis can be done to examine which skills are present in the workforce and what additional skills are needed to improve the organization's competitiveness or efficiency.

How to conduct a gap analysis

The first step in conducting a gap analysis is to establish specific target objectives by looking at the company's mission statement, strategic business goals and improvement objectives.

The next step is to analyze current processes by collecting relevant data on performance levels and how resources are presently allocated to these processes. This data can be collected from a variety of sources depending on what is being analyzed. For example, it may involve looking at documentation, measuring key performance indicators (KPIs) or other success metrics, conducting stakeholder interviews, brainstorming and observing project activities.

After a company compares its target goals against its current state, it can then draw up a comprehensive plan. Such a plan outlines a step-by-step process to fill the gap between its current and future states, and to reach its target objectives. This is often referred to as strategic planning.

What's in a gap analysis template?

While gap analysis methodologies can be either concrete or conceptual, gap analysis templates often have the following fundamental components in common.

The current state

A gap analysis template starts off with a column that might be labeled "Current State." It lists the processes, workflows and characteristics an organization seeks to improve, using factual and specific terms.

Areas of focus can be broad, targeting the entire business; or the focus may be narrow, concentrating on a specific business process. The choice depends on the company's target objectives.

The analysis of these focus areas can be either quantitative, such as looking at the number of customer calls answered within a certain time period; or qualitative, such as examining the state of diversity in the workplace.

The future state

The gap analysis report should also include a column labeled "Future State," which outlines the target condition the company wants to achieve.

Like the current state, this section can be drafted in concrete, quantifiable terms, such as aiming to increase the number of fielded customer calls by a certain percentage within a specific time period. Or it may be worded in general terms, such as working toward a more inclusive office culture.

Gap description

This column should first identify whether a gap actually exists between a company's current and future state. If so, the gap description should outline what constitutes the gap and the root causes that contribute to it.

This column lists those reasons in objective, clear and specific terms. Like the state descriptions, these components can be quantifiable or qualitative. They might cite factors such as the lack of diversity programs or the difference between the number of currently fielded calls and the target number of fielded calls.

Next steps and proposals

This final column of a gap analysis report should list all the possible solutions that can be implemented to fill the gap between the current and future states.

These objectives must be specific, directly speak to the factors listed in the gap description and be put in active and compelling terms. They should include clear objectives and a time frame for achieving them.

Some examples of the next steps include hiring a certain number of additional employees to field customer calls, instituting call volume reporting and launching specific office diversity programs and resources.

Gap analysis tools and examples

There are a variety of gap analysis tools and methodologies on the market, and the particular tool a company uses depends on its target objectives. The following are some common gap analysis methods:

McKinsey 7-S Framework

This gap analysis tool, introduced by consulting firm McKinsey & Co., is used to determine specific aspects of a company that are meeting expectations. An analyst using the 7-S model examines the characteristics of a business through the lens of seven people-centric groupings:

• strategy
• structure
• systems
• staff
• style
• skills
• shared values

The analyst fills in the current and future state for each category, which would then highlight where the gaps exist. The company can then implement a targeted solution to bridge that gap.

SWOT analysis

SWOT, which stands for strengths, weaknesses, opportunities and threats, is a gap analysis strategy used to identify the internal and external factors that drive the effectiveness and success of a product, project or person.

Once these factors are determined, the company can determine the best solution by playing to its strengths and allocating resources accordingly, while avoiding potential threats.

Nadler-Tushman model

The Nadler-Tushman organizational congruence model, named after Columbia University professors David A. Nadler and Michael L. Tushman, examines how business processes work together and how gaps affect the operational efficiency of the organization as a whole.

The model helps to identify these operational gaps by analyzing the company's operational system as one that transforms inputs into outputs. It divides the business processes into three groups: input, transformation and output. Input includes the operational environment, tangible and intangible resources used and the company culture.

Transformation encompasses the existing systems, people and project activities currently in place that convert input into output. Outputs can take place at a system, group or individual level.

The Nadler-Tushman model puts a spotlight on how inadequate inputs and transformation functions that fail to work together cohesively can lead to gaps. It also focuses on how gaps in the outputs can point to problems in the inputs and transformation functions.

This model highlights how the various components fit together or are congruent. The more congruent these parts are, the better a company performs. The Nadler-Tushman model is a dynamic one that changes over time.

Strategic management is the ongoing planning, monitoring, analysis and assessment of all necessities an organization needs to meet its goals and objectives. Changes in business environments will require organizations to constantly assess their strategies for success. The strategic management process helps organizations take stock of their present situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented management strategies. Strategic management strategies consist of five basic strategies and can differ in implementation depending on the surrounding environment. Strategic management applies both to on-premise and mobile platforms.

What are the benefits of strategic management?

Strategic management is generally thought to have financial and nonfinancial benefits. A strategic management process helps an organization and its leadership to think about and plan for its future existence, fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability.

Strategic management concepts

Strategic management is based around an organization's clear understanding of its mission; its vision for where it wants to be in the future; and the values that will guide its actions. The process requires a commitment to strategic planning, a subset of business management that involves an organization's ability to set both short- and long-term goals. Strategic planning also includes the planning of strategic decisions, activities and resource allocation needed to achieve those goals.

Having a defined process for managing an institution's strategies will help organizations make logical decisions and develop new goals quickly in order to keep pace with evolving technology, market and business conditions. Strategic management can, thus, help an organization gain competitive advantage, improve market share and plan for its future.

Five stages of strategic management process

There are many schools of thought on how to do strategic management, and academics and managers have developed numerous frameworks to guide the strategic management process. In general, the process typically includes five phases:

• assessing the organization's current strategic direction;
• identifying and analyzing internal and external strengths and weaknesses;
• formulating action plans;
• executing action plans; and
• evaluating to what degree action plans have been successful and making changes when desired results are not being produced.

Effective communication, data collection and organizational culture also play an important part in the strategic management process -- especially at large, complex companies. Lack of communication and a negative corporate culture can result in a misalignment of the organization's strategic management plan and the activities undertaken by its various business units and departments. (See Value of organizational culture.) Thus, strategy management includes analyzing cross-functional business decisions prior to implementing them to ensure they are aligned with strategic plans.

Types of strategic management strategies

The types of strategic management strategies have changed over time. The modern discipline of strategic management traces its roots to the 1950s and 1960s. Prominent thinkers in the field include Peter Drucker, sometimes referred to as the founding father of management studies. Among his contributions was the seminal idea that the purpose of a business is to create a customer, and what the customer wants determines what a business is. Management's main job is marshalling the resources and enabling employees to efficiently address customers' evolving needs and preferences.

IT leadership and management

In the 1980s, a Harvard Business School professor called Theodore Levitt, developed a different strategy with a focus on the customer. This strategy was different from the previous emphasis on production -- i.e., creating a product of high quality ensured success.

Distinctive competence, a term introduced in 1957 by sociology and law scholar Philip Selznick, focused on the idea of core competencies and competitive advantage in strategic management theory. This enabled the creation of frameworks for assessing the strengths and weaknesses of an organization in relation to the threats and opportunities in its external environment. (See SWOT analysis).

Canadian management scientist Henry Mintzberg concluded that the strategic management process could be more dynamic and less predictable than management theorists had thought. In his 1987 paper, "The Strategy Concept I: Five Ps for Strategy," he argued "the field of strategic management cannot afford to rely on a single definition of strategy." Instead, he outlined five definitions of strategy and their interrelationships:

• Plan: Strategy as a consciously intended course of action to deal with a situation.
• Ploy: Strategy as a maneuver to outwit a competitor, which can also be part of a plan.
• Pattern: Strategy stemming from consistency in behavior, whether or not intended and which can be independent of a plan.
• Position: Strategy as a mediating force or match between the organization and environment, which can be compatible with any or all of the Ps.
• Perspective: Strategy as a concept or ingrained way of perceiving the world -- e.g., aggressive pacesetter vs. late mover -- which can be compatible with any or all of the Ps.

SWOT analysis

A SWOT analysis is one of the types of strategic management frameworks used by organizations to build and test their business strategies. A SWOT analysis identifies and compares the strengths and weaknesses of an organization with the external opportunities and threats of its environment. The SWOT analysis clarifies the internal, external and other factors that can have an impact on an organization's goals and objectives.

The SWOT process helps leaders determine whether the organization's resources and abilities will be effective in the competitive environment within which it has to function and to refine the strategies required to remain successful in this environment.

Balanced scorecard in strategic management

The balanced scorecard is a management system that turns strategic goals into a set of performance objectives that are measured, monitored and changed, if necessary, to ensure the strategic goals are met.

The balanced scorecard takes a four-pronged approach to an organization's performance. It incorporates traditional financial analysis, including metrics such as operating income, sales growth and return on investment. It also entails a customer analysis, including customer satisfaction and retention; an internal analysis, including how business processes are linked to strategic goals; and a learning and growth analysis, including employee satisfaction and retention, as well as the performance of an organization's information services.

As explained by the Balanced Scorecard Institute:

"The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets)."

Value of organizational culture

Organizational culture can determine the success and failure of a business and is a key component that strategic leaders must consider in the strategic management process. Culture is a major factor in the way people in an organization outline objectives, execute tasks and organize resources. A strong organizational culture will make it easier for leaders and managers to motivate employees to execute their tasks in alignment with the outlined strategies. At organizations where lower-level managers and employees are expected to be involved in the decision-making and strategy, the strategic management process should enable them to do so.

It is important to create strategies that are suitable for the organization's culture. If a particular strategy does not match the organization's culture, it will hinder the ability to accomplish the strategy's intended outcomes.