In a blink of an eye, the first quarter of 2016 is over, and a month of Q2 has disappeared. So naturally it’s time to do a little spring cleaning and take stock of how far you’ve come from what you planned, compared to your actual performance to date. What worked? What didn't? And why?
One good way to analyse your results is to go through a process known as a “gap analysis.” It’s a good way to either stay- or get back on track with your business.
I like it. Here’s why you should too.
What Is Gap Analysis Anyway?
In essence, gap analysis addresses two questions: "where we are" (the present state) and "where we want to be" (the target state).
Gap analysis can have many different names. Sometimes it is referred to as a need-gap analysis, need analysis or even need assessment. Whatever you want to call it, the core principle is still the same – to find solutions to problems that are holding your business back.
The process involves looking at your current, actual performance and comparing that with your planned and/or potential and/or desired performance. But it doesn’t stop there. A gap analysis can also be performed by benchmarking your results against industry averages to find gaps in performance relative to your competition.
It can be performed on a strategic or operational level. You can analyse your overall business direction and that of the industry, or go more granular into different business processes.
There is no right or wrong way to go about it. It all simply depends on your objectives.
As a quick example, let's say that your ecommerce business is down on sales projections by X%. After going through the gap analysis process, it turns out that your sales are down because of an unreliable and slow hosting service that is causing all sorts of problems.
The solution would be to migrate to a reliable hosted ecommerce platform like Shopify Plus. And your analysis shows that it will take X number of our developers working around Y weeks on it exclusively with a total cost of around Z dollars. But in the long run, that’ll save you lot of money.
By going through a 360 degree analysis like the one described above, you can not only find the gaps that are there but also brainstorm and evaluate all the different reasons, solutions and costs involved with fixing your business problems.
And you can also use the same process to reverse engineer success.
After going through the first phase of analysis (current versus planned performance), you may find out that your results exceed expectations. If that is the case, your aim then changes from finding problems to identifying success factors.
Regardless of what you're evaluating, be it success or problems, human resources or business functions, the actual process of doing the analysis is the same.
So let’s take a look at exactly what goes into a successful gap analysis, shall we?
How to Conduct a Gap Analysis
When it comes to actually conducting a gap analysis, the basic concept sounds easy enough: You look at where you are and where you want to be, and if there’s a gap you work on closing it. Simple, right?
Needless to say, it’s a bit more complicated but the basics stay the same. It doesn’t matter if you’re looking at:
- Sales numbers
- Customer satisfaction
- Shipping times
- Marketing processes
- Facebook campaign efficiency etc
The basic process stays the same - find a cap and and work on closing it.
It might be tempting to go for the Hail Mary and try to work on everything at once but that will be a mistake - when you’re trying to make everything better at he same it very rarely works out and all you're doing is stretching your resources thin.
Instead, prioritize caps that have the biggest immediate positive impact and work on those first. CRO’s guru Peep Laja’s advice of “optimizing closest to the money” applies here as well.
When clients are telling you that they are not happy with your shipping time and they are constantly choosing your competition over you, it makes sense to work on filling the caps on shipping!
But enough about theory, let’s get analyzing!
Step 1: Identify Current and Future States
Once you have chosen your areas of focus, your first step is to identify both where you currently are and where you want to be in the future (or where you should be/planned to be).
1.1 Your Current State
Every gap analysis starts with introspection – where are you currently within the vertical/goal that you’re analysing? The idea is to list all the attributes that play a role in that vertical.
The attributes (and thus the analysis) can be quantitative (via numbers) or qualitative (via statements). The key is to be specific and factual with an emphasis on identifying (possible) weaknesses. The required data can be collected from a variety of sources depending on what's being analyzed, such as by looking at documentation, conducting interviews, brainstorming, observing project activities and more.
1.2 The Future State
The future state represents the ideal condition in which you want your business to be. In the case of quantitative analysis, like tracking sales numbers, you would include your planned sales for the period that you’re analysing.
When planning for the future, you can be highly specific (e.g. increase sales by 40% by the end of June) or generic (e.g. start selling on Pinterest).
When you’re doing gap analysis as a form of self-improvement, you can skip the future state all together as your aim is not to plan but to get an understanding of where you are right now.
Step 2: Describe the Gap
Step 2 is where you identify and describe the gap to better understand it and the reason behind its existence.
If you’re in a fortunate situation whereby you are currently ahead of your targets, then it’s a great time to analyse 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.
2.1 Gap Identification
This one is easy, a simple yes or no answer will suffice here. The description of the gap will made in the next column.
2.2 Gap Description
The point of a gap description is to record all the elements that make up the gap between the current and future states identified. Therefore, the description has to be consistent with those states. This, like the states before, can either be quantitative (via numbers) or qualitative (via statements).
2.3 Factors Responsible for the Gap
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 described below.
“5 Whys” Analysis
Image via Sathish Chandramouli
The “5 Whys” is an iterative technique used to explore the cause-and-effect relationships underlying a particular problem. It's primary goal is to determine the root cause of a problem by repeating the question "Why?" with each question forming the the basis for the next question.
Although this technique is called “5 Whys,” it doesn’t mean that you have to ask “Why?” five times. The idea is that you 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 problem(s).
As an example, let’s look at a situation where your customers are unhappy because they’re being shipped products that don’t meet their expectations.
1st: Why are customers being shipped bad products?
A: Because manufacturing built the products to a specification that is different from what the customer and the sales person agreed upon.
2nd: Why did manufacturing build the products to a different specification than that of sales?
A: Because the salesperson expedites work on the shop floor by calling the head of manufacturing directly to begin work. An error happened when the specifications were being communicated or written down.
3th: Why does the sales person call the head of manufacturing directly to start work instead of following the procedure established by the company?
A: Because the “start work” form requires the sales director’s approval before work can begin and slows the manufacturing process (or stops it when the director is out of the office).
4th: Why does the form contain an approval from the sales director?
A: Because the sales director needs to be continually updated on sales for discussions with the CEO.
In this case only four Whys were required to find out that a non value-added signature authority causing a process breakdown.
“5 Whys” Criticism
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 in causing the problem and it’s extremely hard to decide which one of them is the main cause.
Sure, the “5 Whys” analysis is not without its drawbacks. However, it can still 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 the gaps and understand the reasons behind them, it’s time to finally start working on finding a solution.
Step 3: Bridge the Gap
The third and last step is to brainstorm all 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.
When coming up with possible solutions to the problems and gaps that we have identified, it’s important to keep in mind that there may be implementation costs involved .
Those costs can include time, money and also human resources (as in the worker(s) who’ll implement the damn changes). So, you’ll have to be mindful that those workers will be taking time away from their normal everyday tasks.
If you’ve followed this process properly, you’ll end up with a nice list of problems or gaps that exist in your current business processes. You’ll also understand the reasons behind those problems, plus you’ll determine all possible solutions and associated implementations costs to remedy the situation(s).
Instead of “shooting from the hip,” you’ll have actual hard data on which to base your decisions. And with this kind of system in place, taking care of business gets a whole lot easier.
About The Author
Ott Niggulis is a chef/paramedic/freelance writer who focuses on marketing and CRO. Marketing is a numbers game and he loves numbers. Follow him on Twitter.