Gap Analysis can be understood as a strategic tool used for analyzing the gap between the target and anticipated results, by assessing the extent of the task and the ways, in which gap might be bridged. It involves making a comparison of the present performance level of the entity or business unit with that of standard established previously.
Gap Analysis is a process of diagnosing the gap between optimized distribution and integration of resources and the current level of allocation. In this, the firm’s strengths, weakness, opportunities, and threats are analyzed, and possible moves are examined. Alternative strategies are selected on the basis of:
- Width of the gap
- Chances of reduction
If the gap is narrow, stability strategy is the best alternative. However, when the gap is wide, and the reason is environment opportunities, expansion strategy is appropriate, and if it is due to the past and proposed bad performance, retrenchment strategies are the perfect option.
Types of Gap
The term ‘strategy gap’ implies the variance between actual performance and the desired one, as mentioned in the company’s mission, objectives, and strategy for reaching them. It is a threat to the firm’s future performance, growth, and survival, which is likely to influence the efficiency and effectiveness of the company. There are four types of Gap:
- Performance Gap: The difference between expected performance and the actual performance.
- Product/Market Gap: The gap between budgeted sales and actual sales is termed as product/market gap.
- Profit Gap: The variance between a targeted and actual profit of the company.
- Manpower Gap: When there is a lag between required number and quality of workforce and actual strength in the organization, it is known as manpower gap.
For different types of gaps, various types of strategies are opted by the firm to get over it.
Stages in Gap Analysis
- Ascertain the present strategy: On what assumptions the existing strategy is based?
- Predict the future environment: Is there any discrepancy in the assumption?
- Determine the importance of gap between current and future environment: Are changes in objectives or strategy required?
Whether it is anticipated sales, profit, capacity or overall performance, they are always based on the past, and present figures and some amount of guess are also involved in it. So, the occurrence of the gap is quite natural, but if the gap is large, then it is a point to ponder because it might have an adverse effect on the company’s future.