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Gap analysis involves determining the current state of affairs, setting a future level of success, and identifying the steps needed to get there. It can be applied to any context where improvement is needed and is often used in business planning. The first step is to set a performance measure, followed by establishing a time period and expected level of performance. Finally, steps are identified to close the gap, either strategically or tactically.
You can perform a gap analysis by determining a current state based on a measure of success, deciding on a future level of success, and discovering the steps it would take to get there. Analysis is often used in a business context as part of the strategic planning process. In any context, gap analysis is ultimately a way to measure actual versus potential performance. Once the performance gap is defined, the functional analysis moves on to the various approaches to fill the gap.
Gap analysis can be applied to a company as a whole, a particular department, a product or a process. It can be used in any ordinary business context or in any context where room for improvement is a standard measure. For example, a company may analyze the current market penetration of a product against a desired level of future penetration. A school, by comparison, can analyze the success of current operations against metrics that the school must meet to achieve certain standards.
In any case, the first step in performing a gap analysis is to set up the performance measure. A company can use any measurable statistic, such as profitability, market share or sales levels. Schools may use academic measures, such as standardized test scores, graduation rates, or proficiency levels in math and reading. The performance measure is used to determine the current or actual state of affairs.
The next step in a gap analysis is to establish a time period over which change will be measured. For example, a company may use gross profit margin as a measure of performance. It then decides how many years into the future it wants to project potential performance. This period of time will be particular to each situation. For a business, it might depend on the company’s inventory turnover, while a school might use an academic year or a term set by a government agency.
Third, determine what level of performance you expect to achieve by the end of the time period. What differentiates it from simply setting goals and objectives in the vacuum of wishful thinking is a strategic analysis of competitive probability. Gap analysis is only relevant if it is first determined that a certain future state is reasonably attainable under market conditions or if it must be attainable according to set standards. It works from the premise that there are operational deficiencies that need to be corrected or business opportunities that have yet to be explored.
Finally, identify the steps needed to close the gap. These passes generally fall into the strategic or tactical category. For example, a strategic plan to fill a product market share gap would focus on theories of market development, penetration, and diversification. A tactical plan will focus on specific tasks, such as changing the price, running a promotion, or introducing the product into new stores.
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