Gap analysis
Encyclopedia
In business
and economics
, gap analysis is a tool that helps companies compare actual performance with potential performance. At its core are two questions: "Where are we?" and "Where do we want to be?" If a company or organization does not make the best use of current resources, or forgoes investment in capital
or technology, it may produce or perform below its potential. This concept is similar to the base case of being below the production possibilities frontier.
Gap analysis identifies gaps between the optimized
allocation
and integration of the inputs (resources), and the current allocation level. This reveals areas that can be improved. Gap analysis involves determining, documenting, and approving the variance between business requirements and current capabilities. Gap analysis naturally flows from benchmarking
and other assessments. Once the general expectation of performance in the industry is understood, it is possible to compare that expectation with the company's current level of performance. This comparison becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization.
Gap analysis is a formal study of what a business
is doing currently and where it wants to go in the future. It can be conducted, in different perspectives, as follows:
Gap analysis provides a foundation for measuring investment of time, money and human resources required to achieve a particular outcome (e.g. to turn the salary payment process from paper-based to paperless with the use of a system). Note that 'GAP analysis' has also been used as a means for classification of how well a product or solution meets a targeted need or set of requirements. In this case, 'GAP' can be used as a ranking of 'Good', 'Average' or 'Poor'. This terminology does appear in the PRINCE2
project management publication from the OGC (Office of Government Commerce)
.
The need for new products or additions to existing lines may emerge from portfolio analysis, in particular from the use of the Boston Consulting Group Growth-share matrix
—or the need may emerge from the regular process of following trends in the requirements of consumers. At some point, a gap emerges between what existing products offer and what the consumer demands. The organization must fill that gap to survive and grow.
Gap analysis can identify gaps in the market. Thus, comparing forecast profits to desired profits reveals the planning gap.: This represents a goal for new activities in general, and new products in particular.
The planning gap can be divided into three main elements:
This is an important calculation. Many, if not most marketers, accept existing market size—suitably projected their forecast timescales—as the boundary for expansion plans. Though this is often the most realistic assumption, it may impose an unnecessary limit on horizons. For example: the original market for video-recorders was limited to professional users who could afford high prices. Only after some time did the technology extend to the mass market.
In the public sector, where service providers usually enjoy a monopoly, the usage gap is probably the most important factor in activity development. However, persuading more consumers to take up family benefits, for example, is probably more important to the relevant government department than opening more local offices.
Usage gap is most important for brand leaders. If a company has a significant share of the whole market, they may find it worthwhile to invest in making the market bigger. This option is not generally open to minor players, though they may still profit by targeting specific offerings as market extensions.
All other gaps relate to the difference between existing sales (market share) and total sales of the market as a whole. The difference is the competitor share. These gaps therefore, relate to competitive activity.
This segmentation may result from deliberate policy. Segmentation and positioning are powerful marketing techniques, but the trade-off—against better focus—is that market segments may effectively be put beyond reach. On the other hand, product gap can occur by default; the organization has thought out its positioning, its offerings drifted to a particular market segment.
The product gap may be the main element of the planning gap where an organization can have productive input; hence the emphasis on the importance of correct positioning.
this step process can be summarised as below:
Identify the existing process,
Identify the existing outcome,
Identify the desired outcome,
Identify the process to get the desired outcome,
Document the gap.
develop the means to fill the gap
Many marketers would question the worth of the theoretical gap analysis described earlier. Instead, they would immediately start proactively to pursue a search for a competitive advantage.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
and economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, gap analysis is a tool that helps companies compare actual performance with potential performance. At its core are two questions: "Where are we?" and "Where do we want to be?" If a company or organization does not make the best use of current resources, or forgoes investment in capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
or technology, it may produce or perform below its potential. This concept is similar to the base case of being below the production possibilities frontier.
Gap analysis identifies gaps between the optimized
Operations research
Operations research is an interdisciplinary mathematical science that focuses on the effective use of technology by organizations...
allocation
Resource allocation
Resource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource...
and integration of the inputs (resources), and the current allocation level. This reveals areas that can be improved. Gap analysis involves determining, documenting, and approving the variance between business requirements and current capabilities. Gap analysis naturally flows from benchmarking
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
and other assessments. Once the general expectation of performance in the industry is understood, it is possible to compare that expectation with the company's current level of performance. This comparison becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization.
Gap analysis is a formal study of what a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
is doing currently and where it wants to go in the future. It can be conducted, in different perspectives, as follows:
- OrganizationOrganizationAn organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
(e.g., human resources) - Business direction
- Business processBusiness processA business process or business method is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers...
es - Information technologyInformation technologyInformation technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
Gap analysis provides a foundation for measuring investment of time, money and human resources required to achieve a particular outcome (e.g. to turn the salary payment process from paper-based to paperless with the use of a system). Note that 'GAP analysis' has also been used as a means for classification of how well a product or solution meets a targeted need or set of requirements. In this case, 'GAP' can be used as a ranking of 'Good', 'Average' or 'Poor'. This terminology does appear in the PRINCE2
PRINCE2
PRojects IN Controlled Environments 2 is a structured project management method endorsed by the UK government as the project management standard for public projects. The methodology encompasses the management, control and organisation of a project...
project management publication from the OGC (Office of Government Commerce)
Office of Government Commerce
The Office of Government Commerce is part of the Efficiency and Reform Group of the Cabinet Office, a department of the Government of the United Kingdom...
.
The need for new products or additions to existing lines may emerge from portfolio analysis, in particular from the use of the Boston Consulting Group Growth-share matrix
Growth-share matrix
The BCG matrix is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines...
—or the need may emerge from the regular process of following trends in the requirements of consumers. At some point, a gap emerges between what existing products offer and what the consumer demands. The organization must fill that gap to survive and grow.
Gap analysis can identify gaps in the market. Thus, comparing forecast profits to desired profits reveals the planning gap.: This represents a goal for new activities in general, and new products in particular.
The planning gap can be divided into three main elements:
Usage gap
This is the gap between the total potential for the market and actual current usage by all consumers in the market. Data for this calculation includes:- Market potential
- Existing usage
Market potential
The maximum number of consumers available is usually determined by market research, but it may sometimes be calculated from demographic data or government statistics. Ultimately there are, of course, limitations on the number of consumers. For guidance one can look to the numbers who use similar products. Alternatively, one can look to what happened in other countries. Increased affluence in all major Western economies means such a lag can now be much shorter.Existing usage
Existing consumer usage makes up the total current market, from which market shares, for example, are calculated. It usually derives from marketing research, most accurately from panel research, such as conducted by the Nielsen Company, but also from ad hoc work. Sometimes it may be available from figures collected that governments or industries have collected. However, these are often based on categories that make bureaucratic sense but are less helpful in marketing terms. The 'usage gap' is thus:- usage gap = market potential – existing usage
This is an important calculation. Many, if not most marketers, accept existing market size—suitably projected their forecast timescales—as the boundary for expansion plans. Though this is often the most realistic assumption, it may impose an unnecessary limit on horizons. For example: the original market for video-recorders was limited to professional users who could afford high prices. Only after some time did the technology extend to the mass market.
In the public sector, where service providers usually enjoy a monopoly, the usage gap is probably the most important factor in activity development. However, persuading more consumers to take up family benefits, for example, is probably more important to the relevant government department than opening more local offices.
Usage gap is most important for brand leaders. If a company has a significant share of the whole market, they may find it worthwhile to invest in making the market bigger. This option is not generally open to minor players, though they may still profit by targeting specific offerings as market extensions.
All other gaps relate to the difference between existing sales (market share) and total sales of the market as a whole. The difference is the competitor share. These gaps therefore, relate to competitive activity.
Product gap
The product gap—also called the segment or positioning gap—is that part of the market a particular organization is excluded from because of product or service characteristics. This may be because the market is segmented and the organization does not have offerings in some segments, or because the organization positions its offerings in a way that effectively excludes certain potential consumers—because competitive offerings are much better placed for these consumers.This segmentation may result from deliberate policy. Segmentation and positioning are powerful marketing techniques, but the trade-off—against better focus—is that market segments may effectively be put beyond reach. On the other hand, product gap can occur by default; the organization has thought out its positioning, its offerings drifted to a particular market segment.
The product gap may be the main element of the planning gap where an organization can have productive input; hence the emphasis on the importance of correct positioning.
Gap analyses to develop a better process
The gap analysis also can be used to analyse gaps in processes and the gap between the existing outcome and the desired outcome.this step process can be summarised as below:
Identify the existing process,
Identify the existing outcome,
Identify the desired outcome,
Identify the process to get the desired outcome,
Document the gap.
develop the means to fill the gap
Market gap analysis
In the type of analysis described above, gaps in the product range are looked for. Other perspective (essentially taking the "product gap" to its logical conclusion) is to look for gaps in the "market" (in a variation on "product positioning," and using the multidimensional "mapping"), which the company could profitably address, regardless of where the current products stand.Many marketers would question the worth of the theoretical gap analysis described earlier. Instead, they would immediately start proactively to pursue a search for a competitive advantage.