What is gap analysis?
Gap analysis is a methodology that can help you assess the overall position of your business vs. your aspirations.
In particular, it allows you to understand:
You can perform gap analysis using this template.
Where can you apply the gap analysis methodology?
You can apply the gap analysis methodology to any key component of your business, including your:
Why you should conduct a periodic gap analysis on your IT systems?
It is particularly important to perform periodic gap analysis on your IT systems, as they are subject to fast technical obsolescence or become insufficient, when business grows materially.
In both cases IT systems can become a bottleneck, as they are no longer sufficient to meet your internal needs and those of your customers and suppliers.
This often leads to difficulties to keep up to your competitors and ultimately reduces business growth.
Conducting an IT gap analysis can help you:
The methodology to conduct gap analysis on IT is somewhat similar to the general one (described below), but it is normally made more complicated by the presence of interdependencies among its systems and components and the core processes.
The detailed questions that you should answer in your gap analysis
Assess your Current State
Your current state encompasses financial and non financial metrics (generally referred as Key Performance Indicators or KPIs), that are important for your business:
In larger organizations, these metrics are typically included in the Balance Score Card, on which management teams are assessed.
Start with one of these KPIs to “test and learn” the gap analysis methodology:
Then repeat it for all metrics in scope.
Identify your Future State
Identifying your future state means setting a goal for each of your metrics in 3 to 5 years from now (it may be shorter once you learn how to apply this methodology) and possibly in one year from now.
How do you set these targets? How can you ensure that they are realistic and achievable?
Quantify the gaps and understand what causes them
The understanding of the gaps is the most difficult part of the gap analysis activity.
You can calculate the gap as the difference between a metric’s current state and future state, so this is actually quite straightforward!
You then need to understand the causes of the gap, in order to be able to address it, and this is the difficult part, as you need to dig deeper in the reasons why the gap exists.
For example: if your revenues per employees are 30% lower today than in the future state:
You will need to often go two or three levels down to identify the root cause and be able to address it.
Definite how you plan to close the gaps and prioritize your efforts
Now that you have defined the gaps and their root causes, you will need to determine the actions to address these root causes in order to close them.
In order to improve the probability of success, you need to quantify the cost, the effort and time required to implementation the solution that will close the gap:
You will then need to compare the benefits (business impact of closing the gap) to the costs (cost of closing the gap) and try to prioritize them on financial and non financial criteria.
For example spending money to comply with new regulations may need to be prioritized, as you may get fined if you do not comply with them by the deadline (not due to the positive business impact that they bring!).
Remember! You may not be able to fix them all the gaps you found at once, as you do not have enough resources (financial, human, …) or management bandwidth, so also these elements should be considered in the prioritization exercise.
Once you have set the priorities, you need to create a comprehensive implementation plan.
Having a plan (with dates and milestones) is crucial to achieve successful implementation, as it can be monitored and corrective actions can be put in place, if required.
Learn more on how to develop an action plan,
Getting into action
Once the plan is ready, you will quickly need to move from theory to action:
This is not easy, and will require a lot of time and effort, but you need to remain focused on the target: closing all the gaps and achieve your potential!