demand and supply gap analysis in business plan

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13 Analyzing the Gap Between Demand and Supply

After planning the resources your plans require (demand) and the resources that you expect to be available to meet those demands (supply), you can see how well they match up by looking at the gap between demand and supply. Then you can take action to minimize those gaps.

To view the supply and demand summary data and their variance, click Supply vs Demand . In the top left form, you can view the data. In the charts, you can review the trends.

To view the difference between supply and demand headcount, click Supply vs Demand Headcount . This information helps guide you in addressing the gap by updating your hiring or training plans. Examples:

Transfer people from non-strategic jobs to strategic jobs.

Add training courses to build strategic skills.

Hire people that have needed strategic skills.

Create incentive programs to retain people with strategic skills.

• > Economics

A Guide to Demand and Supply Analysis

• Yashoda Gandhi
• Feb 15, 2022

Introduction

The study of how buyers and sellers interact to determine transaction prices and quantities is known as demand and supply analysis. As we'll see, prices reflect both the value of the next (or marginal) unit to the buyer and the cost to the seller of that unit. 

The most basic set of microeconomic tools in private enterprise market economies, which are the primary concern of investment analysis , is demand and supply analysis.

Consumers (or households) and firms are the two types of private economic units classified by microeconomics. The theory of the consumer and the theory of the firm are two branches of study based on these two groups. 

The consumer theory is concerned with utility-maximizing individuals' consumption (demand for goods and services) (those who make decisions to maximise satisfaction from current and future consumption).

The firm theory is concerned with profit-maximizing firms' provision of goods and services. The consumer and firm theories are important because they help us understand the underlying principles of demand and supply. The theory of the consumer and the theory of the firm will be the focus of subsequent readings.

What is Supply and demand analysis ?

Two laws are at the heart of a supply and demand analysis: the law of demand and the law of supply. According to  The Business Professor , the law of demand states that as prices rise, the quantity of desired goods and services decreases. The law of supply, on the other hand, states that as prices rise, so does the number of goods and services available.

A technical assessment of securities based on factors influencing supply and demand for a specific security or for securities in general. The purpose of the supply-demand analysis is to see if there is or will be an imbalance between supply and demand for securities. 

For instance, if a security's supply is expected to exceed demand, the security should be sold or avoided because its price is likely to fall. New stock offerings, government borrowing, pension fund contributions, mutual fund cash balances, and a variety of other similar factors are all factored into the supply-demand analysis.

Also Read |  Factors affecting the supply of a product

When to apply Supply and demand analysis ?

With a few exceptions, the law of demand states that as the price of a good or service rises, so does the quantity demanded. The law of supply states that as a supplier's price rises, so does the quantity supplied. Demand is often a downward sloping curve in the price-quantity plane, whereas supply is an upward sloping curve.

The market equilibrium is defined as the intersection of the supply and demand curves, which determines the equilibrium levels of price and quantity of a particular good (or service) in the economy. Excess demand describes a situation in which the current demand for a good (or service) in the economy exceeds the equilibrium quantity.

In a similar vein, excess supply is defined. Changes in supply and demand (and thus the equilibrium price and quantity) of any good or service can be influenced by a variety of factors, including policy changes, unexpected economic shocks, business cycle fluctuations such as a recession or a boom, or even simply over time (long run versus short run).

It also depends on the market's characteristics (whether the market is perfectly competitive or monopolistic etc.). The study of supply and demand, or simply 'Demand-Supply Analysis,' could be applied to all of the above. (source)

Supply-demand analysis tool

A comprehensive strategic planning approach includes supply and demand analysis. Because the market and consumer habits are rapidly changing, it's all about making sure you're always responding in the best way possible to the needs of the customers you're trying to serve.

This tool will give you a solid foundation for a supply and demand analysis, which can then be used to inform a more comprehensive strategic planning process.

The Supply/Demand Analysis feature is a chart that is directly embedded in the scenario. The graph shows the supply and demand planning data over time in a combined view.

The supply data is shown as a stacked bar graph, with the area stacked vertically according to the building or lease. The demand data is shown as a line graph that is superimposed on the bars. This graph depicts how an organization's space or area supply compares to its demands.

You can use this tool to interactively analyse scenario options to match forecasted business demand to portfolio space supply over time. The graphical analysis tool can assist you with the following:

Visually identify supply-demand gaps that necessitate action planning to meet demand or maximise portfolio utilisation.

Consider what-if supply-side scenarios for lease contract options, new building expansions, and portfolio consolidations.

Examine the effects of demand-side changes in order to match supply or close gaps.

Also Read |  11 Types of Economic Theory

Importance of demand and supply analysis

Demand analysis.

For a new business, the analysis can determine whether there is a significant demand for the product/service, as well as other information such as the number of competitors, size of competitors, industry growth, and so on. It aids in determining whether a company can enter a market and generate sufficient returns to sustain and grow its operations.

Demand analysis aids in identifying key business areas with the highest demand and areas that require attention, as low demand can indicate a variety of issues, such as customers not being aware of the product/service, which necessitates increased advertising and promotion, or customer needs not being met by current product/service, which necessitates improvements, or competitors have sprung up with better offerings, among other things.

Supply analysis

Supply analysis aids manufacturers in determining the impact of changes in production and policies on the increase or decrease in finished goods supply. 

For example, newer upcoming technology can aid in the production of more goods in the same amount of time. The results of the analysis can be used to determine whether or not this new technology should be adopted. 

Is there a demand for more products if this technology can help produce more? What effect will it have on the current labour market, and how will it affect supply?

Another example is the impact of market wage increases on supply. The cost of labour will rise, and with it, the cost of goods will rise as well. 

If the supply must be maintained at the same level, the costs must be maintained at the same level, and if the supply must be maintained at the same level, the supply must be reduced, driving up prices if the demand remains constant. These are some of the questions that supply analysis aims to address.

Also Read |  What is Scarcity in Economics?

Demand analysis parameters

Price of similar products.

As we discussed in the first two points about price and purchasing power, the price of a competitor's product or service enters the equation and can influence demand. If a competitor's price is lower, demand for that product will be higher, and vice versa. In the case of luxury or niche products, the situation may be different.

Customer preferences and requirements

Consumer behaviour must be taken into consideration. The product or service must match the preferences of the customer; otherwise, there will be no demand for it.

Price set by the product itself

In demand analysis, the product's price is very important. Demand will be affected if the price is too high in comparison to competitors or what the customer can afford. It can be low or high, depending on the product or service's price point.

Profits from customers

Customer purchasing power has a significant impact on product demand. If a product or service is offered at a price point that is higher than a customer group's affordability, demand will be low, so customer income must be considered.

Customers in the market

Customers drive demand, so the potential market is an important parameter for demand analysis. If the customer base is too small for a viable business, even if the first five points are favourable, demand will never rise because the customer base is too small.

Expectations

Based on the overall industry landscape, the customer may have expectations for a new or existing product. For example, if every competitor in the market provides free warranty service but one company does not, that company is unlikely to meet customer expectations. (source)

Example of demand-supply analysis in tariffs

A tariff is a tax imposed on goods from other countries that are sold in the United States. Assume that foreign-made automobiles are subject to a 10% tax.

Who would be the ones to bear the brunt of this tax? Assume that a Japanese car and a similar American car both sell for $25,000 in the United States.

According to the source , with the ten per cent tax ($2,500) on Japanese cars, the Japanese company wants to raise the price to $27,500. The tariff will be imposed on Japanese automobile manufacturers.

A tariff on a foreign product with very elastic demand is referred to as an optimal tariff in technical terms. In the United States, the price of a foreign product rises very slowly.  

Also Read |  Law of Diminishing Marginal Utility

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The Complete Guide to Gap Analysis

By Joe Weller | October 17, 2018 (updated September 17, 2023)

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A gap analysis is a tool that can help businesses identify where they aren’t living up to their potential, and then use that information to plan ways for improvement. Learn how gap analyses work, find examples, and follow our step-by-step guide to perform one for your company.

What Can a Gap Analysis Do for You?

A gap analysis measures actual against expected results to identify suboptimal or missing strategies, processes, technologies, or skills. Use the results of a gap analysis to recommend actions that your company should take to meet its goals.

By comparing the current state with the target state, companies, business units, or teams can determine what they need to work on to make their performance or results better and get on the right path quicker. Companies can also use the gap analysis process to elevate individual or team performance, and look at attributes such as task competency, performance level, and productivity. Other names for the process include need-gap analysis, needs analysis, and needs assessment.

As opposed to a risk assessment , which tend to be forward-looking, a gap analysis examines the current state. ANSI (American National Standards Institute), ASIS (American Society for Industrial Security), and RIMS (Risk and Insurance Management Society) standards say that risk assessment includes the identification, analysis, and evaluation of uncertainties to objectives and outcomes of an organization.

You can also look at a gap analysis as a means of comparing performance to potential. In other words, how far did a person, group, or product fall from their capacity? Did the resources fall short of the needs?

Gap analysis is a process that, when applied to other business processes, becomes a reporting process used for improvement. When applied to manufacturing or production, a gap analysis can help balance the allotment and integration of resources from their current allocation level closer to an optimal level. Those resources can be time, money, material or human resources.

Concrete vs. Conceptual

You can perform a concrete gap analysis thats looks at the real world, or a conceptual one that examines hypothetical scenarios. While you can use the same template in both exercises, when performing a conceptual gap analysis, you’ll need to make assumptions about which parameters to use. Conversely, use real facts and data for a concrete analysis.

Strategic vs. Operational

A gap analysis can be strategic and focus on the overall organization and the planning and execution at that level, or it can be operational and focus on the day-to-day work of a team or department. Since both methods are based on real-world situations, there’s no need to make assumptions.

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Gap Analysis Examples

Many business departments use the gap analysis process, including accounting, sales, customer service, and human resources. Below you’ll find a few specific examples of scenarios in which a company can use a gap analysis:

New Product Launch : After a company launches a new product, they might do a gap analysis to determine why sales didn’t meet forecasts.

Productivity : When a factory’s productivity is not meeting expectations, targeted customer needs, or the set of business requirements that were laid out a gap analysis can help determine what process to fix.

Supply Management : If a hospital finds itself running short of supplies on a regular basis, they could perform a gap analysis to identify the reason why.

Sales Performance : A manufacturer can look at the sales performance of their catalog of products to make sure they are producing the right mix, and use the result to maximize their production–possibility frontier.

Individual Assessment : A team leader at an accounting firm can have each member perform a gap analysis on themselves, and use those results not only to find targets to improve each person’s performance, but also to draw out the best practices that everyone can adopt.

Product Evaluation : A software company might perform a gap analysis of their product to ensure that all features and functions outlined in the business requirements are present and working as expected.

Why Do Businesses Perform a Gap Analysis?

Businesses perform gap analyses to identify the difference between where they are with where they want to be. You can use a gap analysis to evaluate those differences, identify the causes, and inform the steps needed to bridge the gap.

In project management, the difference between the way a company is performing a task or activity and the ideal way it could be performed is called CΔV (pronounced “C delta-V”), or the current gap vision . The difference between a target for a metric and the actual metric performance is called AΔT (pronounced “A delta-T”), or the actual gap target .

Below are some reasons that a company might perform a gap analysis:

Benchmarking : Comparing results against external criteria. A computer company may want to see where they stand against industry performance criteria, or a candy company may want to compare their reputation with their competitors.

Portfolio Analysis : Examining their product portfolio to look for new sales opportunities, a company can use a gap analysis to identify new products to sell. In the opposite direction, they can also look for existing products that are not selling well, use a gap analysis to find out why, then promote them (e.g. feature them more promentilty in marketing or put them on sale), change them to better meet customer needs, or remove them from their portfolio.

Profits : If a forecast profit percentage isn’t reached, a company can use a gap analysis to determine what went wrong, and whether it was in planning or execution. Was the organization paying higher-than-expected expenses for materials, or having to lower prices due to unexpected competition?

Processes : A gap analysis can help reveal the shortcomings of processes, so that the real outcomes match the expected outcomes. A shipping firm could examine their AP process to see why so many of their vendors are not getting paid on time, or examine their billing processes to see why many of their suppliers don’t get their invoices until after the due date.

Performance Indicators : A gap analysis can also be applied to key performance indicators like new customer acquisition, average order amount, or return on investment (ROI) . A mobile carrier could look for the reasons that caused them to miss their customer acquisition goal, or a seafood company could seek the reasons they didn’t process as much salmon as expected.

Usage Gaps : A usage gap is the difference between current market size for a product or service, and the potential market size. A gap analysis in this area can help an organization see why they are not reaching the full potential. Is a company's reputation pushing down sales? Or did management misread the demand for a product?

What Is a Market Gap Analysis?

A market gap analysis is a method of researching sales opportunities where the demand outweighs the supply. An organization can use these analyses, which can be performed internally or externally, to make decisions based on market facts, rather than opinion.

A market gap analysis differs from market research in that it’s proactive rather than reactive. Business to consumer (B2C) companies take advantage of this process often. The market they might investigate can be geographic (there’s nobody selling anything like our product on the west coast), product based (there was a time when no one was selling mobile phone cases that doubled as wallets), service based (there may a lot of dogs in a city, but not many dog walkers or other pet care businesses), or look for a way to better utilize existing resources (think of Uber launching Uber Eats).

What Is a Strategic Gap Analysis?

A strategic gap analysis compares a company’s strategy to that of its competitors. A business can then adopt the top-performing aspects of its competitors’ approaches and integrate these aspects within the most successful parts of its own existing strategy.

When to Perform a Gap Analysis

A company can perform a gap analysis at any time, but be thoughtful about timing to maximize its effectiveness. Conduct gap analyses on a regular basis, before a period of strategic planning, or whenever a department or venture is underperforming.

A gap analysis is often a key part of strategic planning , which is a process that helps an organization define a strategy to accomplish its goals. By looking for issues via a gap analysis, the business can adjust its strategy to better fit the situation, or update the company's processes to align with the strategy.

When an organization is looking for problems with their performance, a gap analysis can be a key tool in identifying where things are falling short. For example, if a company wants to start a marketing campaign to improve their reputation or apply for a loan, they could perform a market gap analysis to help determine their impact on the their local economy and use that data as part of their campaign or loan application. Similarly, when a company is preparing for an audit or other oversight activities, a gap analysis is a proactive way of showing the auditors which regulations the company is complying with, and that it has a plan to meet the rest.

Benefits and Challenges of a Gap Analysis

Gap analyses benefit organizations in many ways, such as identifying growth opportunities and prioritizing resources. They can also be difficult and time consuming, and require in-depth knowledge of the department they’re targeting. We’ve outlined the top benefits and challenges below:

Insight into areas that need improvement, such as efficiency, products, profitability, processes, customer satisfaction, performance, participation, and competitive advantage

Ensuring that project requirements have been met

Finding areas of weakness and shortcomings to address

Uncovering differences in perception vs. reality

Providing information to guide decision makers, which can lead to better decisions

Finding the best places to deploy resources and focus energy

Prioritization of needs

If performed well, the results of a gap analysis are clear and easy to understand

While valuable, gap analyses are not perfect. Some challenges related to the gap analysis process include the following:

Successful completion depends on knowledge and persistence of the people involved in the process.

While the process may expose some causes, if it doesn't go deep enough, the proposed resolutions will not address the real root cause or can miss the complexities behind them. For example, when evaluating sales performance, an analysis might conclude that sales reps are not offering a new product enough, but may not find out why. Are they not familiar enough with the product? Are customers unwilling to change from an exsisiitng product? Or does the new product not work as advertised?

The analysis can be inaccurate, as the ground is constantly shifting (especially in large organizations or in fast-moving industries)

How to Perform a Gap Analysis

Performing a gap analysis is straightforward. First, identify the area to evaluate and state its ideal outcome. Next, analyze its current state. Compare that with the ideal results, and quantify the difference. Finally, make a plan to bridge the gap.

In larger organizations, the gap analysis process is generally the responsibility of business analysts, project managers, process improvement teams, or management. But with a little training, and a well-designed gap analysis template , anyone can work through the process.

Some organizations may already have a process outlined that you can follow. However, the basic steps for performing a gap analysis are explained below.

Identify the area to be analyzed and identify the goals to be accomplished . For example, you may want to figure out why your factory is not meeting its output target. The goal will be to discover the causes that contributed to targets not being met, and recommend how to remove the causes.

Establish the ideal future state . If everything worked according to plan, where would you be?

Analyze the current state . What causes contributed to the targets being missed? For example, were the workers not trained well enough? Was the production floor short-staffed? Were required materials consistnelty available? Did the layout of the production floor slow things down?

Compare the current state with the ideal state . How far from the target was actual production? For example, did you expect to produce 1,000 units per hour, but only managed to produce 800 units per hour?

Describe the gap and quantify the difference . In the unit production example (described in step 4), there would be a 20 percent shortfall. After researching the potential causes, outline the contribution of each to the gap. In this example, we may find that insufficient training caused 5 percent of the gap, staffing problems caused 7 percent, material shortages caused 2 percent, and inefficient layout of the factory floor caused 14 percent. Companies can use other ratings systems to quantify the difference that can be as basic as simple terminology like good, fair, and poor, to something more detailed like a 1-50 scale.

Summarize the recommendations and create plan to bridge the gaps . Decide what needs to be changed and determine what steps need to be taken to fix things. In this example, the team performing the analysis may decide the layout issue is the easiest to tackle and will have the greatest impact, so they might recommend ways to address it. Then they could work with the supply chain and staffing teams to create recommendations for those issues as well. They would summarize their ideas and present it to management to begin planning the improvements.

Gap Analysis Best Practices

When performing a gap analysis, be thoughtful about which areas, items, and processes to analyze, and which recommendations to adopt. Understand that the changes you make may affect others. Ensure your goals are specific, measurable, achievable, relevant, and time-bound (SMART).

Back up your recommendations with supporting data from your analysis to increase the likelihood that your company will adopt them. Use charts to illustrate your data and make it easier to understand. It’s also imperative to consider cost, resources, and consequences when recommending problems to address and solutions. Remember, if a solution is out of reach, the company is unlikely to adopt it.

Assign an owner to each part of the process to ensure that you complete each step. By digging deep into the proposed solution, you’ll find it might not be easy to achieve. Look beyond the obvious to see if there are other possible solutions. 

Learn more about how creating SMART goals can ensure that your gap analysis is as effective as possible.

Frameworks for Gap Analysis

You can use a framework for your gap analysis, like the Nadler-Tushman Model and the PESTEL framework, to simplify the process. Use each framework listed below as an organizing principle for both the causes you discover and your proposed solutions.

McKinsey 7Ss Framework The McKinsey framework has seven categories: strategy, structure, systems, shared values, skills, style, and staff. The first three are considered “hard” and the rest are considered “soft.”

An example of a misalignment might be if a production line requires 20 people to operate at full capacity, but the graveyard shift only has 15 people available. In this case, there's a misalignment between systems and staff.

Nadler-Tushman Congruence Framework This model breaks a company's’ performance into four areas: work, people, structure, and culture. Note each area’s strengths and weaknesses, and then compare them to the other areas. The goal is to find out if the work being done in each area supports the others. For example, if a compliance group is performing their tasks at a high level and finds areas where the company is not following certain laws and regulations, but the company’s organization doesn't have any way to implement these changes, the people and structure are not congruent.

SWOT Framework SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats. While some experts see gap analysis and SWOT analysis as separate tools, SWOT is a useful tool for organizing both the the causes and the recommendations. However, the threat portion veers into risk assessment, and as mentioned previously, a gap analysis is not a risk assessment.

Download a free SWOT analysis template to get started with this framework.

PESTEL Framework PESTEL is another acronym and stands for political, economic, social, technological, environmental, and legal. While it can be a standalone analysis, a company can also use it as a gap analysis framework.

Fishbone Framework The fishbone diagram is a tool created by Kaoru Ishikawa, a Japanese quality control expert. The method is designed to identify problem causes and divide them into categories, similar to the other frameworks above. While the image above illustrates six categories that are used in manufacturing, there are other sets of categories that other business areas use. A couple of these are outlined below.

The 8 Ps of Product Marketing

Physical evidence

Performance

The 4 Ss of Service

Surroundings

What Is a Gap Analysis for a Bank?

In the banking sector, a gap analysis evaluates risk by looking at the balance of assets and liabilities. The analysis determines if there is a negative gap (when liabilities exceed assets) or a positive gap (when assets exceed liabilities).

The banking gap analysis doesn’t take potential interest rate changes into account, and generally focuses on near-future time periods (one month out, three months out), so it is a limited tool.

What Is a Gap Analysis in the Pharmaceutical Industry?

A gap analysis (also known as validation gap analysis ) in the pharmaceutical industry looks at the difference between regulatory requirements affecting a company, and the practices and processes that a company currently uses.

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How To Perform A Gap Analysis: 5-Step Process (+ Free Template)

Most of us have at least a rough vision of where we'd like to take our organization. But sometimes, knowing where and how to begin can be challenging. This is where the process of gap analysis comes into play.

Gap analysis is a great strategic analysis tool that gives us a broad framework for defining not just where we are today, but more importantly where we want to be and how we're going to get there.

⚠️ Don't just identify the gap, close it! Understanding strengths and weaknesses is key, but translating insights into action is where the magic happens. Cascade Strategy Execution Platform bridges the gap between analysis and execution. Talk to a strategy expert and see how to turn your gap analysis into real progress.

In this article we’ll cover:

What is a gap analysis, what are the benefits of a gap analysis, gap analysis use cases & examples, types of gap analysis, how to do a gap analysis: the 5-step process, gap analysis tools & frameworks, free gap analysis templates to download, close the gap through execution 🚀.

A gap analysis is a process of comparing your current state to your desired future state. This process includes assessing the actual performance of your organization to determine whether business goals or objectives are being met and, if not, creating an action plan that will bridge the identified gap.

It's a great tool to use as part of the internal analysis of your company. Almost all major businesses usually assign the completion of a gap analysis template to project managers or business analysts.

Conducting a gap analysis is actually quite simple, but it can also have its challenges. That’s why it’s useful to follow a step-by-step approach to ensure your strategic planning is well-structured and meaningful in assessing your business goals.

Gap analysis forces you to think about your current situation, your desired future state, the root causes of the gaps between the two, and the action plan to bridge that gap in a very structured and clear manner.

Think about it as the bridge that will get you from point A (your current state) to point B (your desired state).

But apart from that, it presents a framework for collaborating on creating a strategic plan and a common execution roadmap that is visible and aligned with all stakeholders. When multiple people are involved in strategic planning and execution, their different approaches can sometimes conflict with each other.

A gap analysis can also be used as a way to analyze historical performance . The first time you run a gap analysis process, you will explicitly capture the current performance of your business (in both qualitative and quantitative forms). So the next time you do one, you will have a benchmark against which you can compare your most recent performance to efficiently set goals.

To streamline your gap analysis process, we've developed a free gap analysis template . This handy tool poses thought-provoking questions that guide you in developing a robust strategic plan, integrating all the pieces seamlessly.

So, everything sounds great. But, when is the best time to go through the gap analysis process?

Gap analysis is most useful when you need to:

• Create a new strategy for your team and want to understand where you currently sit
• Figure out the right areas of focus to achieve your business goals
• Develop a new product understanding the gap between your current offer and what customers want
• Find out why you aren't meeting important KPIs and strategic objectives
• Develop a change management strategy , but you need first to identify the gap between the current and desired state.
• Identify opportunities to improve current processes or workflows
• Prepare for an audit and showcase how you are proactively addressing any gaps
• Prepare a strategic plan and prioritize resource allocation

These are, of course, just some use cases... Gap analysis is a versatile tool that can be applied to multiple different scenarios. The best part is that it’s suitable for companies and teams of all sizes and industries.

Let’s check out some “real-life” scenarios where a gap analysis would be a great option:

‍ Example 1: Technology Company New Product Launch

A technology company plans to launch a new mobile app to expand its product offerings and reach a wider audience. To ensure the app's success, they conduct a gap analysis to evaluate their current app development processes, features, and user interface compared to competitors in the app market.

By identifying gaps and areas for improvement, they refine the app's functionalities, enhance user experience, and align it better with customer needs, positioning it as a standout solution in the competitive app market.

Example 2: Human Resources Strategic Plan

The Human Resources (HR) team at a medium-sized organization faces challenges with employee retention and satisfaction. To improve the HR department's performance, they conduct a gap analysis to assess their current practices, employee feedback mechanisms, and talent management strategies.

By pinpointing gaps between existing practices and desired outcomes, they develop a strategic action plan. This plan includes implementing effective employee engagement programs, talent development initiatives, and performance management systems, leading to improved retention rates and increased employee satisfaction.

Example 3: Digital Transformation In Manufacturing

A manufacturing company aims to undergo a digital transformation to enhance operational efficiency and adapt to evolving industry demands. They perform a gap analysis to evaluate their current technology infrastructure, data management processes, and workforce skills in relation to the digital transformation objectives.

By identifying gaps in technology and skills, they develop a comprehensive digital transformation strategy . This includes upgrading technological capabilities, implementing data analytics systems, and providing relevant training to employees, facilitating a successful transition to an advanced and digitally enabled manufacturing environment.

In each of these scenarios, gap analysis plays a crucial role in identifying areas for improvement and guiding strategic decisions. By bridging the identified gaps, these organizations can effectively meet their goals, improve their overall performance, and stay competitive in their respective industries.

As you can probably imagine from the previous examples, gap analysis comes in different forms, and each serves a unique purpose to tackle specific challenges and opportunities within an organization.

Here are some types of gap analysis you might find helpful:

• Performance Gap Analysis : Evaluates the difference between an organization's current performance and its desired future state to identify areas for improvement and enhance overall efficiency and effectiveness.
• Market Gap Analysis : Focuses on analyzing the gap between customer expectations and the products or services offered by a company, helping to identify opportunities to meet market demands and gain a competitive edge. ‍
• Product Gap Analysis : Assesses the features, pricing, and qualities of a product or service against customer needs and expectations to identify gaps and prioritize improvements or innovations. ‍
• Skills Gap Analysis : Analyzes the existing skill sets of employees in an organization and compares them with the skills required to meet organizational goals, leading to targeted training and development initiatives. ‍
• Compliance Gap Analysis : Evaluates an organization's adherence to relevant laws, regulations, and industry standards, identifying areas of non-compliance and guiding efforts to meet legal requirements. ‍
• Financial Gap Analysis : Compares an organization's current financial performance with its financial objectives, uncovering discrepancies and guiding financial planning and decision-making. ‍
• Technology Gap Analysis : Assesses an organization's technology infrastructure, systems, and capabilities, comparing them with the technology required to support its strategic goals and digital transformation initiatives. ‍
• Environmental and Social Gap Analysis : Focuses on an organization's environmental and social impact, identifying gaps in sustainability practices and providing insights for implementing responsible and eco-friendly strategies.

Before we dive in, grab our free Gap Analysis Template to have a better idea of what the final outcome should look like. Follow the step-by-step guide below and fill the template with your own data or use it as a reference to build your own template.

Step 1: Define your focus areas

The first step in creating a gap analysis is to set some boundaries. You can also think of this as defining the scope of your analysis.

It would be easy to talk about your desired future state in general grandiose terms:

“My desired future state is to be the biggest and best company in Asia!!!”

There's little value in these kinds of exercises. Instead, you should have a rough idea of which areas you want to improve.

While we've written extensively about how to create strategic focus areas , here are some typical areas that people often settle on:

• Financial growth
• Customer excellence
• Employee happiness
• Scientific achievement
• Community impact

In short, focus areas should quickly describe what you are trying to improve with your gap analysis.

🤓 Want to dive deeper into focus areas? Read our go-to guide on how to define focus areas .

Step 2: Identify your desired future state

Whoa...hang on a second - shouldn't we be starting with the current state rather than the future state? You'd think so, wouldn't you - and indeed, most of the other gap analysis guides tell you to do that. But there's a problem...

Your organization doesn't have one single current state - it has thousands depending on which team, which measure, or even which person you're talking about.

So despite what you might read in other gap analysis guides, defining your current state without any idea of your future state is, at best, a useless process (and, at worst, an impossible one).

So instead, we start our own gap analysis process with the definition of our future state.

This is where having strategic focus areas really comes in handy. Let's assume that you selected 'Innovation' as one of your focus areas.

You'll want to start by framing your desired future state for 'Innovation' in fairly broad terms (we'll be getting more specific later on).

Broadly speaking, my desired future state for 'Innovation' is:

“To be recognized as one of the most innovative SaaS platforms in the industry.”

Remember, we're keeping things fairly high-level at this stage - so try to avoid adding any specific KPIs or measures to this part of your gap analysis.

Here are a few more examples of desired future states for a range of focus areas:

My desired future state for 'Customer Excellence' is:

“To achieve market-leading customer retention and referrals.”

My desired future state for 'Community Impact' is:

“To make lasting & meaningful changes to the lives of people in the community.”

Once you have identified a high-level desired future state for each of your focus areas, it's time to move on to the next stage of our analysis process.

Step 3: Assess your current state

The next part of performing a gap analysis involves getting a better understanding of where you are today - your current state .

Once again, we'll be using the focus areas that we defined in Step 1 to scope our gap analysis. We'll be starting off high level and then getting more specific in Step 4 .

For each of your focus areas, write a sentence that gives a realistic summary of your current state. Try to use similar language and structure to the one you used when defining your desired future state above.

For example, for our 'Innovation' focus area, we might summarize our current state as:

“We are not currently known for innovation; however, our software does contain a couple of unique features.”

For our 'Customer Excellence' focus area we might say:

“We have high customer satisfaction and retention in our Enterprise segment, but our smaller customers are significantly less satisfied with their experience .”

Or finally, for our 'Community Impact' focus area we might say:

“Most members of the local community are not currently aware of our presence.”

Remember that for this part of your gap analysis, it's more important than ever to be 100% honest and realistic about your strengths and weaknesses.

You might already be aware of your current state because you’re experiencing a particular problem you’re trying to solve (a specific gap you’re trying to close). But it’s not always the case.

🔎There are numerous tools, methodologies, and internal/external analysis frameworks you can use to assess your current state (like SWOT Analysis, PEST, McKinsey 7-S, etc) . These do not replace your gap analysis but rather help you make a good diagnosis of your company to clearly see where your gaps are. We’ll cover some of these tools in the following section: Gap Analysis Tools & Frameworks .

Step 4: Apply metrics / KPIs to your gap analysis

It's time to get specific about what we want to achieve and how we're going to do it by adding some specific metrics or KPIs (Key Performance Indicators) for each one of our focus areas.

Here are a few tips on how to select the right KPIs for your gap analysis:

• Select KPIs you can actually measure, and decide on your measurement approach
• Choose KPIs you already have a baseline for, so that the gap can be easily measured
• Apply both leading and lagging KPIs to achieve a complete set of measures for each focus area

Let's dive into some specific KPI examples that you can use as part of your gap analysis. We'll start by defining the targets for our desired future state, and underneath write down how this looks for our current state.

Focus area 1: 'Innovation'

1. Leading KPI: Dedicate at least 50% of our developer resources to creating new features.

(current state: <10% of developer resources are on creating new features)

2. Lagging KPI: Achieve an 'Innovation' score of over 80% on at least one customer review website.

(current state: Our 'Innovation' score on g2crowd.com is less than 60%)

Focus area 2: 'Customer Excellence'

1. Leading KPI: Achieve an average customer NPS score of at least +7.

(current state: Our NPS score is less than 3 on average)

2. Lagging KPI: Decrease our overall gross % customer churn to less than 10% per annum.

(current state: Our gross % customer churn is greater than 20% per annum)

Focus area 3: 'Community Impact'

1. Leading KPI: Raise our community awareness to 70%.

(current state: Our community awareness is less than 20%)

2. Lagging KPI: Get directly involved in at least 3 major political initiatives.

(current state: We’re not participating in any political initiatives currently)

The 'gap' component of your gap analysis is the variance between the KPIs of your current state and your desired future state.

For example, you could say that we have a gap of 50% between our current level of community awareness (20%) and our desired future state of community awareness (70%).

Step 5: Create an execution-ready action plan and roadmap

Creating a gap analysis leads to the crucial step of formulating an action plan and roadmap to address the identified gaps. This process involves defining specific projects for each focus area, aiming to close the gaps identified in Step 4 .

Think of your gap analysis action plan as a series of projects that directly contribute to achieving the Key Performance Indicators (KPIs) set in the previous step for each focus area.

Let's brainstorm some specific examples of projects you could add to yout action plans for each focus area:

• Project 1: Hire four additional developers dedicated to new feature development.
• Project 2: Implement an 'Innovation Check' for all new features to ensure they meet the definition of “innovation”.
• Project 1: Launch an automated survey to gather reasons for customer cancellations.
• Project 2: Establish a dedicated retention team in customer service to handle cancellation requests.
• Project 1: Launch a local TV advertising campaign.
• Project 2: Increase our spend on online advertising by $5,000 per month.

It's up to you how many projects you want to create, but typically, you'll have at least two for every gap. You'll also have to use your own best judgment about whether these projects are likely to close the gap!‍

Now, let's talk about the roadmap .

As you create the action plan, it's essential to establish a clear time frame for each project and determine realistic deadlines and milestones to track progress effectively. This roadmap will guide your organization on the sequence of actions to take, the allocation of resources, and the expected time frames for achieving those significant milestones. Having a well-defined roadmap will help your team stay focused, organized, and motivated throughout the implementation process.

🎁Bonus step: Execute, monitor and adapt your plan

Congrats! You’ve developed your action plan and set targets and KPIs to measure success.

What’s next?

Well, now it's all about the execution – the heartbeat of your plan.

Make sure everyone in your organization is on board and has clear visibility over the plan. But it's not just about sharing the big picture; you’ll have to provide clarity on the specific actions needed to close the gaps you identified during your analysis. Encourage a collaborative spirit where different teams are accountable for the KPIs that drive progress.

Now, here's the secret sauce: continuous monitoring of your progress and being open to adapt when needed. Keep a close watch on how things are unfolding, and if they don't go as planned, don't panic! Be ready to tweak your plan swiftly to get back on track.

You can monitor and track your results with spreadsheets, but in an era when change is the new normal, simply relying on them may not be enough. It will be hard to keep everyone on the same page and adapt quickly.

Our suggestion? Check out Cascade 😉

Cascade is your organization’s brain. It is the only platform that spans the entirety of your ecosystem to understand the relationships between your business inputs (e.g., metrics, initiatives, investments) and outputs (e.g., expected results, forecasted revenue, margins, etc.).

For example, Cascade helps you to monitor progress toward your targets and identify performance gaps before it’s too late. And even though it has tracking functionalities that allow you to track your progress in real-time, like dashboards and reports , it’s not just another tracking tool like the ones out there... It’s the key to centralized visibility over your execution engine.

👉🏻 Learn more about strategy execution software here !

Want to take Cascade for a spin? Sign up today for a free forever plan or book a guided 1:1 tour with one of our Cascade in-house strategy execution experts.

The gap analysis template that we've created is a great starting point. But there are a few different frameworks and tools that you can also use to help you get more specific about the gaps you're trying to resolve.

These frameworks are conceptual approaches that you can 'layer' onto your organization to help you categorize your activities and more easily identify gaps.

SWOT analysis

SWOT means strengths , weaknesses , opportunities , and threats analysis. It assesses both internal and external factors, offering insights into current and future opportunities.

SWOT analysis serves as a solid foundation for the gap analysis process by offering a comprehensive snapshot of your organization's current state since it gives a realistic and fact-based look at how the organization positions itself within the industry. For it to be successful, it needs to focus on real-life evidence and contexts.

👉🏻 Check out this article where you can learn more about SWOT analysis and grab a FREE SWOT Analysis Template.

PEST/PESTLE analysis

Understanding industry threats and opportunities can be challenging in a SWOT analysis without proper industry knowledge. But a PESTLE or PEST analysis can enhance your understanding of external factors by considering the following aspects:

• Technological
• Environmental

As you research each of these elements, you'll gain a better understanding of threats and opportunities within your industry and a birds-eye view of the entire environment to accurately assess your current state.

PESTLE analysis is particularly valuable in guiding strategic decision-making and identifying gaps related to changes in the external environment.

👉🏻 Check out this article to learn more about PESTLE analysis.

McKinsey 7-S Framework

The McKinsey 7-S framework is a management model that assesses seven interconnected elements within your organization to understand its effectiveness and alignment.

These elements include:

• Shared Values

The framework emphasizes the importance of considering all these components together, as they are interdependent.

When conducting a gap analysis using the McKinsey 7-S framework, you can identify discrepancies in how these elements are aligned and how they impact the overall performance and success of your organization.

👉🏻Check out this article where you can learn more about McKinsey 7-S framework.

Nadler-Tushman model

The Nadler-Tushman model is another organizational framework that focuses on inputs, transformational processes, and outputs to assess organizational effectiveness. The model examines how inputs like people, technology, and resources are transformed into outputs such as products, services, and outcomes.

By using this model for gap analysis, organizations can pinpoint areas where processes may be inefficient or ineffective, leading to gaps in performance or output.

Fishbone Diagram

The fishbone diagram, also known as the Ishikawa or cause-and-effect diagram, helps identify potential root causes of a problem or gap in the organization. It is particularly useful for identifying complex and interconnected factors that contribute to the identified gap.

By visually mapping out all possible causes, organizations can better understand the underlying issues and develop targeted solutions.

McKinsey’s Three Horizons

Another framework for complementing your gap analysis could be McKinsey's Three Horizons of Growth.

This framework forces you to think about your business progression over a series of time-based horizons that help you isolate your mandatory business-as-usual activities from your truly innovative drivers of growth.

The 3 Horizons are:

• Horizon 1 : Maintain and defend the core business
• Horizon 2: Nurture emerging business
• Horizon 3 : Create genuinely new business

By using this framework, organizations can identify gaps in their growth plans and ensure a balanced approach to innovation and sustainability.

👉🏻Check out this article where you can learn more about McKinsey’s Three Horizons.

Balanced Scorecard

A balanced scorecard is a useful tool for categorizing your business activities into a series of outcome-focused quadrants (also named "perspectives"):

You can then mirror these same quadrants to categorize and prioritize your gaps and their associated action plans.

By using the balanced scorecard for gap analysis, organizations can identify gaps in each perspective, understand how they relate to the overall strategy, and prioritize actions to address these gaps effectively.

👉🏻Check out this article where you can learn more about the Balanced Scorecard.

Note these frameworks are not substitutes for performing a gap analysis, but can rather add an additional layer of depth on top of your gap analysis.

The following are additional gap analysis templates you may find useful, depending on your needs:

Gap analysis template for business process improvement

Gap analysis is often used for improving business processes. However, the framework needs some adjustment. We are introducing a bit different approach that’s best used for optimizing business processes.

👉🏻 Download the free Gap analysis template for business process improvement

Skills gap analysis template for your team

Businesses use gap analysis to identify the skills that an individual team member (or a team) needs but don’t necessarily have to perform certain jobs effectively.

With a skills gap analysis, organizations can uncover gaps in their teams and set career development goals. Thus, it is mainly done by the Human Resources (HR) department.

The process is fairly simple, and it’s mostly focused on identifying the current state. Create an assessment scale for each skill. Then, assign points to your employees for every skill. It’s the fastest way to identify which skills are underdeveloped on the organizational level.

Once you’ve identified the missing skills, you can implement training plans or set up your hiring plan accordingly.

👉🏻 Download the free skills gap analysis template here!

Product gap analysis template

Product gap analysis is used to highlight the gap between your product and customers’ expectations. It will help you prioritize the next steps and meet those expectations set in the first place.

👉🏻 Download the product gap analysis here!

Financial gap analysis template

Financial gap analysis pretty much follows the standard template. However, we added some finance-related examples for easier navigation.

👉🏻 Download the financial gap analysis here!

Gap analysis is a great tool for identifying gaps and deciding what you should do to improve performance. However, it’s only half the work!

Once you've conducted the analysis, identified gaps, and created a well-crafted action plan and roadmap, the real work begins. You need to execute those projects and make steady progress toward the metrics and KPIs that will lead you to achieve your business goals - ultimately closing the gap.

The most important thing is to remember that no matter how good your action plan is, it's the strategy execution that counts the most .

So here are our recommended steps to ensure you effectively close the gaps:

• Download your FREE gap analysis template to streamline your gap analysis process
• Put your action plan into Cascade (for FREE!) to achieve centralized observability and effective execution

By combining a well-structured action plan with robust execution through tools like Cascade, you equip your organization with the resources needed to close the gap and achieve your desired outcomes.

What is a ‘needs analysis’ and how is it related to gap analysis?

A needs analysis is a process of identifying specific requirements and deficiencies within an organization to address challenges and meet objectives. It focuses on understanding what is lacking or needs improvement.

Needs analysis is related to gap analysis as both methods assess the current situation compared to the desired future state. However, needs analysis is more focused on identifying specific needs and improvement areas, while gap analysis helps develop action plans to close the gaps between the current and desired states.

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Your toolkit for strategy success.

5 Gap Analysis Tools to Identify and Close the Gaps in Your Business

Updated on: 5 January 2023

How far have you come from the work you planned at the beginning of the year? Do you have any idea about what worked and what didn’t?  And why?

Gap analysis can help you compare your business’s or project’s actual performance against the performance you planned for. This way you can figure out what actually worked for you and what didn’t.

We have listed 5 gap analysis tools you can use when doing a Gap analysis. Scroll down to find out,

What is Gap Analysis?

How to do a gap analysis, mckinsey 7s.

• Nadler-Tushman

Burke-Litwin Causal Model

Gap analysis is used to compare where you are against where you would like to be.  This helps you identify the gaps between these two states, and come up with an action plan to close them.

Basically, it helps you find solutions to issues that are holding you back from growing as a business.

It can be performed on

• A strategic level – comparing the condition of your business with that of the industry
• Operational level – comparing the current state of your business performance with the state you desire

Note: It is also known as a need-gap analysis, need analysis or need assessment

There’s no standard process for doing a Gap analysis since it should usually be tailored to meet your business needs. But here are the steps a typical Gap analysis would follow.

Step 1: Pick an Area to Focus on

First of all, you need to know where to focus on during the analysis.

Whether it’s from finance, product quality, marketing etc., pick that specific problem area you need to drill down on. For example, if it’s marketing, a specific area would be social media marketing.

Being specific will help you focus better during the Gap analysis.

Step 2: What are Your Targets/ Goals?

Now that you know the area you need to improve, it’s time to set goals or targets. Not only these goals should be realistic, which mean that they should be achievable within a certain time limit you set, but they should also align with your business goals.

These goals you set will help you define the future state in the 4 th step.

Step 3: Determine the Current State of Things

Before you step forward, you need to know where you are standing. In this step, you’ll figure out the current state of things.

By looking into reports or process documentation , doing interviews, brainstorming etc. gather as much data as possible to clarify how you are performing at present.

Step 4: Determine the Future State of Things

Remember the goals you set in step 2? Achieving these goals will help you get to the future state or the desired situation you want your business to be in.

Define what the parameters of the ideal state of your business are.

Step 5: Identify the Gaps between the Two States

Now you have an understanding of the attributes of your current state and the future state, it is easier to identify what is stopping you from reaching your goals.

After identifying these gaps, come up with the steps you need to take to close them.

Gap Analysis Tools

Once you have identifies what the gaps are, you need to look into why they exist and what you can do about them. There are a few gap analysis models you can use for this task. Following we have listed a few Gap analysis tools that you can use.

SWOT analysis focuses on Strengths and Weaknesses in the internal environment and Opportunities and Threats in the external environment. It helps you determine where you stand within your industry or market.

How to do it;

• Gather around a team from relevant teams/ departments
• Create a SWOT analysis matrix; you can either use the one below or choose from these SWOT analysis examples
• List down the internal strengths and weaknesses of your business
• Note down the opportunities and threats present in the industry/ market
• Rearrange each bullet point in the order of highest priority at the top, and lowest at the bottom
• Analyze how you can use your strengths to minimize weaknesses and fight off threats, and how you can use the opportunities to avoid threats and get rid of weaknesses

Check out this resource to learn how to use SWOT analysis effectively .

Click on the template to edit online

Fishbone diagram, also known as cause and effect diagram or Ishikawa diagram , helps you identify the root cause of an issue or effect. It lists the 6 Ms (listed in the diagram below) and helps you see how they relate to the central problem.

Here’s a quick guide on fishbone diagram to help you understand how to do a cause and effect analysis.

Click to edit the template online

Get more fishbone diagram examples .

McKinsey 7S can help you with any of the following purposes

• To help understand the gaps that may appear in the business
• Identify which areas to optimize to boost business performance
• Align processes and departments during a merger or acquisition
• Examine the results of future changes within the business

The 7s refer to key interrelated elements of an organization. They are as follow,

These elements are divided into two groups; hard elements, which are tangible as they can be controlled, and soft elements which are intangible as they cannot be controlled.

Hard elements

• Strategy – the plan of actions that will help your business gain a competitive advantage
• Structure – the organizational structure
• Systems – business and technical infrastructure employees use to do their daily tasks

Soft elements

• Shared values – a set of beliefs or traits the organization upholds
• Style – the leadership style of the organization and the culture of interaction
• Staff – the general staff
• Skills – key skills of employees

How to apply it;

• Gather around a competent team
• Check whether the elements are properly aligned with each other (look for gaps and weaknesses in the relationship between the elements)
• Define the state where these elements would be optimally aligned
• Come up with an action plan to realign the elements
• Implement the changes and continuously review the 7s, moving forward

Here’s a more detailed look at how to apply the McKinsey 7s model .

Nadler-Tushman’s Congruence Model

The Nadler-Tushman’s congruence model is used to identify performance gaps within an organization.

It is based on the principle that a business’s performance is a result of these 4 elements; work, people, structure and culture. The higher the compatibility among these elements, the greater the performance will be.

• Gather all data that points at the symptoms of poor performance
• Specify and analyze inputs which include the environment, resources and history. And define your organization’s strategy.
• Identify which outputs are required at individual, group and organizational levels to meet the strategic objectives
• Figure out the gaps between desired and actual output and the problems associated with it (and mark down the costs associated with them as well)
• Collect data on and describe the basic nature of the 4 major components of  the organization
• Assess the degree of congruence among these components
• See how poor congruence and problems related to outputs are correlated. Check if the poor ‘fit’ of the 4 major components are related to  the problems
• Come up with action steps to deal with the problem causes

Check out this resource for more in-depth instructions on how to apply the Congruence model.

This tool helps you understand the different components of an organization relate to each other when going through a period of change. There are 12 components that are interrelated and they are as follow,

Click the template to edit it online

How to apply it:

• Find out where the need for change is coming from; whether from the external environment, transformational factors etc.
• Identify which of the elements in each group is responsible for the situation
• Examine the key element along with the other 11 elements; pay special attention to those that are closely linked to the identified element
• Figure out the changes you need to make to the main element along with the other few elements it is closely linked to

Learn more about the 12 drivers of change, the Burke-Litwin highlights here .

What’s Your Take on Gap Analysis Tools?

Gap analysis is a great way to figure out the parameters of your next project or your process improvement efforts. We’ve covered 5 types of Gap analysis tools that you can use to identify gaps in your business and determine what you should do next.

Let us know what other Gap analysis tools you use during a Gap analysis process at your organization.

And if you are looking for Gap analysis templates, we’ve got you covered! Check out this compilation of useful Gap analysis templates that you can use for multiple scenarios

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

More Related Articles

I know about the SWOT and Fishbone. I did not know about the other three tools. I really needed this information for my project. Thank you for writing this article.

Excellent piece of work. I learnt alot from this

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Supply & Demand Analysis

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The Concept of Supply & Its Uses in Business

What happens to price when supply decreases, relationship between level of prices and demand.

• What Can Make a Demand Curve Shift?
• What Is the Market Analysis of a Supply and Demand Curve?

A demand and supply analysis is a vital tool used in economics to inform business decisions. When it is done accurately after considering factors such as trends and seasons, a supply and demand analysis can anticipate the effects of market shifts.

What Is Demand and Supply Analysis?

At the core of a supply and demand analysis are two laws: the law of demand and the law of supply. According to The Business Professor , the law of demand stipulates that the quantity of demanded goods and services lowers with the rise of prices. Conversely, the law of supply stipulates that the number of goods and services supplied increases with a rise in price.

Britannica explains that a supply and demand analysis indicates the relationship between the quantity producers want to sell at various price points and the quantity consumers will buy. Including a demand and supply analysis in a business plan is one of the best tools business owners can use to predict their next moves. By analyzing various factors that affect supply and demand, businesses can predict the amount of product they should produce at a particular price point to yield the most profit.

How to Interpret Supply and Demand

In a graph, the demand curve is represented by a downward curve based on the relationship between what consumers want and what they can pay. As prices rise, demand decreases. If consumers cannot afford a product, they won’t be interested in buying it. When plotted on a graph with price on the vertical axis and demanded quantity on the horizontal axis, the demand curve slopes downward as price increases and quantity decreases. The steepness of the curve depends on the current influences on demand.

In a supply analysis, the supply curve is plotted onto the same graph – with prices on the vertical axis and quantity on the horizontal – as an upward sloping curve. Based on the number of goods produced, the supply curve factors in input resources, labor, technology and regulations to accumulate its data.

The equilibrium is the point where the two curves meet. This point indicates where the market balances and the quantity supplied matches the demand. Businesses can adjust their prices or supply to find the equilibrium point and use workforce planning to meet an upcoming predicted demand.

Supply and Demand Influences

Many factors influence supply and demand trends. Five common factors that influence demand are consumer preference, income level, substitute prices, complementary goods and future expectations.

Many products become popular based on trends; However, trends don’t last forever. As consumer preferences shift, demand for formerly popular products will likely decrease. Similar to trends, future expectations also influence buyer habits. For example, if the consumer expects prices to decrease, they may wait to purchase later, such as buying holiday decorations after the holiday season has ended.

However, complementary goods, which are items that are traditionally bought together, affect demand differently. If one item becomes cheaper, such as pancake mix, the demand for maple syrup is more likely to increase. Production costs, technology advances, the number of suppliers and government regulations can all affect supply trends. For example, advances in technology can influence supply by cutting costs in the production chain, making it cheaper to produce more product.

• The Business Professor: Demand-Supply Analysis - Explained
• Britannica: Supply and Demand

Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.

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• 2 Difference Between a Demand Function and a Demand Curve
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• 4 What Happens to the Equilibrium Price When Quantity of Supply & Demand Shifts Upward?

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• How to use a gap analysis to achieve bu ...

How to use a gap analysis to achieve business goals

A gap analysis is the process of comparing your actual business performance with your desired performance to see what’s missing. You can use these analyses to create company strategies and identify possible shortcomings in your business. Learn how a gap analysis can help fortify your business goals and the four steps to perform your own.

Here's a scenario: your team is about to start their strategic planning initiatives for the next year, but they don't really know where to start. What do you do next?

A gap analysis (also known as a needs analysis) is the process of comparing your current business performance with your desired performance. It helps you identify the "gap" between where your business currently stands versus where you want your business to be. In short, you’re looking for what’s missing.

What is a gap analysis?

A gap analysis (also known as a needs analysis) is the process of comparing your current business performance with your desired performance. The "gap" in a gap analysis is where your business currently stands versus where you want your business to be. 

Creating a gap analysis can help your business in a few ways. Here's how:

Brainstorm strategies . Creating a gap analysis can help strategic teams figure out potential action plans they can use to hit their goals. 

Identify weak points . If your business didn't perform as expected, using a gap analysis can help your team figure out the root cause of certain performance gaps. 

Benefits of using a gap analysis

Creating a gap analysis is a way to review your current strategies to see what’s working, and what’s still needed. Performing one can help your business in a number of ways, including:

Identifying weak points . If your business didn't perform as expected, you can use a gap analysis to help your team figure out the root cause of performance gaps. 

Measuring current resources . If your team has a surplus of resources at the end of the year, a gap analysis can help identify specifically how resources were allocated so they can be used more efficiently in the future.

When to perform a gap analysis

A gap analysis is a useful project management tool to help you identify how to get from point A to point B. While a gap analysis can be used at any time, you can get the most out of your analysis when you apply it strategically to a specific project or initiative. Here are a few scenarios where using a gap analysis can help you gather the contextual data you need to improve your business.

During strategic planning

If your team is looking to create a strategic growth plan, using a gap analysis early ‌in the strategic planning process can help give your team a good starting point. A gap analysis provides data-driven guidance on how your team goes from their current state to a specific end goal. For example, if you’re planning next quarter’s strategy, you can use a gap analysis to review what you achieved in the current quarter. Compare that to the goals you had originally set and you’ll be able to identify opportunities to improve in the coming months.

When you encounter performance issues

If your team is unexpectedly underperforming, a gap analysis can be a useful tool to identify any shortcomings. Once you identify the root cause of the gap in your current situation, your team can improve processes to fix the issue without interrupting production. For example, a project manager at an assembly line may notice that production is not meeting expectations. After completing a gap analysis, they find the root cause to be an issue with some machinery. Now they know exactly what to fix to improve production.

When stakeholders need additional context

If your team is compiling business information for investors or for other business requirements, a gap analysis can be an extremely helpful tool. A gap analysis is useful in this situation because it provides more contextual information than just hard numbers. If management is worried that your team is underperforming for whatever reason, a gap analysis can quell any worries with a detailed plan of how your team is going to close the gap. 

Gap analysis examples

The best time to use a gap analysis is when you’re looking for ways to improve, or you’ve realized something isn’t working quite as expected. In practical, real-life examples, here’s what that might look like:

Software development: Gap analyses can show you missing items in your software, helping you to potentially catch errors before you go to market.

Project management : Use gap analyses during the project planning or review stages of project management to show you the areas that aren’t up to speed with the rest of your project. Then, you can make requests for and allocate resources to that work as needed.

Human resources: If you’re on an HR team, you can use a gap analysis during the hiring processes to show you what’s lacking on a team, which in turn, you can look for in a new candidate. 

Team leads : As a lead, you’re often looking at the big picture problems. So sometimes, details slip through the cracks that can cause delays or issues down the line. A gap analysis can help you identify when you may have overlooked something, and it might be able to catch them before they create a bigger problem.

Competitive research: Competitive analyses are important tools to boost customer satisfaction. One way to perform the necessary competitive research is through a gap analysis, where you look at the market gap for your industry and strategize ways that your business can fill it.

The 4 steps of a gap analysis

While it may seem complex, using the gap analysis process is not as complicated as it seems. Try this four-step process to create a gap analysis for your team.

​1. Define your business goals

In order to compare current performance to desired performance, you first need to define what your ideal future state looks like, or, in other words, set goals. Any goal setting methodology works. If you don’t already use one, try using objectives and key results (OKRs) or key performance indicators (KPIs) to create targeted, specific metrics and business goals . Regardless of which goal type you use, make sure your objectives are SMART: specific, measurable, achievable, realistic, and time-bound. The goals you're setting here define how you’ll measure performance and represent the desired state you want for your business.

2. Benchmark your current business performance

Use goals, historical data, and past gap analyses to benchmark your current business performance , processes, or workflows , and set the standard for how you work. 

At the same time, evaluate your current processes with a business process analysis (BPA). If you're aiming to make process improvements as part of your strategy, looking at the current state of your business process is important. This can help you identify which process improvement methodology your team should use to reach the desired target state.

3. Analyze gap data

Remember that the “gap” in a gap analysis is the difference between where your business currently stands and where you want your business to be. Now that you understand the difference, it’s time to hypothesize different strategies and tactics your team will need to close that gap. 

The next step in this process is to ensure your goals are actually achievable, and not too far out of your team’s reach. You don’t want to set a goal so high that it feels impossible. In the same vein, it’s important to ensure that your team is able to complete their goal in the set time period. If you make changes to your current performance strategy, will your team still be able to achieve the goals you set based on the desired time frame?

It's during this step when you meet with your stakeholders to brainstorm strategic planning initiatives to hit your goals. 

4. Compile a detailed report

Once you've solidified all of your numbers and business goals, create an action plan that clearly dictates how your team plans to close the gap. It's important to use both quantitative data, like the benchmark data you compiled in step two, in addition to qualitative data, such as current processes and past process improvement strategies. 

What is the difference between a gap analysis and a SWOT analysis?

A SWOT analysis is a type of gap analysis that’s commonly used in project management to identify strengths, weaknesses, opportunities, and threats for a business. Usually, people complete a SWOT analysis via a 2x2 matrix.

Once this matrix is filled, use it to identify gaps that come to light as your team brainstorms each quadrant of the matrix. 

Other common gap analysis tools

Mckinsey 7s model.

Developed by Robert H. Waterman and Tom Peters, the McKinsey 7S framework is a management model that is often used for organization analysis. The idea is that an organization needs seven elements that are all aligned and reinforcing one another. If one part of the seven elements is off, it can affect the entire business. 

The seven S's in this model stand for:

Structure : How your business is organized. This could mean how activities are divided and how teams communicate with each other. 

Strategy : The hard set of plans that your team uses to move the business forward. 

Systems : How performance is measured, along with procedures the team uses to do business.

Skills : The competencies your team members provide for your business. 

Style : The behavior patterns of certain groups within your business.

Staff : The individuals that work for you. This also refers to their characteristics and ways the company nurtures and develops their team.

Shared values : Values are the core principles that define how your company approaches work. 

You can use this model by testing the relationship between each of the seven S’s. When you change something in strategy, how does that affect systems? Performing a gap analysis here can give you concrete answers to how each of these facets of your organization relate to each other. 

Nadler-Tushman congruence model

The Nadler-Tushman congruence model is a business management tool that identifies the root cause of performance issues. It was developed by organizational theorists David A. Nadler and Michael L. Tushman in the early 1980s. 

The idea of the Nadler-Tushman model is that there are four main elements to a business and they each have unique relationships to one another. 

Those four main elements are:

Work : All of the individual tasks that make up your business's performance. There are two different perspectives on how to look at work: what is done and how that work is processed. 

People : The interaction of individuals during work. Some examples of this include a manager and their direct report, or a team lead and a contractor.  

Organizational structure : How your business organizes itself, like how work is delegated , what teams work on what, and how processes are built. 

Culture : This is how your team implements group norms , best practices, ideals, and shared values throughout your company.

The Nadler-Tushman model then pairs each of these elements off into six different combinations, so teams can analyze how their business is performing. Those six pairs look like this:

Work and people : This looks at which employees are doing what work. Are the right people completing the right tasks?

Work and structure : This is how your team develops processes to complete work. Is there enough structure and organization that clearly dictates what work needs to be completed?

Work and culture : This focuses on the environment that's created. Does your company culture promote habits that are beneficial to performance?

People and structure : This identifies the organizational structure of your team. Is your team organized in such a way that individuals can produce their best work?

People and culture : This focuses on the attitudes of employees. Are your employees working in a culture that is productive for them? Are they able to identify resources to help themselves be successful at work? 

Culture and structure : This pair relates to how culture and company organization may affect one another. Does the organization of your business compete with the company culture , or help it? 

Similar to the McKinsey 7s model, when you pair off each of the elements of the Nadler-Tushman model, you can see how those two relate to each other and how changing one facet can affect the other.

Craft gap analyses with a work management tool

Gap analyses work best when shared with stakeholders in a convenient and organized manner. A work management tool like Asana can help your team organize information and streamline communication with stakeholders, so everybody is on the same page. Learn more about how you can use Asana to assist with work management. 

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A simple guide to gap analysis

Looking for a way to streamline the growth of your business?

A gap analysis could be just what you need.

When used correctly, a gap analysis helps you elevate your business from where it is now to where you want it to be. It allows you to identify the quickest and most efficient way to reach your goals.

In this article, we’re outlining what a gap analysis is, the benefits of using it, and some of the drawbacks you should be aware of, too. We’ll also talk you through how to perform a gap analysis for your business.

Try Miro’s Gap Analysis Template

What is a gap analysis?

A gap analysis compares actual performance with desired performance. As a result, businesses can determine the most efficient and effective ways to reach their goals.

There are various situations where a gap analysis is helpful. It forecasts and predicts profits, identifies new sales and marketing opportunities, and reveals areas of improvement in your processes.

There are four main types of gap analyses that businesses can use, which we’ll cover in detail later. But no matter what type, the end goal remains the same: to find out how you can move from where you are now to where you want to be.

How do you structure a gap analysis?

A gap analysis template is an outline used by businesses to structure their investigation. It should outline your current state, desired state, the gaps, and how you plan to close them.

Take a look at our template as an example:

The template contains all four major columns, with each row assigned to a different goal. Businesses can use this template to outline their plan to close the gaps and reach their desired state.

After using this template to complete a gap analysis, you might want to conduct a SWOT analysis to identify broader strengths and opportunities, too. This will give you a well-rounded picture of how to successfully grow your business.

What are the types of a gap analysis?

There are four main types of gap analyses. These include:

• Performance

Let’s look at each of these in more detail.

Performance gap analysis

A performance gap analysis measures employee and company performance in comparison to expected performance. Sometimes called strategy gap analysis, it’s the most popular version of gap analysis.

How does performance gap analysis work?

Businesses measure their performance against competitors in the marketplace and in line with established benchmarks and industry standards. Using this information, companies can predict what acceptable performance should be and identify any gaps and areas of improvement.

When should you use performance gap analysis?

A performance gap analysis should be used if you want to improve your internal processes and employee performance.

Let’s say your sales team isn’t reaching its targets. You could use performance gap analysis to figure out why this is and identify a plan of action to get sales back on track.

Whether that’s training your employees, hiring more employees in new roles, or changing existing job responsibilities, the gap analysis will show you how to get from where you are now to where you want to be.

Product gap analysis

Also known as a market gap analysis, a product gap analysis measures areas where demand is greater than supply. In other words, it helps you identify under-serviced markets. With this information, you can expand your product line to a new audience to meet customer demand.

Unlike market research, this approach is proactive instead of reactive. Businesses seek out areas of demand rather than waiting for feedback from consumers.

How does a product gap analysis work?

You’d start by investigating new markets where your service might be in demand, such as new locations or demographics.

You could also think about launching into new service areas. This would mean offering an altered version of your existing product or service to provide something new for your consumers. Uber launching Uber Eats is a good example.

They started as a modern taxi service, and they launched a food delivery service off the back of it.

Once you’ve identified demand for your product in a new market, you can use the analysis to figure out how to get from point A to point B.

When should you use a product gap analysis?

If you’re looking to expand your business but don’t have the time or budget to create a new product or service, a product gap analysis could be just what you need. It helps you find new markets for your existing product so that you can grow your business without having to invest a lot of money upfront.

If you’re a new business, product gap analysis is also a great way to make sure you’re not entering an overly-saturated market.

HR gap analysis

An HR gap analysis measures your current workforce in relation to the amount of work required. It analyzes the capacity and size of a team to make informed decisions about budgeting and staffing.

It’s sometimes called a skills gap analysis or workforce gap analysis.

How does an HR gap analysis work?

You start by outlining your goals. When these are clear, you can analyze the key skills employees need to help the business achieve these goals. Then, you turn your attention to your workforce.

You’ll review their professional skills and their workload, making a note of their experience level in each key skill. By the end of the process, you should be able to identify how and where you can fill in the gaps and help the organization reach its goals. Whether that’s investing in training or restructuring your workforce, you’ll have a clearer picture of what to do next.

You also might consider creating an organizational chart to help with this process. This will make it clear who’s on the team and the role they uphold.

You can use the above template if you want to create an intuitive and shareable chart in a matter of minutes.

When should you use an HR gap analysis?

If you’re concerned that your current workforce can’t hit the goals you want to reach, an HR gap analysis could be helpful. It’ll clearly outline your current team’s skill sets and capacity, allowing you to fill the gaps and help the company succeed.

Profit gap analysis

A Profit gap analysis measures your actual profit alongside your target profit. It shows businesses why their forecasts haven’t been met, what went wrong along the way, and what they can do differently going forward.

How does a profit gap analysis work?

When conducting a profit gap analysis, you’ll review your target profit and your actual profit. By doing so, you’ll be able to pinpoint areas where your business didn’t reach the targets you set and why they weren’t reached.

Was your budget unrealistic? Did you have to lower prices because of your competition? Did your product not sell as well as you’d hoped?

Whatever the issue, the gap analysis will bring it to light. As a result, you can make the appropriate adjustments for the future.

When should you use a profit gap analysis?

There’s a lot to consider when it comes to profit. Market trends are constantly changing, and macro factors are out of your control.

All of these elements have an impact on the financial success of your business. But this is where profit gap analysis can help.

If you have specific revenue or profit goals for the future, or if you haven’t been able to hit financial goals in the past, a profit gap analysis is for you. It’ll break down your finances and allow you to easily find areas of improvement.

What are the benefits of a gap analysis?

We already know that a gap analysis helps businesses get from where they are now to where they want to be.

But are there any other benefits?

In short, yes. Depending on the type of gap analysis you use, there are multiple ways a gap analysis will benefit your business.

Let’s take a look at some of the main benefits.

Get a unique insight into how your company operates

Conducting a gap analysis gives you an in-depth perception of how your business operates. It shows you how your company processes work, what resources you have, and where your shortcomings are. It outlines all the key aspects of your business in one location.

You also get a better understanding of how your business performs in the marketplace in relation to your competitors.

All of this information offers a deeper understanding of your business — an understanding that you might not have been aware of had you not conducted the analysis.

With this information, you can make informed decisions about how your business operates and its areas of growth and opportunity.

Align your company strategy

No matter which gap analysis you perform, you always have an end goal in mind — a goal that feeds into your company strategy. This means that when you do your analysis, you’re also making sure that your business activity aligns with your strategy.

Alignment is a pretty key part of business growth. If your activities aren’t aligned with your strategy, you risk losing direction and never reaching your desired state.

But with a gap analysis, you make sure that everything your company does is aligned with your strategy. It also gives you a clear perspective of what your company strategy should be and how you’re going to achieve it.

Proactively fix problems

Gap analysis helps you find areas of improvement in your workflow. This means you can get ahead and make changes before the problems get worse.

Think about your website content as an example.

With a content gap analysis, you identify the areas of improvement for the existing content across your website. As a result, you can make the necessary changes to improve your content strategy going forward.

But if you hadn’t performed the analysis, who knows when you would have noticed these areas of improvement?

And that’s why using the analysis is a good thing. It allows you to be proactive about your problems and put things right.

Increase efficiency

A gap analysis helps you find areas of improvement in your current business processes. And when you improve your processes, your entire business becomes more efficient.

Think about it. If your processes are streamlined, you spend less time working on tasks that aren’t necessary and more time achieving company goals.

Improved processes also mean that you can get more done with fewer resources, allowing you to focus your efforts on other areas of the business.

Are there any limitations to using gap analysis?

Although there are benefits to using gap analysis, there are some drawbacks to be aware of.

Not enough detail

A gap analysis is great for a lot of things, but it doesn’t cover everything you need to know.

For example, you can’t do a competitor analysis within the existing framework. If you want detailed information about your competitors, you’d have to do a separate competitor analysis and integrate the information.

Because of this limitation, it also means that you might not get to the root of your problem with just a gap analysis. Chances are, you’d need some other framework or model to get into the nitty-gritty of your problem.

Simply put, you can’t do everything with a gap analysis. You’ll need other frameworks to bulk out the details and analyze other areas of your business. It’s not the end of the world, but it does impact the efficiency and effectiveness of gap analysis, so keep this in mind.

The process could be time-consuming and costly

Part of the gap analysis process involves creating solutions to get you from your current state to your desired state.

But what happens if you don’t have the time or money to perform a gap analysis in the first place?

For some businesses, doing the gap analysis in the first place requires additional time and money that simply isn’t available. There’s also a chance that the solutions you find might be costly. And if your budget won’t stretch, you’ll probably have to compromise on your solution.

If that’s the case, was the gap analysis worth it in the first place?

This is something to think about ahead of doing the analysis. Take stock of your resources, and see what time you can realistically spend on the analysis and what your budget is for the analysis and the solutions you create.

How do you perform a gap analysis?

Performing a gap analysis varies from business to business. But there are some steps you should follow to make sure you get the most out of your analysis.

1. Analyze your current state

First things first, you need to pinpoint your current state. This will be your baseline to figure out how to get from where you are now to where you want to be.

So spend some time reviewing your current situation. Take a look at your position in the marketplace, review your competitors, and analyze anything else that’ll tell you how your business is performing. This will help you identify areas of improvement.

We’ve got existing templates that’ll help you review this information as quickly as possible. Take a look at our Executive Summary Template as an example.

By the end of this process, you’ll understand the reality of how your business is performing in the marketplace. You’ll also have a better idea of what your strategic goals should be and how to achieve them, which leads us nicely to the next step.

2. Outline your business goals

Now that you have a clear picture of your current performance, it’s time to think about the future. More specifically, about your business goals.

Ask yourself this: If everything went to plan, where would your business be?

By establishing the goals that you want to achieve, you can start to identify the improvements needed to reach them. In other words, you start to identify gaps.

So spend some time outlining what your goals are. This is the foundation you need to envision your future state in comparison to your current reality.

When creating your goals, make sure they’re realistic. If they’re not, a gap analysis won’t help, as you’ll never reach your goals.

That’s why we’d suggest creating SMART goals. This will guarantee that your goals are achievable and measurable, among other things. Take a look at our SMART Goals Template for more information about the framework and how to use it.

This template can also be altered and customized based on the information you want to find. You can change the text , add shapes , and add visual notes .

3. Compare what you have with what you want to achieve

Throughout the previous two steps, you’ve outlined your current and desired states. Now, it’s time to compare the two and perform your gap analysis.

This involves figuring out how far you are from your target state and how to get there. You need to find the gaps, think about how you can fix them, and make sure you don’t make the same mistakes in the future.

This is where using a ready-made template can help. With the right template, you can view your current and desired states in one location. This makes it easier for you to visualize how to fill the gaps and reach your goals.

If you’re spread too thin across various platforms, it’ll be harder for you to plot areas of improvement.

Don’t forget — we have a ready-made Gap Analysis Template that you can use. And we’ve got a range of tools and features that allow you to customize it however you like.

4. Create a strategic plan of action

You’ve done the work and identified how to get from your current state to your desired state. What next?

You need to put all the information into your gap analysis. This will serve as your plan of action going forward.

You also might need to create separate plans for specific parts of the gap analysis. For example, let’s say one of your actions from the gap analysis is to improve the online user experience.

This isn’t an overnight job, and it requires a lot of planning to figure out the logistics. You need a detailed plan with timelines, deliverables, and delegation of responsibilities. Our Workflow Template and Action Plan Template are good examples.

So when your gap analysis is complete, think about creating separate plans to manage each stage of the journey. This extra layer of planning and detail will make sure everyone on the team knows what they’re doing and how they’re going to do it.

Start your gap analysis today with miro.

So there you have it — a simple guide to gap analysis. You know the different types of gap analyses, the steps you need to take to perform them, and which platform you can use to create the template (that’s us).

There are a lot of gap analysis tools out there to choose from. With Miro, performing a gap analysis and sharing it with your team is easy. Using our simple whiteboard tool , you can adapt our existing template for any industry. You can also create your own template from scratch or customize existing templates with our additional features.

You can sign up for free , select the template, and start creating. It’s as simple as that.

Miro is your team's visual platform to connect, collaborate, and create — together..

Join millions of users that collaborate from all over the planet using Miro.

Keep reading

How to conduct an effective swot analysis.

7 steps to conduct a competitive market analysis

All you need to know about PEST analysis

If you still have questions or prefer to get help directly from an agent, please submit a request. We’ll get back to you as soon as possible.

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Demand-Supply Analysis - Explained

What is a Demand Supply Analysis?

Written by Jason Gordon

Updated at April 23rd, 2024

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What is a Demand-Supply Analysis?

In a market economy, the level of demand and supply of all goods and services jointly determines the price level and quantity of that good (or service) in the economy.

When is a Supply Demand Analysis Used?

The law of demand states that (with a few exceptions) as price rises, the quantity demanded of any good or service would be lower. 

The law of supply implies that higher the price received by a supplier, the quantity supplied will rise. Thus, demand is often a downward sloping curve in the price-quantity plane, while supply is an upward sloping curve. 

What is the Equilibrium Price? 

The intersection of the supply and demand curve denotes the market equilibrium, which in turn determines the equilibrium levels of price and quantity of the particular good (or service) in the economy. 

If the present demand for a good (or service) in the economy is higher than the equilibrium quantity, the situation is described as that of an excess demand. Excess supply is also defined in a similar fashion. 

What Causes Shifts in Supply or Demand?

Changes in Supply and demand (and thus the equilibrium price and quantity) of any good or service could be governed by a lot of factors, such as: changes in policies, unpredictable shocks to the economy, business cycle fluctuations like a recession or a boom, or even simply over time (long run versus short run). It also depends on the nature of the market (whether the market is perfectly competitive or monopolistic etc.). 

The analysis of all the above could be termed as the study of the supply and demand, or simply, 'Demand Supply Analysis'.

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SWP Steps 3 & 4: Supply and Demand and Gap Analysis

A supply and demand forecast identifies what your current workforce looks like, and what your future workforce needs to look like. a gap analysis compares supply and demand to anticipate talent surpluses and shortages and when they will take effect..

Faethm developed an easy-to-use template to assist our customers with modelling the supply and demand of their workforce, incorporating Faethm automation impact insights to surface capacity gain, and attrition and retirement rates . 

> Download modelling template [XLS]

Supply and demand

A supply (current workforce) and demand (future needs) forecast takes into consideration how your internal talent might be affected over time by events such as attrition, retirement, planned redundancy and the introduction of new technologies.

> Learn more about the impacts of automating and augmenting technologies on the workforce.

The current state of your workforce is your workforce supply. This includes every type of worker, with a projection for expected attrition and other departures such as retirements or planned redundancies.

Faethm’s modelling for the augmentation of job tasks shows the capability of technologies to supplement a task and create efficiency, therefore enabling a worker to gain capacity to do higher value work. Augmentation is considered capacity gain.

Your future workforce requirements are your workforce demand. Demand is attributable to expected growth or decline of a job when aligned to the business strategy.

Faethm’s modelling for the automation of roles calculates the capacity of technologies to entirely replace a task or large components of a task. Automation is considered as the reduction of tasks performed in a job.

Gap analysis

Using the supply and demand numbers identified in the previous step, the gap analysis compares these to identify potential workforce surpluses and shortages, and then assess how these might affect the ability of the business to achieve its objectives.

Next: Step 5 - Strategic Development

An introduction to strategic workforce planning

Step 1 - Mobilise

Step 2 - Internal Environmental Scan

Step 3 & 4 - Supply & Demand, Gap Analysis

Step 5 - Strategy Development

Step 6 - Implementation

Business Plan Demand Analysis, Four Things to Consider

Small businesses and entrepreneurs use demand analysis to:

• Consider substitute products and services
• Get input from (potential) customers
• Determine what “drives” demand
• Understand what variables affect demand and to what degree

Demand analysis is about challenging your preconceived notions regarding your product/service. A stress test, if you will. A demand analysis will take your idea and start molding it into something that has even higher potential.

As an entrepreneur, you can’t be too stubborn. You have to be flexible. After going through this process, the hope is that you’ll come out the other end with an even more refined idea and a greater chance at success.

Market research and competitive analysis for a business plan

This is the second post on drafting a business plan for your startup. These posts are modeled after the SBA Business Guide .

Want to know how many people are included in your “customer avatar?” Read this post: BUSINESS PLAN DEMOGRAPHICS – DEFINING A TARGET MARKET

Business plan demand analysis of the total market

When first thinking about the market for your product/service, don’t define it too narrowly. Try to think of substitutions that you might not have otherwise considered. No, you might not compete directly with these substitute products, but the presence of substitute products will have an impact on your pricing and demand.

Pricing too high could push customers to these substitute products. Even if that pricing seems in line with your value proposition when compared to direct competitors. But, theoretically, the amount demanded changes (inversely) with the price. A higher price will push customers to consider alternatives. A lower price should result in a higher volume sold.

Further defining the market for my product

As I mentioned in my first business plan post on the topic of demographics, I am working alongside you. I have a prospective product that I would like to explore the viability of, and I am creating a business plan for this product as I write these posts. As a reminder, my potential product is an all-natural hair-thickening topical supplement.

Anyhow, in the previous post, I used “customer avatars” to roughly ascertain the size of my market. I think I was fairly liberal in that estimation. The three of my avatars that were the most detailed totaled approximately 5.2 million people. The avatar that was broader included 6.5 million people.

Want to know what a top-down and bottom-up analysis would say about your market size? Read this post: MARKET SIZE FOR A BUSINESS PLAN – 2 METHODS TO GAUGE IT

Substitute products

As mentioned above, I have to keep in mind that not all of these people will pursue hair loss treatment. Many, will just accept it as a normal part of aging. Others will choose to address the problem but will pursue an alternative treatment method to topical supplements. Some of these alternative treatment methods include:

• Biotin, vitamin D, Viviscal, Nutrafol, Finasteride (Propecia), collagen powder, nutriceuticals, Spironolactone (Aldactone)
• Toupees, hair fibers
• Laser treatments, microneedling, hair transplants, protein-rich plasma injection
• HairMax LaserComb, light treatment

In addition to substitutions, I have to consider the direct competition. The alternatives that are also topical. Those include:

• Minoxidil (Rogaine), rosemary essential oil, pyrithione zinc shampoo, scalp tonic/serum

Obviously, there’s no shortage of alternatives to my prospective product. However, many of these treatments are ongoing and the potential exists for customers to combine them.

After listing these potential substitutions, it dawned on me that there are a couple of different classes of hair loss. I would probably target individuals that are in the early stages and are merely looking for help to slow down and, hopefully, somewhat reverse the initial effects of hair loss.

Another thing that dawned on me when researching substitutions is that it might be a mistake to only consider men when ascertaining the market for this product. Most of the results I found when searching “hair loss treatments” were articles targeted at women.

As I said, I’m taking this journey right along with you. So, I’m refining my idea and picking things up as I go along.

Gathering survey information for your business plan demand analysis

The next steps are mostly statistical. That might give you pause if numbers aren’t your thing.

I really do wish I could provide you with the handiest spreadsheet imaginable to manage the information you find. There are just too many variables, though. Different surveys asking different questions. Not to mention, every industry is going to address unrelated topics. I just couldn’t figure out how to make a one-size-fits-all tool.

What we’re going to do is compile whatever relevant statistical information we can get our hands-on, and interpret what we find. You can input this information into your own spreadsheet if you like

Statistical information, hopefully, can be obtained from a simple internet search. “[your topic/industry] survey results”, or something similar should yield some useful information. If you can’t find relevant info, then you might have to reach out to industry trade magazines or organizations.

As far as how much survey information to collect – there’s no clear answer. It depends, first and foremost, on the abundance of such information. If there is plenty available, then I guess I’d recommend collecting it until you’re tired of doing so. You can always circle back around and search for more specific results if you need to in the future.

What to focus on

Right now, focus on demographics information, substitute product information, and information about motivation (drivers).

This is where having it in a spreadsheet will come in handy. With the numbers in a spreadsheet, you can combine survey information and break it down as needed. Check out my example below to see what I mean.

Survey information about my product

There was no shortage of survey results regarding hair loss. In fact, I grew tired of collecting information well before I was able to read it all.

I must admit, I learned something on this step. I learned that it probably makes more sense to do this research before creating customer avatars rather than after .

This research showed me that hair loss in women is a considerably more prevalent problem than I knew. So, I should definitely not exclude women when trying to calculate the size of my target market. Additionally, I learned a lot more about the age that hair loss starts to affect men and women. Not to mention, a lot of other interesting tidbits related to marketing and substitute products.

I simply typed the figures I found into the cells and tried to organize it in a somewhat easy-to-read format.

To make this information as useful as possible, I also included a link to the survey – in case I wanted to reference it again. Also, I thought it would be useful to make note of the year the survey was conducted. That way, I could note trends, if any existed.

Finally, to top it all off, I put in some charts. Charts can help to illustrate ideas in a way that numbers can’t, sometimes.

Now, I have a nice little foundation of data to build my business plan off of. I also know that there is plenty of other information out there if I want to delve further on a specific topic.

Divide total industry demand into its main components.

Now, you want to start to organize the information you found in a logical manner.

First, isolate the information related to demographics or that which otherwise describes your potential customers to you. You want to break this information up so that you can get an idea of what your potential customers might look like. You should, hopefully, begin to see customer “avatars” take shape.

Yes, I asked you to create avatars in the previous post. As I said above, that was probably premature. It would make more sense to create the avatars with this survey information, then use the census/demographic information to estimate the size of the market based on what you found.

Live and learn…

After you have the demographic information in good order, move on to the “solution” information – if available. This is information that specifies how customers are solving their problem(s) now.

If you’re lucky, this information will join seamlessly with the demographic information you organized above.

Start with the simplest questions (those with the fewest variables) and expound from there.

What if my survey data is inconsistent?

You might run into a situation where you have conflicting information. Or you might find yourself in the fortunate situation where different surveys seem to corroborate the same statistics.

If your information sources don’t jive, you have a couple of options. First, you can move forward with the information you deem to be the most trustworthy. Or, alternatively, you can average what you found. This works well if the differing results are relatively close together. Finally, you can choose to use the data source that is most recent – particularly if your industry is especially dynamic.

All of your numbers aren’t going to jive up perfectly. However, at this point, you are armed with a lot better information than when you started. Better information will ultimately lead to better decisions.

Industry components for my product

Demographics.

For my part, I like to start simple and divide my demographics based on the variable with the fewest options. In this case, the simplest variable only has two choices – men and women.

From there, I used information that I found regarding the percentage of men and women that have had hair loss and have tried treatments.

Next, I break things down further based on the age that men and women started experiencing hair loss. I was fortunate to find information for both genders.

That’s the extent of demographic information I was able to obtain. I would have liked to have found some information regarding income or socioeconomic status. If that information proves to be critical as I move forward with my business plan, I’ll have to circle back around to see if I can track it down.

Once I felt good about my (revised) customer avatars, I moved on to “solution” information.

Want to use data.census.gov to know how big your potential market is? Read this post: CENSUS DATA MARKET RESEARCH AT THE NEW DATA.CENSUS.GOV

Again, thanks to the abundance of information I was able to find, I found similar questions for both genders. The first question was the simplest. It asked if the person with hair loss had done anything to address the problem.

From there, I had a couple of survey questions that explored the alternatives that hair loss sufferers had tried in the past. Additionally, I found results that gave insight into how effective these alternatives were.

When all was said and done, I had the groundwork laid for the ability to know how many potential customers I might have, their demographics, what they have tried so far, and how well those alternatives had addressed the issue at hand.

Here’s what my worksheet looks like after sorting my information into industry components:

Business plan demand analysis of drivers

Hopefully, in your search for survey results, you came across some information that provided insight into the “why people buy” question.

In particular, we’re looking for drivers of sales here. Specifically, what circumstances compel a customer to buy your product/service (or a substitute)? Hint: people usually buy to solve a problem. To avoid pain, not seek pleasure. Or, so I’ve been told…

Insight into what compels your customers to buy will not only be valuable in the drafting of the remainder of the business plan but in all your marketing efforts once you are up and running.

The information about who your customers are (from the previous step), why they buy, and what steps they are currently taking to solve their problems (also from the previous step) will hopefully paint a clear picture for you. A picture that will guide you to a point where you can position your strengths in a manner that will help other people’s weaknesses.

Understanding the drivers of demand for my product

Again, I was fortunate to have an abundance of survey information to draw from. A couple of my surveys not only touched on how hair loss made people feel but also on specific actions that they had taken before the hair loss started.

This information tells me an angle I can take when marketing my product, plus where a lot of my potential customers are going before they start to experience this problem. That place…the hairdresser.

Of course, that’s for women. Though there’s no rock-solid proof that it’s hairstyling that is contributing to hair loss in women, there is enough correlation to make a compelling case. For men, on the other hand, hair loss just seems to be the hand that most are dealt.

But, before we get into that, let’s look at some of the emotional drivers that might compel customers to purchase a topical hair loss supplement…

Drivers for men

On the “men” side I got information about how “worried” men were about hair loss. This told me that most men were, at least, “somewhat” worried about hair loss.

Beyond that, there was valuable information about how hair loss had affected them negatively.

Finally, the most valuable information, to me, was a question of what they would give up to solve this problem (men & women). The answers were encouraging for someone who was hoping to build a business in this industry. Almost half would rather have more hair than more money. Three quarters would give up a prized possession for more hair.

While I acknowledge that I’m not marketing a guaranteed cure to hair loss, that tells me that people are willing to try anything to fix this problem. As I know from my market segmentation analysis, supplementation works for about 1 in 17 people. Not great odds, by any means. But good enough, I hope, to at least try a new product. Especially when the ingredients are all-natural and offer no downside.

Drivers for women

About half had stress prior to experiencing hair loss. That’s a coin flip. It doesn’t mean that the hair loss was caused by the stress (though it surely didn’t help). But it provides insight into what women are feeling prior to and while they are experiencing this problem.

I also included the “What they’d give up” question on the women’s side of the analysis because my source for that information didn’t specify either gender. Plus, it seems feasible that women would feel the same or even stronger. It’s my opinion that society values female attractiveness above male attractiveness.

Finally, we get down to the brass tacks. A potential cause-and-effect situation for the problem I’m attempting to address. The number of women that are currently experiencing hair loss are also (possibly) straightening/heat processing or getting their hair colored on a semi-frequent basis.

This tells me that hairstyling might play a part in a lot of women’s hair loss (this goes back to the pressure to be attractive thing). Therefore, I should consider marketing my product in salons and other establishments that focus on women’s hair.

There’s still a lot of analysis to be done. But, two steps into the process of drafting my business plan, I feel a lot more confident about my understanding of the environment.

Here’s a look at my spreadsheet with the driver information included:

Business plan demand analysis of sensitivity

To this point, the goal has been to make assumptions and get answers. We want to have a better understanding of the environment in which our business will operate. Hopefully, you feel that you’ve accomplished that.

But, we don’t do ourselves any favors by lying to ourselves.

Well, yes. But probably not willingly.

You start off excited about your business idea. So excited that you decide to take the first step (something that the vast majority of people won’t do). You begin to write a business plan. You can feel your idea taking shape. You’ve already refined your idea a bit and feel that by the time this whole exercise is over, there’s no way you can fail. You’ve got momentum and your confidence keeps increasing.

That is all very good. Confidence is key. But, if everything looks rosy, you might be blind to a risk that could put your baby in jeopardy.

So, I don’t want to be a killjoy. But, for the sake of our businesses, let’s take a step back and play devil’s advocate. We need to ask ourselves some tough questions and challenge our assumptions. If we can rise to these challenges, and address them with confidence, our chances of success are that much greater.

Go back through your segmentation and demand drivers and think critically about this information. Some statistics might be a given, without much wiggle room. Others might be misrepresentative of reality. In these instances, tap into your inner cynic.

Make notes of what the worst-case scenario might look like. If you’re using a spreadsheet, like me, maybe use a different colored text. Address things like survey questions that might have been misinterpreted or alternative explanations for results.

Don’t get too down-and-out here and don’t dwell on this step too long. You don’t have to necessarily plan what you would do if these worst-case scenarios came to be. You just need to imagine them so that when the time comes for serious planning, you can take these risks into consideration.

Demand sensitivity for my product

I think my categorization by demographics is pretty safe. It’s rather well established how many men and women experience hair loss. The only thing that I might tweak is the number of men and women who have had hair loss and tried treatment. I lowered those estimates by 20%. It could be that the respondents’ interpretation of “treatment” is to comb their hair a different way or to shave their heads rather than to buy a product to battle hair loss.

Furthermore, what if the number of people that have “done anything” is lower? What if I misinterpreted the question for women that asked: “Do you take medication to prevent hair loss?” Maybe it was 20% of women who actually had hair loss rather than all women? The effect of that would be dramatic.

What if the alternative treatments were more effective than I’ve been led to believe? It could be that the respondents only consider “effective” to be a restoration to a full, thick head of hair? Also, just because they consider them ineffective, it doesn’t mean that they’ll stop using them. They might think that all of their hair will fall out if they stop (which could work in my favor, though). Perhaps they were overly optimistic when it came to supplements? It could be that supplements gave them other benefits, but didn’t make their hair loss any worse – so they considered them “effective.”

Could it be that fewer men are really “(very) worried about hair loss” than I’m led to believe? Are more are “Not worried at all?” Plus, it might be that those who are only “somewhat worried” aren’t motivated to do anything about it.

As far as confidence (love life, making friends, professional life) goes, it might be that that hair loss is a contributor to low confidence, but not the primary driver. Maybe they’re overweight or socially awkward and that’s why they lack the confidence they desire?

As far as “what they’d give up” it could be that the respondents were primed by the hair loss questionnaire to be more self-conscious than they usually are. If it came down to it, perhaps not so many would be willing to part with valuables to solve this problem.

Finally, as far as hair styling being a cause of hair loss in women, it could be that I am wrong. Maybe hair styling has no effect on hair loss. Or, maybe women overestimate how often they heat process or color their hair. It only feels like every day/once every 2-3 weeks. When, in fact, they do it a lot less often.

Okay, that’s enough pessimism. It seems unlikely that every worst-case scenario would be true. But, there’s probably a mix in there between my initial interpretations and the not-so-great ones.

Want to back your business plan up with valuable data? Read this post: GOVERNMENT STATISTICS FOR MARKET RESEARCH VIA USA.GOV

This exercise should help me going forward to make realistic forecasts and assumptions. Which, in turn, should help me be proactive to some of the challenges I might face.

Here’s a final look at my spreadsheet with my worst-case notes in blue:

Business plan demand analysis

This step takes a little bit of thought and a decent amount of research. This is done to give you a deeper understanding of the market you hope to compete in and the customers you hope to sell to.

What other steps would you have taken to refine estimates of demand?

Do you think my demand sensitivity was rational? Or, was I taking it too easy on myself?

Join the conversation on Twitter!

Building strategies, building confidence, and building your business

• May 7, 2021

What is Supply Chain Gap Analysis? 6 Steps to Success

When analyzing methods of cost-savings for a restaurant group, a supply chain gap analysis can provide invaluable data around methods to negotiate better relationships with partners. But what is a supply chain gap analysis, and how can it be effectively leveraged to deliver results?

A gap simply implies a space between two things, a missing piece that breaks continuity. Similarly, a supply chain gap refers to the difference between your current supply chain performance and what you would like your performance to be in the future. For example, your vendor for your paper goods - straws, napkins, small cups - currently delivers your order in seven days from order entry. But for the same size order, you would like to take delivery in five days, resulting in a gap of two days between current and desired performance.

By analyzing your current situation in several critical areas of your business, assigning desired performance levels, and determining the gaps, you can then find the reasons for the gaps and research ways to close those gaps. Let’s take a closer look at a supply chain gap analysis for a restaurant.

Supply Chain Gap Analysis, in Six Steps

Some of the biggest mistakes in food service contracting are those made around an inability to negotiate contracts with your vendors. Restaurants depend on relationships to procure food and supplies

1. Choose Areas for Analysis

First, identify those areas you want to analyze . Are you ready to look at all areas of your supply chain or are you interested in focusing on one or two areas of weakness? You may feel your distributor is not delivering orders 100% complete, but you have not evaluated the reported order fill-rates from the distributor. What goal did you have in mind for the distributor’s performance?

2. Set Goals for the Future

For each area, determine the ideal performance goals you would like to achieve in the future . For example, you may not be getting the best prices on goods from your current contractors or receiving them in a timely manner. Alternatively, you might be looking to scale your business, and are seeking better deals in the future as you draw more from their business.

3. Analyze Your Current State of Business

After choosing the areas for analysis and setting goals for future performance, you must determine the current state of business . Regarding the example above, consider a restaurant chain that is looking to expand their number of physical locations. This group would want to look at their current contracts that are in place, and see how these can be leveraged to produce better rates.

4. Compare Your Current State of Business to Your Goal

Calculate the difference between the current state and your ideal goal for the future . Continuing our example, if a restaurant has several locations across one city or region and are looking to expand into another, how will they provide uniform consistency and quality among these areas? Should they consider new contracts in another area? Will this affect the flavor of their menu items?

5. Analyze the Gaps

Look at possible causes for the gaps . Does more than one factor contribute to the difference? In our example regarding an expanding restaurant chain, will using existing contracts contribute to higher costs that may impact profits for that region? Will new contracts provide better rates with a consistent product?

6. Plan a Response, and Execute

Determine what must change to eliminate gaps . You may find several possible solutions for removing gaps; each solution brings its own costs and benefits. After you have evaluated the possible actions to reduce or eliminate the gap in each area of analysis, develop a plan to adopt the improvements, and execute. Once this has been implemented, repeat the process as needed.

Tips for Supply Chain Gap Analysis

· Be realistic about the areas you are analyzing and the goals you are setting. Are these goals achievable? If achieving the desired goal involves hiring several additional staff or making a large-scale capital investment, are you prepared to strive for that goal?

· Be able to measure the current performance of each focus area. Set measurable goals, too. You may set a goal of delivering more flavorful food, but how will you measure that achievement?

· Be willing to work with your vendors or, if necessary, find new vendors to close gaps in supply chain goals.

· Be open to including your staff in developing a plan to close the gaps. They can also help you assess the current situation and recommend solutions for achieving goals.

Performing an effective supply chain gap analysis takes time. Finding the right framework to identify problems and analyze them may take the help of a third-party consultant who has both expertise and objectivity to do a productive analysis.

Not sure where to start? Contact Purchasing Partners today. Our team of experienced supply chain professionals can assist you in performing a supply chain gap analysis of your establishment and in developing an effective and achievable plan to reach your goals.

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Supply and demand analysis

In space planning, supply and demand analysis is a fit or gap analysis across time of the demand for business space and the supply of buildings or space in the current or planned portfolio.

Real estate decisions include whether to lease a building, buy a building, end a lease, or sell a building. Too much space or too little space results in increased costs, both capital and operating, and a productivity impact on the core business. Real estate decisions and the ensuing transactions typically require long lead times. Understanding the business unit needs and objectives (the demand) and comparing that demand to the available facilities (the supply) provides a future look at portfolio needs.

During supply and demand analysis, you use the organizational space requirements forecast data to determine whether the planned space inventory fits the business requirements of quantity, quality, type, and timing.

• Location area and capacity forecast
• Organization required area and capacity forecast
• Facilities management standards
• Scope of analysis (planning period range, geographies, organizations, space class types, locations)
• Historical organization capacity requirements
• Historical location capacity data

Supply/Demand Analysis tool

The Supply/Demand Analysis tool is accessed from the Analysis tab of the Scenario. The Supply/Demand Analysis function is a chart that is embedded directly within the scenario. The chart provides a combined view of the supply and demand planning data across time.

The supply data is represented as a stacked bar graph where area is stacked vertically based on the building or lease. The demand data is represented as a line graph that overlays the bars. This graph shows how the supply of space or area matches up against the demands of an organization.

• Visually detect supply-demand gaps that require planning actions to meet demand or to improve portfolio utilization.
• Analyze what-if supply-side actions for lease contract options, new building expansions, or portfolio consolidations.
• Investigate the implications of demand-side changes to match supply or close gaps.

Adding and removing supply

You can add new supply by clicking the Add Supply action on the Supply Summary section of the Analysis tab on the scenario.

Assignable Area * (1 + Usable Factor) = Usable Area 10,000 * 1.25 = 12,500 Usable Area * (1 + Rentable Factor) = Rentable Area 12,500 * 1.35 = 16,875 Rentable Area * (1 + Gross Factor) = Gross Area 16,875 * 1.20 = 20,250

If you choose to remove an added supply after any organizations are included in the added supply, IBM TRIRIGA does not remove the added supply. You must reset changes in the stack plan before you can remove an added supply.

Take action

The purpose of the Take Action function is to provide a mechanism for studying the implications of altering an existing supply. The available actions depend on whether you are working with a lease or owned building.

For a leased building, the choices are Extend and Terminate . For an owned building, IBM TRIRIGA populates Action with Sell . The Extend function also extends the lease supply block in the stack plan for the focus periods included in the extension. The Terminate or Sell actions also remove the supply block from the stack plan in the focus period after the termination or sell date. Any demand blocks that were on the supply block are flagged with the over-allocation icon.

As a result of an action, TRIRIGA Strategic Facility Planning updates the supply summary and appends the supply change to the supply and demand graph. TRIRIGA Strategic Facility Planning also adds a line item in the RE Action Requests section.

You can also cancel an action to have the line item removed from the RE Action Requests section.

How to Perform Gap Analysis: A Step-by-Step Guide

In the realm of strategic planning, Gap analysis is the secret weapon that empowers businesses to identify where they stand currently and where they aspire to be. It acts as a bridge between the present and the future, helping organisations reveal their true potential. Let’s check out how Gap analysis can revolutionise your strategic planning approach! 

What is a Gap Analysis?

Gap analysis is a valuable technique that helps organisations identify the differences between their current and desired future states. Gap analysis consists of three key components- current state, desired state and the gap. By conducting a thorough gap analysis, businesses can identify areas for improvement, set realistic goals, and develop effective strategies to bridge the gaps. Gap analysis can be performed in various contexts, such as strategic planning, process improvement, technology implementation, and performance evaluation.

Types of Gap Analysis

T here are several types of gap analysis performed within organisations. The type of gap analysis used may vary depending on the purpose, industry, or project requirements. Each type of Gap analysis has its uses and advantages.

Performance Gap Analysis: Performance gap analysis focuses on assessing the difference between the current performance of an organisation, department, or individual and the desired performance. It identifies areas where performance falls short and highlights the actions required to bridge the gap. For example, Organisations can reduce customer complaints by 20% within six months by assessing the current level of customer complaints, identifying the root causes, and implementing measures to address those causes and achieve the desired reduction.

Market Gap Analysis: Market gap analysis examines the difference between the existing market demand and the organisation's current market share or offerings. It helps identify growth opportunities, understand customer needs, and develop strategies to capture a larger market share. For example, Software companies can expand their market share in a specific industry by assessing the current market share and identifying opportunities for growth by analysing competitors' market share, customer needs, and market trends.

Skills Gap Analysis: Skills gap analysis focuses on identifying the gap between the skills possessed by the workforce and the skills required to meet organisational objectives. It helps identify skill deficiencies, training needs, and areas for professional development. A gap analysis example in this scenario is where technology companies evaluate employees' current skill levels, identify skill gaps, and design training programs to bridge those gaps and strengthen the company's cybersecurity capabilities.

Technology Gap Analysis: Technology gap analysis evaluates the discrepancy between an organisation's current technological capabilities and the desired technology infrastructure or systems needed to support its operations. It identifies gaps in hardware, software, networks, or IT processes and assists in planning technology upgrades or implementations. Let’s understand this with the help of a gap analysis example. Manufacturing companies assess the existing technology infrastructure, identify gaps in machinery capabilities, and develop a technology upgrade plan to modernise the equipment and improve productivity.

Product Gap Analysis: Product gap analysis compares the features and characteristics of a company's product or service with the desired market requirements or customer expectations. It helps identify product design, functionality, or quality gaps and guides product development efforts.

Compliance Gap Analysis: Compliance gap analysis compares an organisation's current practices and processes with the regulatory requirements, industry standards, or internal policies. It helps identify non-compliance, risks, and necessary corrective actions to ensure adherence to legal and regulatory obligations.

How to perform a Gap Analysis?

Step 1 - Define the Scope and Objectives 

Before diving into the gap analysis process, it's crucial to define the scope and objectives of the process clearly. Determine the specific area or process you want to evaluate and identify the goals you aim to achieve through the analysis. Whether it's assessing performance, identifying training needs, or improving customer satisfaction, a well-defined scope will help you stay focused throughout the analysis.

Step 2 - Identify the Current State

The next step is to gather data and information about the current state of your organisation or process. This may involve reviewing existing documentation, conducting interviews, or analysing relevant data sets. Document key metrics, processes, and performance indicators relevant to the area under analysis. This data will serve as a baseline for comparison with the desired future state.

Step 3 - Determine the Desired Future State

Clearly articulate the desired future state that you want to achieve. It involves setting Specific, Measurable, Achievable, Relevant, and Time-bound ( SMART ) goals. Consider industry benchmarks, customer expectations, and organisational objectives when defining the desired future state. This step provides a clear target for the gap analysis and helps identify areas where improvements are required.

Step 4 - Identify the Gaps 

Benchmarking enables organisations to identify gaps between their current performance and the desired level of performance indicated by the benchmarks. These benchmarks can be derived from industry standards, competitor performance, or best practices within the industry. By comparing their performance against these benchmarks, businesses can identify gaps and areas for improvement.

Step 5 - Determine the Causes 

Once the gaps are identified, it's essential to determine their causes. Conduct a Root Cause Analysis (RCA) to understand why these gaps exist. It involves further data collection or brainstorming sessions with relevant stakeholders. By understanding the underlying causes, you can effectively develop targeted strategies to address the gaps.

Step 6 - Develop an Action Plan

Based on the identified gaps and their causes, develop an action plan to bridge those gaps. Set specific objectives and define the steps required to achieve them. Identify the resources, budget, and timeline needed for each action. Assign responsibilities to individuals or teams responsible for implementing the action plan. Break down the plan into manageable milestones to track progress effectively.

Step 7 - Implement and Monitor 

Execute the action plan and monitor the progress closely. Regularly review and assess the plan's implementation, ensuring the necessary steps are being taken to bridge the gaps. Monitor Key Performance Indicators (KPIs) and track the impact of the implemented actions. This will help you calculate the effectiveness of your strategies and make adjustments if needed.

Step 8 - Evaluate and Review

Once the action plan has been implemented, evaluating the outcomes and reviewing the results is crucial. Assess whether the desired future state has been achieved and measure the extent to which the gaps have been closed. Identify any new gaps that may have emerged during the implementation phase. Use this information to refine your strategies and improve future gap analysis processes.

How to create a Gap analysis template?

The Gap Analysis Template helps identify disparities between two or more data sets. It can compare data from different sources over time and highlight gaps in processes or procedures. Creating a gap analysis template involves organising and structuring the information you need to assess the current state and identify the desired state of a process, project, or organisation. Here's a step-by-step guide to help you create a gap analysis template:

Define the Purpose: Determine the objective of the gap analysis. Are you conducting it for a specific project, process improvement, or organisational assessment? Clarify the purpose to ensure your template aligns with your goals.

Identify Key Areas: Determine the key areas or categories you want to analyse. These areas depend on the specific context of your analysis. For example, if you're assessing a project, relevant categories include scope, budget, resources, timeline, and quality.

List Current State: Create a column or section to list the current state of each identified area. It can include measurable factors, performance metrics, or specific descriptions of the existing condition.

Define Desired State: Create a column or section describing each area's desired or target state. This should reflect the ideal condition or performance you want to achieve.

Determine the Gap: Calculate the gap between each area's current and desired states. This could be represented numerically (e.g., actual vs. target values) or descriptively (e.g., high, medium, low). The gap represents the difference between the current and desired performance levels.

Identify Factors: Add a column or section to identify the factors contributing to the current state and the desired state. It helps in understanding the reasons for the gaps and provides insights for improvement.

Prioritise Gaps: Assess the significance of each gap and prioritise them based on their impact and urgency. This allows you to focus on the most critical areas that require attention.

Develop an Action Plan: Create a section or column outlining specific actions or strategies to bridge the identified gaps. It includes tasks, responsible parties, timelines, and resources required for each action.

Monitor Progress: Include a mechanism to track the progress of the gap closure activities. This could be a separate column or section to update the status of each action item and measure the improvement achieved.

Review and Iterate: Regularly review the gap analysis template, update it as needed, and refine the action plan based on the progress and changing circumstances.

Remember, the structure and format of your gap analysis template can vary based on your specific requirements. You can use a spreadsheet, document, or specialised software to create the template, whichever suits your needs and allows for easy analysis and sharing of information.

What is a Gap Analysis Report?

A gap analysis report is a document that presents the findings, analysis, and recommendations resulting from a gap analysis. It provides a comprehensive overview of the gaps identified between the current state and desired state of a specific area within an organisation, such as performance, skills, technology, or market presence. 

A gap analysis report serves as a valuable tool for decision-makers and stakeholders within an organisation. It provides a comprehensive overview of the current and desired states, identifies gaps that must be addressed, and offers actionable recommendations to drive improvement and bridge them. 

Importance of a Gap Analysis in an Organisation

Identifies areas for improvement: Gap Analysis allows businesses to pinpoint specific gaps and areas that require improvement, enabling them to effectively prioritise and focus their efforts and resources.

Sets realistic goals and objectives: Gap analysis provides valuable insights into what needs to be done to reach the desired state, allowing for establishing clear objectives aligned with the organisation's vision and strategy.

Guides decision-making: Gap Analysis helps managers and decision-makers understand the areas that need attention, allocate resources accordingly, and prioritise initiatives by highlighting the most critical gaps.

Supports strategic planning: Gap analysis identifies gaps and areas for improvement so that organisations can align their strategies and action plans with strategic initiatives.

Enhances performance and efficiency: Gap Analysis helps in addressing the gaps, organisations can optimise processes, enhance productivity, streamline operations, and deliver better products or services.

Facilitates change management: Gap Analysis enables organisations to change management strategies, plans for training and development, and address any resistance or challenges during the market changes.

Enhances competitiveness: Gap Analysis helps businesses to adapt to market demands, meet customer expectations, and differentiate themselves from competitors by identifying new opportunities, developing innovative solutions, and improving their value proposition to gain a competitive edge.

Why do businesses perform a gap analysis?

Performing a gap analysis is a proactive approach to organisational improvement. By systematically identifying and addressing gaps between the current state and the desired future state, businesses can drive growth, enhance performance, and stay ahead of the competition. Remember, Gap analysis is ongoing; regular reviews and updates are essential to ensure continued success. A gap analysis can be performed in various situations throughout the life cycle of a business or a specific project.

Goal setting and strategic planning :   A gap analysis allows businesses to define their strategic objectives and set realistic goals. By identifying the gaps between the current and desired state, organisations can establish specific targets and develop plans to bridge those gaps.

Performance improvement: Gap analysis helps businesses evaluate their performance and identify areas where they fall short. By understanding these gaps, organisations can take targeted actions to improve performance and meet their objectives more effectively.

Resource allocation and prioritisation : Conducting a gap analysis enables businesses to assess their available resources and allocate them strategically. By identifying the gaps and prioritising areas of improvement, organisations can allocate their resources efficiently and focus on the most critical aspects that require attention.

Process improvement: Gap analyses are valuable when businesses seek to optimise their processes. Organisations can pinpoint areas that require improvement or reengineering by identifying gaps in existing workflows, systems, or procedures. Gap analyses can reveal inefficiencies and bottlenecks to enhance Overall Operational Effectiveness(OEE).

Risk management: Identifying gaps helps businesses understand potential risks and vulnerabilities. By recognising the gaps in compliance, security, or other critical areas, organisations can proactively implement measures to mitigate risks and ensure regulatory compliance.

Market research and customer satisfaction: A gap analysis can also help businesses identify new opportunities for growth and innovation. By analysing the gaps in the market, customer needs, or technological advancements, organisations can discover untapped areas for expansion and develop strategies to capitalise on them. Businesses can identify gaps in meeting customer requirements by comparing the current offerings or services with customer expectations and feedback. This analysis helps organisations align their products or services with customer demands and improve customer satisfaction.

Technology adoption and digital transformation: Gap analyses are useful when organisations consider adopting new technologies or undergoing digital transformation. By assessing the current technology landscape and identifying gaps in IT infrastructure, systems, or skills, businesses can plan and implement necessary changes to leverage technology effectively and stay competitive.

Tools for Performing Gap Analysis

SWOT analysis, Fishbone diagram, McKinsey 7S framework, PEST analysis, Nadler Tushman model, and Burke-Litwin causal model are valuable tools that can be used with a gap analysis to gain deeper insights and facilitate decision-making. 

These tools provide different perspectives and approaches to conducting a gap analysis, allowing for a comprehensive understanding of the gaps and developing effective strategies to bridge them. It's important to select the most appropriate tools based on the specific context and objectives of the gap analysis. Let's take a closer look at each tool:

SWOT Analysis: SWOT analysis helps identify an organisation's internal Strengths and Weaknesses (related to the current state) and external Opportunities and Threats (related to the desired future state). It provides a comprehensive view of the organisation's position and helps identify gaps that must be addressed.

Fishbone Diagram (Cause and Effect Diagram): The fishbone diagram is a visual tool used to identify the root causes of a problem or gap. It helps in brainstorming and categorising potential causes under various categories (such as people, processes, equipment, etc.) to understand the underlying factors contributing to the gap.

McKinsey 7S Framework: The McKinsey 7S framework assesses an organisation's alignment across seven key elements: strategy, structure, systems, shared values, skills, staff, and style. Analysing these elements helps identify gaps and inconsistencies within an organisation that may hinder progress towards the desired future state.

PEST Analysis: PEST analysis examines the external macro-environmental factors that can impact an organisation. It assesses Political, Economic, Social, and Technological factors and Environmental and Legal considerations. PEST analysis helps identify gaps by understanding the broader context and potential influences on the organisation.

Nadler Tushman Model: The Nadler Tushman model analyses the congruence between an organisation's strategy and structure, tasks, people, and culture. It helps identify gaps by assessing the alignment between these components and the desired future state.

Burke-Litwin Causal Model: The Burke-Litwin causal model focuses on understanding the cause-and-effect relationships within an organisation. It considers various factors, including the external environment, leadership, strategy, structure, systems, and organisational culture. The Burke-Litwin causal model helps identify the key drivers and dependencies contributing to gaps and change readiness.

Tips for an effective Gap analysis

By implementing these strategies, organisations can conduct gap analysis more accurately, comprehensively, and effectively. This, in turn, enables them to bridge gaps efficiently and drive continuous improvement towards their desired performance state.

Ensure Data Accuracy: Guarantee the reliability and accuracy of the data used for the gap analysis. Thoroughly validate and verify the information to avoid any skewed or misleading results.

Engage Key Stakeholders: Involve relevant stakeholders and subject matter experts throughout the gap analysis process. Their insights and perspectives can contribute valuable information and ensure a comprehensive analysis.

Regular Review and Updates: Continuously review and update the action plan derived from the gap analysis. As circumstances evolve, make necessary adjustments to align with changing priorities and ensure the plan remains relevant.

Leverage Technology Tools: Utilise technology tools and software to streamline the analysis process and enhance monitoring and reporting capabilities. This enables more efficient data analysis and facilitates ongoing tracking of progress.

Foster Open Communication: Encourage open communication and collaboration among team members involved in the gap analysis. Effective communication ensures everyone is aligned, shares their insights, and collectively contributes to bridging the identified gaps.

Set Realistic and Attainable Goals: Establish realistic, attainable, and measurable goals. This helps maintain motivation and focus, ensuring that the organisation can effectively work towards closing the gaps identified during the analysis.

Embrace Continuous Improvement: Embrace a culture of continuous improvement within the organisation. View the gap analysis as an ongoing process rather than a one-time event, regularly reassessing and addressing new gaps as they emerge.

What should be done after a Gap analysis?

After conducting a gap analysis, several key steps are needed to address the identified gaps and drive improvement effectively.

Develop an action plan: Based on the gap analysis findings, create a detailed action plan that outlines specific steps and initiatives required to bridge the identified gaps. Define clear objectives, set timelines, allocate resources, and assign responsibilities to ensure accountability.

Prioritise initiatives: Prioritise the identified gaps and initiatives based on their importance, potential impact, and feasibility. Focus on addressing critical gaps that significantly influence organisational performance or customer satisfaction. This helps optimise resource allocation and ensures efforts are directed towards the most crucial areas.

Allocate resources: Allocate the necessary resources, including financial, human, and technological resources, to support the implementation of the action plan. Adequate resource allocation is crucial to bridge the gaps and achieve the desired state effectively.

Implement changes and improvements: Execute the action plan by implementing the necessary changes and improvements identified during the gap analysis. It involves process redesign, technology upgrades, training programs, policy changes, or other initiatives required to close the gaps.

Monitor progress: Continuously monitor and track the progress of the implemented initiatives. Regularly assess and evaluate the effectiveness of the actions to bridge the gaps. Use relevant Key Performance Indicators (KPIs) and metrics to measure progress and ensure the gaps are addressed effectively.

Adjust and adapt: Be flexible and willing to adjust the action plan. As the implementation progresses, new insights and challenges may emerge. Regularly review and refine the action plan based on feedback, evaluation results, and changing business circumstances.

Communicate and engage: Communicate the gap analysis findings and the progress made in addressing the gaps to relevant stakeholders. Engage employees, team members, and other stakeholders to create a sense of ownership and involvement in the improvement process.

Application of Gap Analysis in Various Industries

Gap analysis is a valuable tool used in various industries to assess and address gaps between current performance or state and desired performance or state. The specific application and focus of gap analysis may vary based on each industry's unique needs and objectives. Here are some examples of how gap analysis is applied in different sectors:

Gap Analysis in Healthcare Industry: In healthcare, gap analysis is used to evaluate the quality of patient care, identify areas for improvement, and ensure compliance with healthcare standards and regulations. It can be applied to assess gaps in medical equipment, staffing levels, patient satisfaction, or adherence to clinical guidelines.

Gap Analysis in the Information Technology (IT) Industry: In the IT sector, gap analysis is commonly employed to evaluate an organisation's technology infrastructure, software systems, and IT processes. It helps identify cybersecurity measures, software compatibility, IT training, or technology adoption gaps, enabling companies to align their IT capabilities with business objectives.

Gap Analysis in Manufacturing Industry: Gap analysis is used in the manufacturing industry to improve operational efficiency and productivity. It can be applied to analyse discrepancies between production targets and actual output, identify bottlenecks in the manufacturing process, assess equipment performance, or evaluate supply chain management gaps.

Gap Analysis in Financial Services Industry: In the financial sector, gap analysis helps evaluate the performance of financial institutions, assess risk management practices, and ensure compliance with regulatory requirements. It can be used to identify gaps in financial reporting, internal controls, customer service, or adherence to Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulations.

Gap Analysis in Retail Industry: In retail, gap analysis is utilised to evaluate the customer experience, optimise inventory management, and identify growth opportunities. It can be applied to assess gaps in product assortment, pricing strategies, and customer service standards, enabling retailers to enhance their competitive advantage.

Gap Analysis in the Educational Sector: In the education sector, gap analysis assesses student learning outcomes, curriculum effectiveness, and educational program delivery. It helps identify gaps in academic performance, teaching methodologies, infrastructure, and resources. Schools and educational institutions can use the analysis to implement targeted interventions, professional development programs, and curriculum enhancements to close the gaps and improve educational outcomes.

Gap analysis in Energy Industry: In the energy sector, gap analysis is used to assess energy consumption, identify energy efficiency opportunities, and implement sustainable practices. It can be applied to evaluate gaps in energy management systems, renewable energy integration, carbon emissions reduction, or compliance with environmental regulations.

Gap analysis plays a vital role in achieving organisational success. By thoroughly assessing the gaps between the current state and desired state, businesses can identify areas for improvement and develop targeted strategies to bridge those gaps.

Businesses must incorporate gap analysis as a strategic tool. By integrating it into their regular planning and decision-making processes, organisations can proactively identify and tackle gaps, ensuring continuous growth and improvement. Gap analysis helps align strategies and objectives, allocate resources wisely, and foster a culture of continuous improvement within the organisation.

Addressing gaps has a transformative power that goes beyond immediate improvements. It enables organisations to adapt to changing market conditions, seize new opportunities, and overcome challenges. By closing these gaps, businesses become more agile, efficient, and customer-focused, positioning themselves for long-term success.

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