How To Perform A Gap Analysis In 5-Steps + 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 strategic 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.

In this article we’ll cover:

• What Is Gap Analysis?
• What Are The Benefits Of Gap Analysis?
• When To Use Gap Analysis?
• Gap Analysis Examples
• Types Of Gap Analysis
• Complete Gap Analysis Template (Excel format)
• 5-Step Gap Analysis Process
• Gap Analysis Tools & Frameworks
• Free Gap Analysis Templates To Download
• Use Cascade To Close The Gap 🚀

⚠️ 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.

📽️ Visual learner? Check out the video version of this article:

What Is Gap Analysis?

Gap analysis is a method used by organizations to compare their current state to their 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 those identified performance gaps.

It's a great tool for your company's internal analysis. 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 when assessing your business goals.

What Are The Benefits Of Gap Analysis?

The gap analysis framework 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.

This framework can also be used 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 process, we've developed a free gap analysis template. This handy tool poses thought-provoking questions that guide you in your strategic planning journey, integrating all the pieces seamlessly.

When To Use Gap Analysis?

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 gaps
• Prepare a strategic plan and prioritize resource allocation

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

Gap Analysis Example

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

Example 1: 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 Planning

The Human Resources (HR) team at a medium-sized organization faces challenges with employee retention and satisfaction. To improve the 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.

Types Of Gap Analysis

As you can probably imagine from the previous examples, this method 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 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 (or Profit 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 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.

Complete Gap Analysis Template (Excel format)

A gap analysis template visualizes the differences between actual performance and potential or desired performance, helping you identify and address areas of improvement. It serves as a structured tool for conducting an effective gap analysis, allowing organizations to compare their current state with their desired goals and develop strategic action plans to bridge the gaps.

So, before we discuss the steps to implement your analysis, grab your free Gap Analysis Template. Armed with this effective gap analysis tool, follow the step-by-step guide below, fill the template with your own data, or use it as a reference to build your own template.

5-Step Gap Analysis Process

Step 1: Define your focus areas

To create an effective gap analysis, start by clearly defining the scope. Instead of vague ambitions like "I want to be the biggest and best company in Asia," focus on specific areas for improvement.

Common focus areas include:

• Financial growth
• Customer excellence
• Innovation
• Employee happiness
• Community impact

These focus areas should succinctly describe what you aim to improve through your gap analysis.

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

Step 2: Identify your desired future state

Contrary to most gap analysis guides, we recommend starting with your desired future state instead of the current state. Why? Because your organization doesn’t have a single current state—it has many, varying by team, measure, and individual.

Defining your current state without knowing your goals can be futile and confusing. Therefore, begin with the future state, leveraging your strategic focus areas. For instance, if 'Innovation' is a focus area, frame your aspirational future state broadly.

Example: "To be recognized as one of the most innovative SaaS platforms in the industry."

Keep this high-level—avoid specific KPIs for now. Here are more examples for various focus areas:

• Customer Excellence: "To achieve market-leading customer retention and referrals."
• Community Impact: "To make lasting and meaningful changes in the community."

With high-level desired future states defined, you're ready to move to the next stage of the analysis process.

Step 3: Assess your current state

Next, understand your current state. Use the focus areas defined in Step 1 to scope your analysis, starting high-level and getting specific in Step 4.

For each focus area, write a realistic summary of your current state using similar language to your desired future state.

Examples:

• Innovation: "We are not currently known for innovation; however, our software does contain a couple of unique features."
• Customer Excellence: "We have high customer satisfaction and retention in our Enterprise segment, but our smaller customers are significantly less satisfied."
• Community Impact: "Most members of the local community are not currently aware of our presence."

Be honest about your strengths and weaknesses. You might already know your current state due to specific problems, but thorough assessment is crucial.

🔎 Use gap analysis tools like SWOT Analysis, PEST, and McKinsey 7-S to assess your current state. These tools help diagnose your company and detect gaps, complementing your gap analysis. We’ll cover some of these tools in the following section: Gap Analysis Tools & Frameworks.

Step 4: Apply metrics / KPIs to your gap analysis

Now, specify what you want to achieve and how, by adding Key Performance Indicators (KPIs) for each focus area. Here’s how to select the right KPIs:

• Choose KPIs you can measure and decide on your measurement approach.
• Select KPIs with existing baselines for easy gap measurement.
• Use both leading and lagging KPIs for a comprehensive set of measures.

Here are specific KPI examples for your gap analysis. Define targets for your desired future state and compare them to your current state.‍

‍

Focus Area: Innovation

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

• ‍Current State: <10% of developer resources are on creating new features.

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

• ‍Current State: 'Innovation' score on G2Crowd is less than 60%.‍

‍

Focus Area: Customer Excellence

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

• ‍Current State: NPS score is less than 3 on average.

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

• ‍Current State: Gross customer churn is greater than 20% per annum.

‍

Focus Area: Community Impact

Leading KPI: Raise community awareness to 70%.‍

• ‍Current State: Community awareness is less than 20%.

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

• ‍Current State: Not participating in any political initiatives currently.

‍

The "gap" in your gap analysis is the variance between the KPIs of your current state and your desired future state. For example, you have a gap of 50% between your current community awareness (20%) and your desired future state (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 gaps you identified. This involves defining strategic 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 for each focus area.

Here are specific project examples for each focus area:

Focus Area: Innovation

• 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.

Focus Area: Customer Excellence

• 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.

Focus Area: Community Impact

• Project 1: Launch a local TV advertising campaign.
• Project 2: Increase online advertising spend by $5,000 per month.

Typically, you'll have at least two projects for every gap. Use your judgment to ensure these projects are likely to close the gap.

Now, let's discuss the roadmap.

As you create the action plan, establish a clear timeframe for each project with realistic deadlines and milestones. This roadmap will guide your organization on the sequence of actions, resource allocation, and expected timeframes for achieving significant milestones. A well-defined roadmap keeps your team focused, organized, and motivated throughout the implementation process.

🎁 Bonus step: Execute, monitor, and adapt your plan

Congratulations! You've developed your action plan and set targets and KPIs to measure success. Now, it’s time for execution—the heartbeat of your plan.

Ensure everyone in your organization is on board and has clear visibility over the plan. Share the big picture and provide clarity on the specific actions needed to close the gaps identified. Encourage a collaborative spirit where different teams are accountable for the KPIs that drive progress.

The secret to success is continuous monitoring and being open to adaptation. Keep a close watch on progress, and if things don’t go as planned, be ready to tweak your plan swiftly to stay on track.

While spreadsheets can monitor and track results, they may not be sufficient for keeping everyone on the same page and adapting 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.

Gap Analysis Tools & Frameworks

The gap analysis template that we've created is a great starting point. However, 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 stands for strengths, weaknesses, opportunities, and threats. It assesses both internal and external factors, providing insights into current and future opportunities. SWOT analysis offers a comprehensive snapshot of your organization's current state by focusing on real-life evidence and contexts.

👉🏻 Learn more about SWOT analysis and get a free SWOT Analysis Template here.

PESTLE/PEST Analysis

Understanding industry threats and opportunities can be challenging without proper industry knowledge. PESTLE (Political, Economic, Social, Technological, Environmental, Legal) analysis enhances your understanding of external factors. This framework 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 assesses seven interconnected elements within your organization to understand its effectiveness and alignment. These elements include strategy, structure, systems, shared values, skills, style, and staff. 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 company performance.

👉🏻Check out this article to learn more about McKinsey 7-S framework.

Nadler-Tushman Model

The Nadler-Tushman model focuses on inputs, transformational processes, and outputs to assess organizational effectiveness. By examining how inputs are transformed into outputs, organizations can identify inefficiencies leading to performance gaps.

Fishbone Diagram

Also known as the Ishikawa or cause-and-effect diagram, the fishbone diagram helps identify potential root causes of a problem or gap. This tool is useful for mapping out complex and interconnected factors contributing to the identified gap.

McKinsey’s Three Horizons

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

This framework helps organizations think about business progression over time-based horizons, isolating business-as-usual activities from innovative growth drivers. The three 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 detect gaps in their growth plans and ensure a balanced approach to innovation and sustainability.

👉🏻Check out this article to learn more about McKinsey’s Three Horizons.

Balanced Scorecard

A balanced scorecard categorizes business activities into outcome-focused quadrants: financial, customers, process, and people. 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 to learn more about the framework.

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.

Free Gap Analysis Templates To Download

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 to improve business processes. However, the framework needs some adjustment. This gap analysis template focuses on a slightly different approach that’s best for optimizing business processes.

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

Skills gap analysis template for your team

A skills gap analysis helps organizations uncover team gaps and set career development goals. It quickly identifies underdeveloped skills at the organizational level. Once identified, you can implement training plans or adjust your hiring strategy.

👉🏻Download the free skills gap analysis template here!

Product or market gap analysis template

Product or market 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!

Use Cascade To Close The Gap 🚀

Gap analysis is a great tool for detecting 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 an effective strategy execution process to make sure you close those gaps:

1. Download your FREE gap analysis template to streamline your gap analysis process
2. 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.

FAQs

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

A need gap analysis identifies specific requirements and deficiencies within an organization to address challenges and meet objectives. It focuses on understanding what is lacking or needs improvement.

While both needs analysis and gap analysis assess the current situation compared to the desired state, their focus differs. Needs analysis pinpoints specific needs and improvement areas. In contrast, gap analysis develops action plans to close the gaps between the current and desired states.