Table of Contents
Table of Contents

Strategic Gap Analysis: Definition, How It Works, and Example

By
Adam Hayes
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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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Updated August 29, 2024
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Khadija Khartit
Khadija Khartit Khadija Khartit
Reviewed by Khadija Khartit
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Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
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Fact checked by Vikki Velasquez
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Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.
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What Is Strategic Gap Analysis?

Strategic gap analysis is a business management technique that requires an evaluation of the difference between a business endeavor's best possible outcome and the actual outcome. It includes recommendations on steps that can be taken to close the gap.

Strategic gap analysis aims to determine what specific steps a company can take to achieve a particular goal. A range of factors including the time frame, management performance, and budget constraints are looked at critically in order to identify shortcomings.

The analysis should be followed by an implementation plan.

Key Takeaways

  • Strategic gap analysis measures the difference between an ideal outcome and the real outcome.
  • The analysis identifies the steps that must be taken to close that gap.
  • For a business or other organization, the analysis can lead to an action plan for greater success.

Understanding Strategic Gap Analysis

A strategic gap analysis is one method that is used to help a company or any other organization determine whether it is getting the best return from its resources. It identifies the gap between the status quo and the best possible result.

Performing a strategic gap analysis can point to potential areas for improvement and identify the resources that are required for an organization to achieve its strategic goals.

Strategic gap analysis emerges from a variety of performance assessments, most notably benchmarking. When the performance level of an industry or a project is known, that benchmark can be used to measure whether a company's performance is acceptable or if it needs improvement. Such a comparison informs a strategic gap analysis.

From that point, the organization can determine what combination of resources such as money, time, and personnel are needed for a better outcome.

Many businesses fail to plan strategically. They have the resources and competencies to achieve their basic business targets but fail to realize their full potential. A strategic gap analysis could help such a business bridge the gap between its current and potential performance levels.

Example of Strategic Gap Analysis

A small mom-and-pop restaurant in a seaside town has a loyal clientele of locals but its owners yearn to serve the summer vacation crowd as well. A strategic gap analysis identifies the changes required for the restaurant to meet its goals.

These changes might include relocating to a busier street, staying open later to appeal to vacationers, and updating the menu. The restaurant owners don't have to take any of these recommendations. But it might do so if it wants to reach that higher level of business success.

What Are the 3 Fundamental Components of a Gap Analysis?

The three fundamental components of a gap analysis are (1) the current state, (2) the desired state, and (3) the gap. The current state is where the company is now and how it operates, the desired state is where it wants to be as defined by certain metrics, such as improved efficiency, better margins, etc., and the gap is the difference between the current state and the desired state, which allows a company to create an action plan to close it.

Is a SWOT Analysis a Gap Analysis?

A SWOT (strengths, weaknesses, opportunities, threats) analysis can be seen as a type of gap analysis because it details where a company currently stands. It allows a company to see what it does well and what it does not do well and thereby determine a way to improve the latter.

How Do You Conduct a Gap Analysis?

To conduct a gap analysis, you first need to take note of the current situation. This usually involves determining what kind of metrics are important to your company or your department, such as margin, inventory turnover, conversion rates, or efficiency levels. Next, set the goals of where you want to end up. Benchmarking towards industry standards or competitors is a good way to get an idea of where you want to improve to. The goals should be measurable and achievable.

The next step is an analysis of the gap between where you are and where you want to be. Determine why your metrics are the way they are and not better. This could be due to a variety of issues: marketing, hiring, training, etc. Lastly, create an action plan that will lead you to close the gap.

The Bottom Line

Companies conduct strategic gap analyses to determine the difference between current performance and the ideal performance. By identifying this gap, a company can create an action plan to achieve its ideal performance or desired goals. The information is usually derived from performance assessments and industry benchmarks which allow a company to identify gaps and allocate resources correctly.