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The process of gap analysis is one by which business management professionals identify the differences between the standards they have set for performance and the actual performance levels currently being reached. This difference is known as the gap, and this gap should be narrowed or, if at all possible, eliminated for a business to be operating at an optimum level. First, businesses must set the standards that they wish to reach to begin the process of gap analysis, after which they can see where actual performance levels fall short. Once this is done, they can begin the process of attempting to eliminate the gaps by whatever methods they have at their disposal.
Businesses that hope to succeed on a high level must find ways to judge their performance. Simply measuring performance against the efforts of competitors can be misleading, since there may be circumstances unique to each firm that mitigates the reliability of such comparisons. As a result, it can be an effective technique for businesses to set their own standards and try to live up to them, and the process of gap analysis is one technique to achieve this.
In most cases, the process of gap analysis begins with business leaders making a goal for performance that they wish to reach. These goals should be ambitious but not unrealistic. If the focus is on sales, there might be certain sales levels that the business wishes to hit in a specific time period. On the other hand, a business might wish to measure customer satisfaction, which might mean that standards are set for customer retention or positive feedback.
Whatever the case, the process of gap analysis continues with the business comparing actual performance levels with these predetermined levels. If there is any difference that exists between the standard and actual performances, it means that there is a gap that needs to be addressed. This is often illustrated by a graph, with one line depicting the desired standard and another showing actual performance, yielding a visual manifestation of the gap.
Once this is done, the process of gap analysis continues with the implementation of initiatives to rectify the existing gap. Again, this step is dependent on what type of gap is being measured. In terms of sales figures, management might wish to adjust price levels or stimulate customers with special promotions. Customer satisfaction initiatives can be used to remove any gaps in that area. After those measures have been put into place and have produced tangible results, they can be compared to the standards to see how effective they were in reducing the gap.