Report written by Nadežda Jakubková
There are several methods that can be used for assessing an organization’s performance. These typically focus on highlighting the company’s internal resources, strengths, competitive advantages, as well as its weaknesses. Examples of internal analysis tools used for such purposes include gap analysis, strategy evaluation, SWOT analysis and the McKinsey 7S Framework. Information gathered using these methods exposes an organization’s blindspots and highlights untapped opportunities. In other words, internal analysis reveals where an organization excels, what it is good at and where it needs improvement. In any business, there may be many different scenarios that warrant conducting an internal analysis.
Let’s take a look at a few specific examples.
Let’s say you are adding new software to your information technology (IT) portfolio. How do you assess the requirements? What tools do you use to determine whether the project is on track and if the existing processes are set up correctly?
Let’s say you would like to seek compliance with a specific international standard or you need to comply with a new industry norm. How do you determine the differences between your current setup and what the standard or norm is asking of you?
Let’s say a department or a team has been having troubles meeting their key performance indicators (KPIs) or the team has not been very efficient lately. How do you go about determining the reasons behind the dip in performance? How do you help the team get back on track?
The list of examples could go on, but what they all have in common is that there is a current state within the company that requires action and a desired state the organization wants to reach. Once this need has been identified, the next question that arises is, naturally, which type of internal analysis should be conducted, as not all tools are created equal.
There is a constant battle between the reality we are currently experiencing and the reality we want to experience. We make plans which are supposed to get us to our desired destination, but often we do not even get close to achieving our vision. Instead of being motivated, inspired and on track with our goals, we become irritated because everything seems to take too long, and it doesn’t feel like we are getting anywhere close to where we want to go with everything else seemingly having a higher level of priority.
Gap analysis is a process used by businesses as well as individuals in their personal lives. It helps us determine the gaps between a current state and a desired state. The most significant feature of the gap analysis methodology is that it is very action-oriented. It doesn’t turn the whole focus on the pure delivery of an evaluation or assessment report. Instead, its end result is a clear, thorough, step-by-step plan for an organization or individual to follow to reach their desired destination.
The main benefit of conducting a gap analysis is that they are easy to understand and there are no overly complex requirements for their use. The most crucial part of the analysis is to provide a comprehensive and complete description of the current state and the desired state of the area of interest. Once both states have been defined, the organization can create an action plan which functions as a concrete and detailed script to get the organization to the state it is aspiring to reach.
From a scope perspective, a gap analysis is best applied to areas of innovation like implementation of new technology and compliance programs as well as efficiency programs in sales, marketing and finance. When carried out correctly, a gap analysis will provide insights into an organization’s profitability, effectiveness, performance and competitive advantage. When used for performance-oriented projects, it uncovers the weaknesses and inefficiencies that need to be addressed and forces management to formulate a feasible future vision with respect to the area in question.
From the perspective of effectiveness, there might be issues with internal processes that bring out a need for improvement from within the company. In the first hypothetical scenario described above, the core issue is the dissatisfaction of the employees with the current IT system in a certain branch office. In this scenario, a gap analysis might expose that the IT system designed by the company’s headquarters does not support the business processes of the respective branch and that this is the underlying reason why the employees avoid using it. Additional information gained by the analysis could be that the headquarters is losing data and resources as the Excel sheet method the branch uses as an alternative is prone to errors, lacks efficiency, and the data is not stored centrally in one location. By the end of the whole process, a model of an IT system that supports the real business processes in the branch is drawn up and a plan is made as to how to implement the new system, step by step.
The second scenario outlined above is about compliance with a new norm or an international standard and belongs to the category of external needs for change. Usually, this type of change comes with a predefined reality we want to reach (i.e. a benchmark). An example would be a leading organization releasing a note for all industry entities to comply with, such as the EU’s General Data Protection Regulation (GDPR). Benchmarking is about making comparisons between the current state of an organization and certain external criteria. In the case of the GDPR, a gap analysis can be used to determine the state of an organization’s IT systems in order to gain a better understanding of the scope of the changes that need to be made. At a later stage of the analysis, a structured, cohesive task list should be created that will take the company from the current state to the compliant state within an agreed upon timeframe.
To boost sales and profits, a gap analysis could help identify where to look for new sales opportunities within the company’s product portfolio or why some products are not selling as well as others. Another example would be looking into profits and comparing them to the initial forecast. By using a gap analysis the organization might discover that the expenses were higher than expected, examine the reasons for this and then take the necessary steps to prevent this from happening again in the future.
Organizations often use key performance indicators to track progress, motivate employees and evaluate performance. Just as described in the third scenario above, there are often gaps between the target and actual performance. In such a case, a gap analysis could help examine why there is a low rate of recurring sales, or why all sales representatives assigned to a specific region fail to meet their targets. It could also shine a light on the reasons why the positive-negative ratio of client feedback is not improving. Ultimately, these findings can then be used to create an action plan to improve the company’s performance and set the right kind of KPIs.
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