GAP Or SWOT Analysis: What Does It All Mean?

Acronyms. Did you know there are a minimum of 3,220 different acronyms or terms for finance alone? It boggles the mind. LAN – OSHA – EBIDA – EOD – LIFO – FIFO – OCF – GAAP – SWOT – to name a few.  Today we are only going to talk about two of them – GAP AND SWOT – and how they can help you move your business forward.

First what does SWOT and GAP mean?   

SWOT stands for strengths, weaknesses, opportunities and threats, so a SWOT analysis is a plan to help you determine where your organization stands within your industry market. GAP analysis is a formal study of what a business is doing currently and where it wants to go in the future. It actually isn’t an acronym, but it is important.

Both SWOT analysis and GAP analysis are used to evaluate your business, but different aspects of it. Output from one can be used as input for another and vice versa. SWOT analysis is frequently used by companies while GAP analysis not as much. Too often companies do a SWOT analysis and ignore the GAP analysis, but GAP fills a much needed void in assessing your business.

Let’s discuss GAP first. A GAP analysis compares the actual performance of your business with its potential performance. You may have heard it referred to as a need-gap analysis, need analysis or need assessment.

GAP analysis refers to gaps or shortages that affect your organization’s effectiveness or ability to provide products or services. Gaps may occur with individual workers who lack the proper training to perform their jobs, or with outdated equipment that is unable to keep up with demand or perform on a par with equipment utilized by your company’s competitors. GAP analysis may also refer to your company’s inability to meet its own stated mission or to areas where your company must improve to meet future goals.

A GAP analysis naturally flows from benchmarking and from other assessments done on your business.   Once you have those benchmarks for the performance for your industry, it is possible to compare that expectation with the company’s current level of performance.

How is a GAP analysis done? 

An organization will determine the factors that define its current state, list the factors needed to reach its goal and then plan on how to fill the gap between the two states. This is important because it helps to identify if your company is performing to its potential and if not performing, why not. This helps to identify flaws in resource allocation, planning, production etc.

If you’re facing a decline in sales, a loss of customers or clients or another problem with your business, GAP analysis may allow you to define the source of the problem. By definition, GAP analysis reveals areas where your company, its assets or your employees fall short, all of which relate directly to your company’s performance. GAP analysis can also direct how you allocate assets. For example, GAP analysis may reveal that your computer system or network is inadequate to meet your company’s present needs, or expose faults in your inventory system or supply chain.

Make sense? Then let’s move on to SWOT analysis.

A SWOT analysis evaluates an organization in relationship to each of the factors named in the acronym. An organization’s strengths may include its organizational structure, its personnel, financial reserves or reputation in the industry. Weaknesses may refer to problems with on-time delivery or shortages in working capital. Opportunities may include unmet demand in a market relating to your company’s businesses or the possibility to hire a hot new talent, while threats may be represented by a competitor with larger market share or more resources available at its disposal.

SWOT analysis can also help you position your company to gain advantage over its competitors by emphasizing its strengths and taking actions to correct weaknesses or deal with potential threats. For example, if SWOT analysis predicts a tightening in available business credit, you may attempt to establish a line of credit or build up the working capital for your business.

To summarize, SWOT analysis evaluates a company against its peers, while GAP analysis is an internal evaluation to identify performance deficiencies. SWOT analysis is done for long term planning while GAP analysis is often done to reach short term goals. SWOT analysis is often a comprehensive study evaluating many aspects and many competitors. GAP analysis can be very simple targeted towards fine tuning one process.