Learning Unit III: Need analysis

Analysis

How do I examine my internal situation using the GAP analysis?

After conducting an external analysis with the PESTLE, the GAP analysis focuses on identifying your SME’s strengths and weaknesses. Where are you performing well, possibly even better than your competitors? Where are you not achieving your goals? Above all: Why are you not achieving your goals?

The GAP analysis covers a variety of areas of analysis, including your business success (e.g. development of turnover and profit), the use of technologies (e.g. modernity of your IT infrastructure or use of cloud services) or your corporate culture (e.g. use of online communication options).

In the course of your internal analysis, you will repeatedly come across ideas that are directly related to your digital transformation. Many of your strengths or weaknesses have a digital component, e.g. you could consider how you could digitalise internal work processes such as invoicing in order to make the best use of your scarce human resources. Or you may recognise that your strengths offer potential for developing new products or services. 

A good GAP analysis takes some time. The following applies: the more detailed you analyse your SME, the better the basis for your digital transformation process.

We extend the classic GAP analysis, which deals with the questions: ‘Where do we currently stand?’, ‘Where do we want to go?’ and ‘How can we reach this goal? We expand it to include a look into the past - a look at past successes and failures. These are important aspects for planning the future of an SME. This modified and extended form of the GAP analysis is more suitable for both your operational and strategic development projects.

The four aspects of the extended GAP analysis

1. Areas of analysis
2. What information do we need?
3. Who compiles the information and how do we evaluate it?
4. Identifying operational or strategic strengths and weaknesses

1. Areas of analysis

To assess your SME's strengths and weaknesses in your digital transformation process, the following aspects should be considered. Feel free to adapt or extend the mentioned aspects to your own needs: 

• Management / leadership 
• Business success
• Development of new products and services
• Personnel and personnel development 
• Quality of production or service delivery 
• Structure of offer / range of products or services
• Technology / IT
• Suppliers / service providers / cooperation partners 
• Marketing and public relations 
• Finances / accounting
• Internal processes and practices 
• Adaptability to changing external conditions 
• Etc. 

2. What information do we need?

For a thorough understanding of business performance, it is crucial to use both quantitative and qualitative measures. Quantitative data, such as balance sheets, profit and loss accounts, and sales figures, provide hard facts. When such figures are unavailable or too time-consuming to gather, qualitative assessments can be utilised effectively. An evaluation grid from 1 to 10 (where 10 is very good and 1 is poor) can be employed to rate aspects like internal knowledge of technologies or digital transformation processes. Utilising both methods ensures a complete and balanced analysis.

3. Who compiles the information, and how do we evaluate it?

Determine within your company who will acquire or process specific pieces of information, and decide which sources they should use. Assess what work is necessary to generate useful information for analysing your strengths and weaknesses as part of a GAP analysis.

Consider both internal organisational data and external sources, such as sector benchmarks. Use qualitative questions to assess internal processes, including whether efforts are proportionate, processes are effective, and procedures comply with legal requirements.

Involving multiple perspectives from different areas of work ensures a well-rounded analysis. Accurate descriptions of target and actual states are crucial. Involve as many people as possible to ensure high-quality data, leading to accurate conclusions. Achieving or exceeding targets indicates strengths, while falling short highlights potential weaknesses to address.

4. Identifying operational or strategic strengths and weaknesses 

Traditional GAP analysis typically focuses on identifying weaknesses, but recognising an SME’s strengths is equally important. While weaknesses reveal areas needing improvement, strengths provide valuable opportunities for growth. Emphasising strengths can often be more effective and quicker than only concentrating on weaknesses. Identifying strengths involves understanding where the organisation has exceeded expectations, whether due to efficient processes or strategic decisions. Conversely, addressing weaknesses requires examining areas where performance has not met goals. By balancing the focus on both strengths and weaknesses, the SME can more effectively tackle challenges and leverage its advantages to enhance overall performance.

To identify strengths (successes) and weaknesses (gaps), an SME needs measurable variables: if the turnover last year was €25,000 and the target was €50,000, the gap is €25,000. For qualitative variables, a SME needs to compare it’s self-defined goals with the most objective assessment of the current situation. For example, if the internal goal is for staff to have a software knowledge rating of at least 8 out of 10, but currently assess it as only 5, the gap is 3 points.

For each metric or question, provide a clear answer following this pattern:

• Yes: The target was achieved or exceeded. This is a strength.
• No: The target was not met. This is a weakness.

The GAP analysis recommends categorising the gaps between the target and actual state into operational and strategic causes.

To clarify: if there's a gap in performance and the planned measures were not implemented effectively, it's an operational gap. This suggests improvements in daily operations, such as better stakeholder communication, are needed. If the measures were implemented as planned but the gap remains, it's a strategic gap. Addressing this requires a new or revised strategy.

Note that an operational gap might also include a strategic gap. While improving operational practices can partially close the gap, additional strategic actions are necessary to fully achieve the goal. 

For each identified strength and weakness, determine if the deviations have operational or strategic causes. Analyse both aspects thoroughly, as this will highlight areas for improvement.

When assessing operational strengths and weaknesses, consider what improvements or better utilisations are needed in daily operations. If a process management system is available, use it to evaluate areas like quality management, communication, and training. Without formal processes, reflect on how current practices might be affected and propose refinements.

For strategic strengths and weaknesses, focus on the business model. Quantify gaps, such as unmet revenue targets or product launch failures, and determine the necessary strategic changes. Likewise, evaluate the impact of strategic strengths, such as exceeding sales targets, and explore ways to leverage these advantages or adjust the product portfolio as needed.

The final step is to assess the relevance of the identified strengths and weaknesses for your future success. This will lead to an initial prioritisation of both operational and strategic strengths and weaknesses.