Strategic Analysis and Planning with MATRIX V5
Tutorial Step 15 - Gap Analysis

In his celebrated book 'Corporate Strategy', Igor Ansoff describes a systematic approach to how the gap between a company's Objectives and Forecast performance can be narrowed and ultimately eliminated. Objectives are decided upon for the company, and a Forecast is extrapolated from the company's current range of activities. Whilst that the former is shown to increase (companies like to grow), the latter is shown to tail off over time (as products lose competitiveness within the marketplace). The difference in performance shown is known as the 'Total sales gap'.

The business environment(s) should then be analysed to establish whether by nature the future will:

• be similar to the past - i.e. simple evolution - in which case market needs can be met by logical extensions to traditionally successful products and services, the introduction of efficiencies in the supply chain, price increases etc., or
• be discontinuous, and the company needs to consider the introduction of new solutions to service new market demands.

The analysis gives rise to the chart shown right in which the 'Competitive Gap' is bridged by the evolutionary aspect of the business and the 'Portfolio Gap' is bridged by new products, new markets or diversification.

When addressing the 'Portfolio Gap', management should seek the lowest risk options, perhaps starting with new products to existing markets before committing to the expense of market development. Companies will have different views of diversification depending upon their attitudes towards risk, and their inherent 'flexibility'. A company with significant capital tied up in plant will be less able to seek completely new ventures than would (say) an investment trust which has highly fluid resources.

Gap Analysis And MATRIX V5

Gap Analysis is one of a number of 'classical marketing concepts' addressed by MATRIX V5, the software application for business strategists. The chart illustrates the gap between Objective and Forecast Revenues and Gross Margins for the Host Company over the modelling period.

By summing the Forecasts for each Niche, it is possible to see whether the business is ‘on target’ to meet its Economic Objectives, or whether it is likely to suffer a shortfall. Such a comparison may raise a number of issues about the scope and viability of a Portfolio. For example if there is a negative gap between the Objectives and the summed Forecasts (i.e. the Objectives are higher than the summed Forecasts) then either:

• The Economic Objective needs to be revised downwards, or
• The Portfolio needs to be expanded with additional Niches so that the gap can be bridged, or
• The Portfolio needs to be fundamentally re-thought, or
• The Forecast for all, some or one of the Niches within the Portfolio needs to be revised upwards such that the overall Forecast improves.

Of course it is possible to undertake combinations of such actions to ‘bridge the gap’.

A 'key' can be revealed on the left-hand side of the chart by clicking and dragging the chart edge. 'Hotspots', accessed by moving the cursor over the map provide on-screen information about the Year, Economic Objectives, Forecast, and the size of the Gap. The chart can also be copied and pasted into a compatible graphics or presentation package by means of the Right-Hand Mouse Click / 'Copy to Clipboard' function.

The 'Select Gap Analysis' Dialogue

MATRIX V5 is an 'expert user' software tool which provides great flexibility when plotting 'Gap Analysis' charts. Tabs on the 'Select Gap Analysis' dialogue give the user choice in the format and detail of the plot.

To open the 'Select Gap Analysis' dialogue, click the 'Gap Analysis' button (above) which is located upon the toolbar.

To display the Gap Analysis chart shown earlier, the following settings are required within the ‘Select Gap Analysis’ Dialogue:

1. Sum: Select ‘By Niche’
2. Data: Select ‘Revenue’
3. Also, tick the ‘View Key’ Tick Box

These are the default settings. Clicking the ‘Plot’ button now reveals the required example.

The Tabs In Detail ...

1. Sum
Displays the gap between Objectives and Forecast by Niche, Product, Segment, Market, Group or Ansoff Quadrant. The Ansoff Quadrant based analysis, which is controlled by the Ansoff Matrix, enables users to see at a glance the proportion (and trend) of business derived from lower risk ‘Penetration’ strategies, and higher risk ‘Expansion’ and ‘Diversification’ strategies.

2. Data
Displays the gap between Revenue Objectives and Forecast, or Gross Margin Objectives and Forecast .

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