Identifying the capability gap

A capability gap is the distance between what an organisation can do now and what it must be able to do to succeed in its chosen future position. This tool defines that shortfall before leaders decide how to close it.

When to use it

• Use it after clarifying target segments, future scenarios, key success factors and the desired competitive position. Revisit it when those assumptions change, while recognising that gap analysis can create false certainty if aspirations are vague or context is ignored.

Origins

Capability-gap analysis combines the long-standing management practice of comparing current and desired states with the resource-based view of strategy. In this strategy sequence, it follows competitive-position assessment and ideal-player profiling: future success factors are translated into a specific difference between present and required capability. No single inventor owns this general form of analysis.

What it is

The tool asks two linked questions: how ambitious should the organisation’s future position be, and which capabilities separate that aspiration from current reality?

The target is not perfection for its own sake. A capability matters only when it supports customer value, strategic differentiation, resilience or a necessary licence to operate. The ideal player is therefore a reference profile for the chosen future market, not an instruction to become best at everything.

How to use it

There are three stages: stretch the aspiration, define the future ideal player and specify the capability gap.

Stretch the aspiration

Return to the organisation’s intended position in five years’ time. Decide whether the aim is to improve the current model, lead selected segments, enter new arenas or withdraw from some of them. Test the aspiration against return, risk, stakeholder obligations and the resources that could realistically be mobilised. Ambition should be challenging, but a heroic target with no strategic rationale is not useful.

Aim towards the ideal player

In Rating competitive position, the organisation’s strengths and weaknesses were assessed against the key success factors for each priority segment. An ideal player might score between 4 and 5 out of 5 on the factors that genuinely determine success. Use that profile as a comparison point, not a universal standard.

Update it for future scenarios. Customer needs, regulation, technology, competitor behaviour and channels can change which factors matter. Becoming today’s ideal player too late produces obsolete capability; building tomorrow’s capability before customers or the operating model can use it wastes resources. State the timing assumptions explicitly.

Identify the capability gap

Revisit customer needs, key success factors and the competitive-position evidence for each main segment. Include the analysis from Deriving key success factors, and check it against the future marketplace described in Profiling the ideal player. For every important factor, record current capability, required capability, evidence, size of gap, urgency and confidence.

Describe the gap as an outcome or capability, not as a preferred initiative. “Improve distribution in segment C” identifies a gap; “switch distributor” is one possible strategic response. “Lower production cost across all segments” states the requirement; outsourcing or offshoring are options that must be evaluated separately.

Some gaps should not be closed. If the cost, time, risk or organisational disruption exceeds the segment’s potential, withdrawal may be more attractive. In a portfolio example, leaders might improve margin in segment A, exit segment B because its gap is unbridgeable, improve distribution in segment C, accelerate product development in segment D, enter segment E, lower production cost across the portfolio and strengthen enterprise-resource systems.

Colour key

Current

segment

1 Weak

2 3

Competitive position

4 Strong

New segment

Identifying key segments Issue analysis (Minto) The 80/20 principle (Pareto) The segmentation mincer (Koch) 5C situation analysis SWOT analysis (Andrews) Setting long-term goals Setting SMART objectives Maximising shareholder value Balancing stakeholder interests (corporate social responsibility) Creating shared value (Porter and Kramer) Economic value added (Stern Stewart) Balanced scorecard and strategy map (Kaplan and Norton) Core ideology (Collins and Porras) Obliquity (Kay) Business as a community (Handy) Sizing the market and marketcrafting The HOOF approach to demand forecasting Income elasticity of demand The five forces (Porter) Assessing customer purchasing criteria Deriving key success factors Weighing economies of scale Corporate environment as a sixth force Complements as a sixth force (Brandenburger and Nalebuff) PESTEL analysis Rating competitive position The resource and capability strengths/ importance matrix (Grant) The value chain (Porter) The product/market matrix (Ansoff) The attractiveness/ advantage matrix (GE/McKinsey) The growth/share matrix (BCG) Profiling the ideal player Identifying the capability gap

Sight setting

Note: Diameter of bubble roughly proportional to scale of current profits (except for E)

Prioritise the resulting gaps by strategic impact, urgency, feasibility and dependency. Assign an evidence owner and review trigger. Only after the target capability is agreed should the organisation compare build, buy, partner, acquire, redesign or exit options.

Top practical tip

Aim selectively toward the future ideal player. A short, evidenced set of differentiating and mandatory capabilities is more actionable than a wish list of excellence everywhere.

Top pitfall

Gap analysis can disguise uncertainty and encourage copying. Do not close a benchmark gap until you have shown that the capability matters to your chosen strategy and future context.

Further reading

• Grant, R.M. (nineteen ninety-one). “The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation.” California Management Review.
• Prahalad, C.K. and Hamel, G. (nineteen ninety). “The Core Competence of the Corporation.” Harvard Business Review.