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A strategy gap is a term used to describe the difference between the desired performance level of a company and the actual performance of the business as of the most recently closed accounting period. Ideally, this type of gap is kept as small as possible, and serves as an indication that the business is competently pursuing its objectives and goals as exemplified by the sales and profit margins generated in that recent period. When the assessment of company performance indicates that the strategy gap is widening rather than closing, steps are taken to reverse the situation and restore the operation to a more desirable level of performance.
The strategy gap is determined based on consideration of several factors. Along with the amount of revenue generation actually achieved versus the forecasting for revenue related to that same period, the gap will also consider intangible factors like how well the company is moving toward certain internal goals or objectives, or how well the overall operation is living up to the company’s mission statement. This means that while a company may be experiencing a slight drop in revenue, this may or may not be a sign that the strategy gap is widening, if the current internal function of the company is undergoing some sort of reorganization as a way of relating more closely to the business mission statement. In this type of situation, the expectation is normally that once the changes are implemented and have a chance to become part of the corporate culture, revenues will once again increase.
Determining the current status of the gap normally involves conducting what is known as a strategy gap analysis. The evaluation will look at a number of factors that relate to company goals, especially in terms of goals that relate to the management of both tangible and intangible expenses, revenue generation, and in the general movement of the company toward the achievement of its stated goals. Since goals and objectives will vary from one business to the next, the actual criteria used to conduct a strategy gap analysis will be different for each company.
Understanding the current nature of the strategy gap is very helpful when it comes to budgeting for upcoming periods, since the data collected as part of the analysis can often provide the tools necessary for accurately forecasting the future prospects of the company. In some instances, assessing the strategy gap can lead to the discovery of underlying issues that have the potential to generate a larger and more negative impact on the company in the future, providing owners and managers with the chance to defuse those issues now and avoid losses later on. At the same time, a strategy gap assessment may also identify certain factors that show promise of accelerating the company’s movement toward its goals, allowing the business to adopt new policies and procedures that make the most of those positive factors now rather than later.