Modern Manufacturing

The 5 Areas of Business Latency that can Derail Your Integrated Business Planning and Execution

John Klinke
Director, Oracle Industry Strategy Group

Guest Author: Enrique Lopez-Tello, VP, Industry Strategy Group, Oracle.

A recent study from consulting firm McKinsey found that “only 20 percent of respondents say their organizations excel at decision making. Further, a majority say much of the time they devote to decision making is used ineffectively”. Latency in your decision making processes is one cause of this ineffectiveness. Excessive delays hurt your ability to react quickly to changing business and operational conditions – a clear lost opportunity that can impact your top and bottom line. Of course, business decision processes always have some latency, but there are clearly ways to reduce latency, sometimes significantly. And taking this action starts with a deeper understanding of business latency, which I will cover in this post.

Business Latency Defined

Colin White and Richard Hackathorn were two of the pioneers using the term business latency in the context of how to use information technology to mitigate its negative impacts in organization performance. Today the concept of latency has been addressed by many across different industries and business processes. In this post, I’d like to discuss why latency is relevant specifically within the integrated business planning and execution (IBPX) framework used by manufacturing organizations to develop business plans and then execute on those plans. 

We'll use the following definition for business latency in this context for discussion purpose:

Business latency is the time that your organization wastes from the moment when the unexpected event affecting future performance happens to the moment in which your organization acts on this information by either 1) leveraging the opportunity that this event represents, 2) discarding the event as useless after analyzing its impact, or 3) implementing actions to mitigate the impact of this event. A very simple way of defining what is a relevant event is one with the potential of impacting the results of your business plan.

Types of Business Latency

Colin White identifies three business latency areas:

  • Capture Latency: how long takes to notice the new data event.
  • Analysis Latency: how long takes to create information and insight from this data.
  • Decision Latency: how long takes to decide on the next best action.

Newer technologies allow us to expand upon these three latency areas as it applies to the IBPX business model.

Business Latency Moments of Truth for Integrated Business Planning and Execution

Some comments about this diagram: 

  • Advanced technologies, including artificial intelligence (AI) and predictive analytics, allow us to talk about a moment in time before an event happens, where we have a very high probability of predicting that the event will occur. Let us call this t-1 – when the event is “predicted”.
  • There is also a difference between decision latency (deciding on the next best action) and having that decision implemented by your organization. An event is “managed” when you have decided what to do (t3). Then you need for your decision to be “implemented” (t4). In fact, it is during this transition when you could see significant loss in the potential business value that you plan on obtaining. Bain & Co states that executive decisions could lose up to 40% of their original value when moving plans to action.

Therefore, it’s possible to define 5 different latency areas as you think about making improvements within your existing IBPX framework:

  1. Prediction Latency (t0 - t-1) is the time interval between when you predict the event and when it occurs. This latency is counter-intuitive because ideally you want to increase this value so you can minimize the time between the event occurring and implementing your course of action.
  2. Capture Latency (t1 – t0) is the time interval between when the event occurs and when you detect it. The general goal here is to have this time reduced as much as possible. 
  3. Analysis Latency (t2 – t1) is the time interval between when the event is detected and when it is filtered (processed) by the organization. Similar to Capture Latency, the smaller the better. 
  4. Decision Latency (t3 – t2) is the time interval between when the event is filtered and when it is managed (i.e. a course of action is decided upon). Again, the smaller the better. 
  5. Implementation Latency (t4 – t3) is the time interval between when the event is managed and when it is implemented. In general, the smaller the time the better. 

How easy it is to optimize these five latency areas will depend on a number of factors including the nature of the event, the IBPX technologies you are using, and culture within your organization. But the key is to look at each latency area, figure out where there are inefficiencies in your organization, and then determine what can be done to improve them. This will enable you to be more responsive to events in the future and be able to adapt more quickly to changing business conditions and external shocks to your business, whether related to your supply chain or customer demand.

In my next post, I’ll expand upon latency further with some real-world examples and discuss how Oracle’s IBPX solution addresses these and other business challenges when it comes to manufacturing planning and execution.