Illinois Tool Works
Since our founding more than 100 years ago, ITW has become one of the world’s leading diversified manufacturers of specialized industrial equipment, consumables, and related service businesses. ITW businesses serve local customers and markets around the globe, with a significant presence in developed as well as emerging markets. The company has operations in 57 countries that employ more than 50,000 women and men who adhere to the highest ethical standards. These talented individuals, many of whom have specialized engineering or scientific expertise, contribute to our global leadership in innovation. We are proud of our broad portfolio of more than 17,000 granted and pending patents.
ITW’s products and solutions are at work all over the world, in deep-sea oil rigs, aerospace technology, bridges and wind turbines, healthcare, the spaces in which we live and work, the cars we drive, and the mobile devices we rely on. We are never, whether we know it or not, more than a few steps from an innovative ITW solution.
You’ll find ITW solutions around the world. ITW’s innovative fasteners, snap-in door handles, powertrain, refueling systems and other components make your vehicle more road-worthy, convenient and affordable. And at the mechanic’s shop, our maintenance products help keep those cars on the road longer.
Thanks to ITW’s food equipment businesses, the restaurants where you dine hum with state-of-the-art ovens, dishwashers, refrigerators and more. ITW packaging ideas are what help you grab a six-pack off a store shelf or keep your food fresh at home. And our quality testing machines ensure the safety of everything from suspension bridges and aircraft to tiny heart valves. And the smartphone that’s always in hand? It’s built with ITW’s semiconductor solutions and innovations like an electromechanical gyroscope. ITW welding systems help deep-sea oil rigs deliver critical resources and enable safe, durable construction of your city’s offices and homes.
ITW is committed to operational excellence and innovation that helps our customers create the products and services that make our lives better.
A global company
ITW businesses operate in nearly every corner of the globe, with a significant presence in developed as well as emerging markets. In fact, half of our revenue is generated outside of the United States. Strategic, global expansion offers significant opportunity for our customers, shareholders and our talented employees.
The foundation of our company is the ITW Business Model, a unique and differentiated set of core capabilities and business practices that comprises three key elements: ITW’s 80/20 business process, customer-back innovation and a decentralized entrepreneurial culture.
The ability to invent, envision, and create something new is central to ITW’s longevity and profitable growth. Our innovation is “80/20 enabled,” meaning that we draw deep insights from our key customer relationships, and then focus our efforts on designing and patenting new products and components that solve their specific challenges. Encouraging new ideas—whether they come from engineers, chemists, or other members of the ITW team—and providing a supportive, entrepreneurial framework, has produced ITW’s strong culture of sustainable differentiation through innovation.
We launched our current strategy in late 2012 with the explicit goal of positioning ITW to deliver solid growth with best-in-class margins and returns by focusing the entire company on utilizing ITW’s highly differentiated and proprietary Business Model to its full potential.
The ITW Business Model is the core source of our competitive advantage as a company. It drives our ability to win with customers and deliver differentiated returns for our shareholders. A description of the three elements of the ITW Business Model can be found on the tab “How We Work”.
We implemented a number of key initiatives in conjunction with our Enterprise Strategy and we have made significant progress over the course of the last four years.
Since we launched our Enterprise Strategy in 2012, we have increased ITW’s operating margin from 15.9% to 22.5% and after-tax return on invested capital from 14.5% to 22.1%. And in 2016, despite a global macroeconomic environment that remained challenging on many fronts, we generated organic growth of more than 2 percentage points above the average of our peer group.
We have come a long way over the last four years and ITW’s performance is now approaching best-in-class levels. As a result, we are frequently asked “what’s next” and whether we are getting close to maxing out on our current strategy. The really good news from our perspective is that despite our considerable progress, we have significant opportunity for further performance improvement within the framework of our current strategy before ITW is operating to its full potential.
OUR PATH TO FULL POTENTIAL
Further Structural Margin Improvement – Targeting 25% Operating Margin Exiting 2018
ITW’s 80/20 business management process is a core element of the ITW Business Model and has been a key value driver for the company for over three decades. Our proprietary management process is comprised of a set of unique and what some might consider unconventional business practices and processes that we utilize in every ITW business. It was started up inside the company in the mid-1980s, and has been in a state of continuous evolution ever since.
Over the last four years, we have completely reengineered our 80/20 business management process by updating and aggregating the most effective ITW 80/20 practices from around the company into a single unified enterprise-wide framework. As a result, our current iteration of 80/20 is by far the most powerful and impactful in our history, and we see significant potential for additional margin expansion as we continue deploying our current version of 80/20 across the company.
Strategic Sourcing, which we launched in 2013 in conjunction with our Enterprise Strategy, has now become a core element of ITW’s operational capability. Over the past four years, our Strategic Sourcing initiative has delivered in excess of $345 million in procurement cost savings across the company and we are far from done. We expect to generate meaningful additional structural margin improvement from the execution of our strategic sourcing initiative over the next several years.
Consistent High-Quality Revenue Growth – Targeting 2%+ Above-Market Organic Growth
We have done extensive work on our business portfolio and operating structure to position the company to generate consistent above-market organic growth. We have narrowed the focus and significantly improved the organic growth potential of ITW’s business portfolio by making sustainable differentiation the defining attribute of our “strategic fit” criteria. As a result, we divested over 30 businesses that largely operated in commoditized end markets and exited hundreds of commoditized product lines inside otherwise highly differentiated ITW businesses. We have also taken steps to significantly simplify and scale-up ITW’s operating structure in order to better leverage our growth investments and to tighten our focus on our best growth opportunities.
As a result, ITW is now comprised of seven industry-leading segments that each has strong and sustainable differentiation attributes, positive long-term macro market fundamentals, compelling competitive advantages with relevance to key market trends, and plenty of room to grow. ITW’s seven highly differentiated and high-performing segments can be found in the Business Segments section.
As of the end of 2015, we had completed the bulk of our portfolio reshaping and organizational restructuring efforts and shifted our attention more fully to the growth component of our Enterprise Strategy agenda. We are encouraged by the more than 2 percentage points of organic growth out-performance versus the average of our peer group that we delivered in 2016, and we are confident that the company is well-positioned to generate consistent above-market organic growth going forward.
ITW: DIFFERENTIATED BUSINESS MODEL=DIFFERENTIATED PERFORMANCE
As we have stated, our strategy is to leverage the full potential of the ITW Business Model to generate solid growth with best-in-class margins and returns. With this objective firmly in mind, we are committed to achieving the following performance goals by the end of 2018:
- Organic Growth of 2 percentage points or more above market
- 25%+ Operating Margin
- 20%+ After-tax Return on Invested Capital
- Free Cash Flow of 100%+ of Net Income
- 12-14% Average Total Shareholder Returns
This is an exciting time at ITW. We have come a long way over the past four years, and in 2016 we delivered the best performance in our company’s history on a number of fronts. While we are pleased with our progress, we are energized by the potential for further performance improvement that we have within the framework of our current Enterprise Strategy.
In 1912, Chicago financier Byron Smith placed an ad in the Economist looking to provide capital to a “high class business (manufacturing preferred) in or near Chicago.” He turned down several initial offers, waiting for the right proposal. When a group of inventors with an idea to improve gear grinding came along, Illinois Tool Works was born. From these humble beginnings, the company endured the uncertainties of war and recessions, expanded into businesses across the globe, and transformed entire industries through simple yet ingenious solutions.