Enterprise Strategy Update
In late 2012, we launched our Enterprise Strategy 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.
We implemented several key initiatives in conjunction with our Enterprise Strategy and we have made significant progress over the course of the last five years. This work included portfolio realignment, business structure simplification, strategic sourcing, and diligent re-application of ITW’s 80/20 Front to Back Process.
Since launching our Enterprise Strategy in 2012, we have increased ITW’s operating margin from 15.9% to 24.4% and after-tax return on invested capital from 14.5% to 24.4%. We have grown earnings per share at better than 16% annually over the prior five-year period, and the company’s market capitalization has more than doubled.
Moving forward, we remain committed to the four strategic principles that have served as the foundation of our progress over the past five years, and that we believe best position ITW to deliver continued differentiated performance over the next five years.
ITW Business Model is Our Competitive Advantage
The ITW Business Model is a proprietary combination of strategic, operational, and cultural approaches and practices that we apply to every ITW business. The ITW Business Model was developed, and has been constantly evolving inside ITW for over 30 years, and is comprised of three elements:
■ 80/20 Front to Back Process = How We Operate
■ Customer-Back Innovation approach = How We Innovate
■ Decentralized Entrepreneurial Culture = How We Execute
To leverage the Business Model to its full potential, we continue to strive for excellence in the practice of the Business Model everywhere in the company, every day. Our goal from its application is to generate solid growth with best in class margins and returns in every industry in which we operate.
We Focus on Quality Growth
We prioritize high quality revenue growth and, as such, our primary growth focus is organic.
We leverage our business model and our 80/20 Front to Back Process to provide a clear view of where to focus for high quality growth. We target differentiated end-markets and customers with critical needs and challenging pain points. We generate high-quality growth through consistent customer-back innovation and customer service excellence.
We only invest and operate in industries and businesses that have the right “raw material” to generate high quality organic growth through the application of the ITW Business Model. Our current portfolio of seven segments offers solid growth potential and a high degree of diversification in terms of geographic and end market exposures, enabling us to deliver consistent high-quality growth in an intensely competitive and increasingly volatile global environment.
“Do What We Say” Execution is a Critical Differentiator
Our commitment to execution is a key differentiator for ITW. Living up to our commitments – “do what we say” execution – is a deeply embedded core element of our culture. Our culture is the engine that translates ITW’s strategy into action and action into results.
All divisions function within a “framework” that defines how our culture operates and defines our values, our business model, and our strategy to ensure all divisions are working toward a common set of goals. Our business leaders have the flexibility to define the actions and customize their approach to meet those goals. This “flexibility within the framework” establishes an entrepreneurial environment where decisions are made “bottom up” by those with the greatest knowledge, capability and proximity to the customer, which enables our business to be nimble and react quickly to market conditions and customer requirements.
We are simple, straightforward and transparent in everything we do. We set clear performance expectations and financial targets, we execute against these at the appropriate pace, and we establish the freedom to define how to achieve results within the construct of our Business Model.
Invest Only Where We Have a Competitive Advantage
We are highly focused in our approach to investing only where we can leverage the ITW Business Model into compelling and sustainable competitive advantage.
Investments to support organic growth and sustain our highly differentiated core businesses, such as new product innovation, marketing programs, simplification projects, and capital investments, are our number one investment priority.
ITW: DIFFERENTIATED BUSINESS MODEL = DIFFERENTIATED PERFORMANCE
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 our performance goals for 2018 to 2022.