Illinois Tool Works: Retooling for Continued Growth and Profitability

In June 2016, Illinois Tool Works (ITW), a Fortune 500 manufacturing company in the United States, was at a critical juncture in its evolution. The company had identified a number of lofty goals in its 2015 annual report to be achieved by the end of 2017. These expectations included reaching over 200 basis points in organic growth above the market, a 23 per cent operating margin, a 20 per cent after-tax return on invested capital, 100 per cent free cash flow as a percentage of net income, and 12 to 14 per cent shareholder returns. Riding on the success of 2015, these targets had seemed achievable based on ITW’s performance and operational excellence. However, the U.S. and world economies faced a variety of challenges related to political uncertainty in the United States due to a presidential election and also in Europe because of the United Kingdom’s recent decision to exit the European Union. Additional challenges such as continued weaknesses in emerging markets and volatile currencies also affected ITW's outlook. ITW’s acquisition strategy had yielded excellent results over the past few years by effectively using diversification and decentralization strategies in its growth, but there was considerable uncertainty about achieving future goals. ITW had to make important choices about resource allocation across product groups based on their past performance and future prospects. The CEO also had to make appropriate decisions for continued superior performance.

This case is ideal for use in strategy courses at the undergraduate or graduate levels where there is a focus on diversification. After completing the case, students will be familiar with<br><ul><li>making unrelated diversification work to a company’s advantage;</li><li>using innovative organization policies to help in resource allocation;</li><li>managing diversity in a firm;</li><li>choosing among various option to achieve continued growth; and</li><li>using alternative routes in business strategies.

• Diversification strategy, Acquisition strategy, Operational excellence , Decentralization