Businessmodel of Illinois Tool Works

Customer Segments

ITW has a diversified market business model, with customer groups that have very different needs. The company targets its offerings at firms in the automotive, electronics, foodservice, manufacturing, and construction industries.

Value Proposition

ITW offers three primary value propositions: accessibility, innovation, and brand/status.

The company creates accessibility by providing a wide variety of options. Its products can be found in almost every type of application, ranging from deep-sea oil rigs to bridges and wind turbines to aerospace technology to mobile devices. It is partly able to accomplish this because of the many acquisitions it has made, which have enabled it to add many new capabilities and technologies.

The company embraces innovation as part of its culture. It maintains the proprietary 80/20 business process, which it has practiced for 30 years. Through the process, each ITW division focuses on the 20% of its customers that account for 80% of its revenues and structures the business so that it grows relationships with these essential customers. It uses insights from the relationships to design, develop, and patent new products and components that solve their specific problems. The company believes that the efficiencies obtained from 80/20 deliver strong free operating cash flow, best-in-class operating margins, and differentiated returns on invested capital.

The company has established a strong brand due to its success. It is a Fortune 200 firm that generated revenues of $13.4 billion in 2015.It has over 51,000 employees working in 84 divisions in 57 countries, including developed and emerging markets. Its portfolio features several problem brands, including Miller Electric, DUO-FAST fasteners, Foster Refrigerator, and the Wolf Range Company. Lastly , it has won a number of honors, including recognition as the World’s Most Admired Company in the Industrial Machinery category by Fortune in 2016.

Channels

ITW’s main channels are its direct sales team and its network of independent distributors. The company promotes its offering through its social media pages.

Customer Relationships

ITW’s customer relationship is primarily of a self-service nature. Customers utilize its products while having limited interaction with employees. That said, there is a co-creation element. The company works with key clients through its 80/20 process to co-develop innovative new solutions.

Key Activities

ITW’s business model entails designing, developing, and manufacturing its products for customers.

Key Partners

ITW’s key partners are the suppliers that provide it with the raw materials it needs to manufacture its products. These materials primarily include steel, resins, chemicals, and paper.

Key Resources

ITW’s main resource is its intellectual property. Its portfolio features over 16,000 granted and pending patents, including 3,400 unexpired U.S. patents and 7,200 foreign patents focused on articles, methods, and machines; 1,500 applications for patents pending in the U.S. Patent Office; and 4,500 applications pending in foreign patent offices.

It also maintains important physical resources in the form of 502 plants and office facilities around the world, and important human resources in the form of the engineers and scientists that design, develop, and/or manufacture its products.

Cost Structure

ITW has a cost-driven structure, aiming to minimize expenses through significant automation. Its biggest cost driver is cost of revenues, a variable expense. Other major drivers are in the areas of sales/marketing, research/development, and administration, all fixed costs.

Revenue Streams

ITW has one revenue stream: revenues it generates from the sales of its products to customers.