The objective of our strategy remains unchanged: Focus on fully leveraging ITW’s highly differentiated business model to deliver solid growth with consistent best-in-class margins and returns on capital. The company delivered meaningful progress toward its 2017 financial performance goals in 2013, the first year of our five-year plan.
ITW’S DIFFERENTIATED BUSINESS MODEL: OUR UNIQUE CORE CAPABILITIES
The foundation of our strategy is a set of highly differentiated and proprietary business practices and capabilities that we refer to as the ITW Business Model. This model consists of three core elements: (1) Our 80/20 business process, (2) Customer-back innovation, and (3) Our decentralized entrepreneurial culture.
Our strategy is centered on three key initiatives: Portfolio Management, Business Structure Simplification and Strategic Sourcing.
Through our portfolio management initiative, we are narrowing the focus of our business portfolio. The actions we are taking will allow us to concentrate our efforts and investments on areas of opportunity that have the best potential to take full advantage of the ITW Business Model over the medium to long term — larger businesses with strong, sustainable differentiation attributes and above-average organic growth potential.
In 2013, ITW made three strategic “bolt-on” acquisitions of companies with high-growth potential in markets where ITW already has a presence. By adding new capabilities, technologies and leadership talent, these acquisitions further expand ITW’s ability to serve customers in these markets.
With the closing of the Industrial Packaging divestiture in May 2014, ITW’s portfolio transformation is substantially complete. The reshaped portfolio positions the company well for growth and differentiated financial performance in 2014 and beyond.
As a result of these actions, the company is now focused on seven highly differentiated global businesses with strong, sustainable competitive advantages and compelling future growth potential.
ITW is simplifying its business structure in order to focus its energy and resources on larger businesses with robust core competitive advantages and strong organic growth potential. In 2013, the company began the process of scaling up its divisional operating structure by consolidating hundreds of business units into approximately 90 larger, more competitive global divisions. As a result of this initiative, the company’s operating divisions will have an enhanced pool of resources to draw upon to accelerate organic growth as well as significant new opportunities to drive cost and productivity improvements by operating with greater scale.
ITW is executing a plan to better leverage the overall size and scale of the company through strategic sourcing in order to reduce costs and build more competitive businesses. The strategic sourcing team is working with ITW businesses to reduce the company’s global spend by an average of 1 percent per year through 2017.
Core to ITW’s Enterprise Strategy is a highly disciplined and returns-focused approach to capital allocation. ITW remains committed to returning a meaningful percentage of its free operating cash flow to its shareholders. With more than 50 consecutive years of dividend increases, ITW remains focused on delivering an attractive dividend yield. External investments in share repurchases and acquisitions are based on risk-adjusted returns. The company expects annual dividends and share repurchases to contribute meaningfully to shareholder returns.
Through the implementation of the three enterprise strategy initiatives in combination with ITW’s differentiated business model, we are positioning the company to deliver solid growth with strong returns and world-class financial performance.