{"id":5269,"date":"2015-12-09T17:57:52","date_gmt":"2015-12-09T22:57:52","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/extreme-decentralization\/"},"modified":"2015-12-09T18:01:31","modified_gmt":"2015-12-09T23:01:31","slug":"illinois-tool-works-extreme-decentralization","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/","title":{"rendered":"Illinois Tool Works: Extreme Decentralization"},"content":{"rendered":"<p>Illinois Tool Works (ITW) is a manufacturing conglomerate that makes a diversified range of industrial products and equipment with operations in 57 countries. \u00a0The fact that ITW is a conglomerate might lead you to believe that they operate as a large, cumbersome organization which imposes it\u2019s mile-long list of best practices on every business unit and new acquisition but that is not so. \u00a0ITW is highly effective at rapid and sustainable innovation due to extreme decentralization\u00a0uncommonly seen in such a large organization.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-5231\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/core-values-white-300x192.png\" alt=\"Business Model\" width=\"267\" height=\"171\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/core-values-white-300x192.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/core-values-white.png 540w\" sizes=\"auto, (max-width: 267px) 100vw, 267px\" \/><\/p>\n<p>ITW\u2019s Business Model:<\/p>\n<p>The business model at ITW is defined by three core elements:\u00a080\/20 business process, customer-back innovation and a decentralized entrepreneurial culture.<\/p>\n<ul>\n<li>The 80\/20 business process has been in use for 30 years. \u00a0The idea is for all of ITW\u2019s business units to focus on the 20% of the customers that generate 80% of the profits. \u00a0This focus provides two main\u00a0benefits: maximum impact of dollars spent serving the customer, and greater awareness of customer needs at the small unit level.<\/li>\n<\/ul>\n<p><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/80-20-business-process.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-5235\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/80-20-business-process-300x140.png\" alt=\"80-20-business-process\" width=\"300\" height=\"140\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/80-20-business-process-300x140.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/80-20-business-process.png 440w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<ul>\n<li>By leveraging\u00a0deep customer\u00a0empathy\u00a0gained through the 80\/20 process, ITW is able to devote a lot of energy and resources at building relationships with their best customers, hence their focus on customer-back innovation. \u00a0Rather than innovating and then attempting to find customers for their new innovation, ITW first works on developing deep empathy with their 80\/20 customers and then innovating solutions to problems their\u00a0current customers have. \u00a0This enables ITW to keep their\u00a0expenditures for R&amp;D low when compared to the manufacturing industry and their output of innovation (measured in patents) high.<\/li>\n<\/ul>\n<ul>\n<li>Enabling this deep customer empathy is ITW\u2019s extreme focus on it\u2019s decentralized\u00a0entrepreneurial\u00a0culture. \u00a0The company operates through seven separate divisions: Automotive OEM, Test &amp; Measurement and Electronics, Food Equipment, Polymers &amp; Fluids, Welding, Construction Products, and Specialty Products. \u00a0These divisions are encouraged to \u201cthink and act like smaller companies\u201d allowing them to react quickly to their customer\u2019s ever-changing demands (<a href=\"http:\/\/www.itw.com\/about-itw\/how-we-work\/\">http:\/\/www.itw.com<\/a>).<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>ITW\u2019s Operating Model:<\/p>\n<p>ITW focuses operations on their high volume products, dedicating entire production lines to only three or four products supported by their 80\/20 business model. \u00a0This enables long production runs with obvious costs savings by limiting changeovers of the lines. \u00a0Another aspect of their operating model is that they choose to manufacture where they sell. \u00a0This local production focus further supports their customer-back innovation business model, allowing for a more flexible approach to serving their customers.<\/p>\n<p>Recently, ITW undertook a Portfolio Management initiative which focused on &#8220;product line and customer base simplification\u201d (<a href=\"http:\/\/investor.itw.com\/\">http:\/\/investor.itw.com<\/a>). \u00a0This initiative is working towards decreasing the focus on the smaller product lines and customers through increased divestitures and is directly linked to their 80\/20 business model. \u00a0In the short-term, the implications of this initiative may result in decreased revenue\u2019s but increased operating margins. \u00a0In the long-term, as they focus on organic growth of the 80\/20 customer that they plan to retain, they expect revenue and profitability growth.<\/p>\n<p>&nbsp;<\/p>\n<p>Illinois Tool Work\u2019s business model and their operating model are extremely well aligned.\u00a0 Furthermore, they recognized when the two models starting getting out of alignment and undertook an initiative focused on rapidly achieving realignment.<\/p>\n<p>&nbsp;<\/p>\n<p>Sources:<\/p>\n<p><a href=\"http:\/\/www.itw.com\/about-itw\/how-we-work\/\" target=\"_blank\">http:\/\/www.itw.com\/about-itw\/how-we-work\/<\/a><\/p>\n<p><a href=\"http:\/\/investor.itw.com\/~\/media\/Files\/I\/ITW-IR\/documents\/annual-reports\/10-kpdf.pdf\" target=\"_blank\">http:\/\/investor.itw.com\/~\/media\/Files\/I\/ITW-IR\/documents\/annual-reports\/10-kpdf.pdf<\/a><\/p>\n<p>ITW\u2019s Formula for Innovation. (2005, October 18). Retrieved\u00a0from\u00a0<a href=\"http:\/\/www.bloomberg.com\/bw\/stories\/2005-10-18\/itws-formula-for-innovation\">http:\/\/www.bloomberg.com\/bw\/stories\/2005-10-18\/itws-formula-for-innovation<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Building a conglomerate with operations in 57 countries one customer at a time. <\/p>\n","protected":false},"author":756,"featured_media":5270,"comment_status":"open","ping_status":"closed","template":"","categories":[858,859,383,61,857,856],"class_list":["post-5269","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-conglomerate","category-decentralized","category-effective-operations","category-effectiveness","category-illinois-tool-works","category-itw"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Illinois Tool Works: Extreme Decentralization - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Illinois Tool Works: Extreme Decentralization - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Building a conglomerate with operations in 57 countries one customer at a time.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"article:modified_time\" content=\"2015-12-09T23:01:31+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/itw-welcome-global-locations-97519_950x332.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"950\" \/>\n\t<meta property=\"og:image:height\" content=\"332\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/\",\"name\":\"Illinois Tool Works: Extreme Decentralization - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/itw-welcome-global-locations-97519_950x332.jpg\",\"datePublished\":\"2015-12-09T22:57:52+00:00\",\"dateModified\":\"2015-12-09T23:01:31+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/itw-welcome-global-locations-97519_950x332.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/itw-welcome-global-locations-97519_950x332.jpg\",\"width\":950,\"height\":332},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/illinois-tool-works-extreme-decentralization\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Submissions\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Illinois Tool Works: Extreme Decentralization\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\",\"name\":\"Technology and Operations Management\",\"description\":\"MBA Student Perspectives\",\"potentialAction\":[{\"@type\":\"性视界Action\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Illinois Tool Works: Extreme Decentralization - Technology and Operations Management","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/","og_locale":"en_US","og_type":"article","og_title":"Illinois Tool Works: Extreme Decentralization - Technology and Operations Management","og_description":"Building a conglomerate with operations in 57 countries one customer at a time.","og_url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/","og_site_name":"Technology and Operations Management","article_modified_time":"2015-12-09T23:01:31+00:00","og_image":[{"width":950,"height":332,"url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/itw-welcome-global-locations-97519_950x332.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/","url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/","name":"Illinois Tool Works: Extreme Decentralization - Technology and Operations Management","isPartOf":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website"},"primaryImageOfPage":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/#primaryimage"},"image":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/#primaryimage"},"thumbnailUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/itw-welcome-global-locations-97519_950x332.jpg","datePublished":"2015-12-09T22:57:52+00:00","dateModified":"2015-12-09T23:01:31+00:00","breadcrumb":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/#primaryimage","url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/itw-welcome-global-locations-97519_950x332.jpg","contentUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/itw-welcome-global-locations-97519_950x332.jpg","width":950,"height":332},{"@type":"BreadcrumbList","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/illinois-tool-works-extreme-decentralization\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/d3.harvard.edu\/platform-rctom\/"},{"@type":"ListItem","position":2,"name":"Submissions","item":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/"},{"@type":"ListItem","position":3,"name":"Illinois Tool Works: Extreme Decentralization"}]},{"@type":"WebSite","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website","url":"https:\/\/d3.harvard.edu\/platform-rctom\/","name":"Technology and Operations Management","description":"MBA Student Perspectives","potentialAction":[{"@type":"性视界Action","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/d3.harvard.edu\/platform-rctom\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/5269","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission"}],"about":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/types\/hck-submission"}],"author":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/users\/756"}],"replies":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/comments?post=5269"}],"version-history":[{"count":0,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/5269\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media\/5270"}],"wp:attachment":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media?parent=5269"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/categories?post=5269"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}