Illinois Tool Works: Retooling for Continued Growth and Profitability SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Strategy & Execution
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of 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. Nitin Pangarkar is affiliated with National University of Singapore.
Swot Analysis of "Illinois Tool Works: Retooling for Continued Growth and Profitability" written by Nitin Pangarkar includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Itw's Itw facing as an external strategic factors. Some of the topics covered in Illinois Tool Works: Retooling for Continued Growth and Profitability case study are - Strategic Management Strategies, Manufacturing, Mergers & acquisitions, Organizational structure, Risk management and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Illinois Tool Works: Retooling for Continued Growth and Profitability casestudy better are - – increasing energy prices, increasing government debt because of Covid-19 spendings, technology disruption, increasing transportation and logistics costs, increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, geopolitical disruptions,
there is increasing trade war between United States & China, there is backlash against globalization, etc
Introduction to SWOT Analysis of Illinois Tool Works: Retooling for Continued Growth and Profitability
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Illinois Tool Works: Retooling for Continued Growth and Profitability case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Itw's Itw, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Itw's Itw operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Illinois Tool Works: Retooling for Continued Growth and Profitability can be done for the following purposes –
1. Strategic planning using facts provided in Illinois Tool Works: Retooling for Continued Growth and Profitability case study
2. Improving business portfolio management of Itw's Itw
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Itw's Itw
Strengths Illinois Tool Works: Retooling for Continued Growth and Profitability | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Itw's Itw in Illinois Tool Works: Retooling for Continued Growth and Profitability Harvard Business Review case study are -
Ability to recruit top talent
– Itw's Itw is one of the leading recruiters in the industry. Managers in the Illinois Tool Works: Retooling for Continued Growth and Profitability are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Sustainable margins compare to other players in Strategy & Execution industry
– Illinois Tool Works: Retooling for Continued Growth and Profitability firm has clearly differentiated products in the market place. This has enabled Itw's Itw to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Itw's Itw to invest into research and development (R&D) and innovation.
Innovation driven organization
– Itw's Itw is one of the most innovative firm in sector. Manager in Illinois Tool Works: Retooling for Continued Growth and Profitability Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Cross disciplinary teams
– Horizontal connected teams at the Itw's Itw are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Diverse revenue streams
– Itw's Itw is present in almost all the verticals within the industry. This has provided firm in Illinois Tool Works: Retooling for Continued Growth and Profitability case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Effective Research and Development (R&D)
– Itw's Itw has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Illinois Tool Works: Retooling for Continued Growth and Profitability - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Learning organization
- Itw's Itw is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Itw's Itw is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Illinois Tool Works: Retooling for Continued Growth and Profitability Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Organizational Resilience of Itw's Itw
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Itw's Itw does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Itw's Itw has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Training and development
– Itw's Itw has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Illinois Tool Works: Retooling for Continued Growth and Profitability Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Strong track record of project management
– Itw's Itw is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Itw's Itw in the sector have low bargaining power. Illinois Tool Works: Retooling for Continued Growth and Profitability has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Itw's Itw to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses Illinois Tool Works: Retooling for Continued Growth and Profitability | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Illinois Tool Works: Retooling for Continued Growth and Profitability are -
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Illinois Tool Works: Retooling for Continued Growth and Profitability HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Itw's Itw has relatively successful track record of launching new products.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Illinois Tool Works: Retooling for Continued Growth and Profitability, in the dynamic environment Itw's Itw has struggled to respond to the nimble upstart competition. Itw's Itw has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Itw's Itw has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow decision making process
– As mentioned earlier in the report, Itw's Itw has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Itw's Itw even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Aligning sales with marketing
– It come across in the case study Illinois Tool Works: Retooling for Continued Growth and Profitability that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Illinois Tool Works: Retooling for Continued Growth and Profitability can leverage the sales team experience to cultivate customer relationships as Itw's Itw is planning to shift buying processes online.
Skills based hiring
– The stress on hiring functional specialists at Itw's Itw has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Need for greater diversity
– Itw's Itw has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High bargaining power of channel partners
– Because of the regulatory requirements, Nitin Pangarkar suggests that, Itw's Itw is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
High cash cycle compare to competitors
Itw's Itw has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Capital Spending Reduction
– Even during the low interest decade, Itw's Itw has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Illinois Tool Works: Retooling for Continued Growth and Profitability, is just above the industry average. Itw's Itw needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Opportunities Illinois Tool Works: Retooling for Continued Growth and Profitability | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Illinois Tool Works: Retooling for Continued Growth and Profitability are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Itw's Itw is facing challenges because of the dominance of functional experts in the organization. Illinois Tool Works: Retooling for Continued Growth and Profitability case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Loyalty marketing
– Itw's Itw has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Itw's Itw in the consumer business. Now Itw's Itw can target international markets with far fewer capital restrictions requirements than the existing system.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Itw's Itw in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Itw's Itw can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Illinois Tool Works: Retooling for Continued Growth and Profitability, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Low interest rates
– Even though inflation is raising its head in most developed economies, Itw's Itw can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Manufacturing automation
– Itw's Itw can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Itw's Itw can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Developing new processes and practices
– Itw's Itw can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Using analytics as competitive advantage
– Itw's Itw has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Illinois Tool Works: Retooling for Continued Growth and Profitability - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Itw's Itw to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Itw's Itw to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Creating value in data economy
– The success of analytics program of Itw's Itw has opened avenues for new revenue streams for the organization in the industry. This can help Itw's Itw to build a more holistic ecosystem as suggested in the Illinois Tool Works: Retooling for Continued Growth and Profitability case study. Itw's Itw can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Itw's Itw to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Itw's Itw to hire the very best people irrespective of their geographical location.
Threats Illinois Tool Works: Retooling for Continued Growth and Profitability External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Illinois Tool Works: Retooling for Continued Growth and Profitability are -
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Itw's Itw can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High dependence on third party suppliers
– Itw's Itw high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Itw's Itw.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Itw's Itw needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Itw's Itw can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Increasing wage structure of Itw's Itw
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Itw's Itw.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Itw's Itw in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Itw's Itw in the Strategy & Execution sector and impact the bottomline of the organization.
Regulatory challenges
– Itw's Itw needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Illinois Tool Works: Retooling for Continued Growth and Profitability, Itw's Itw may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Consumer confidence and its impact on Itw's Itw demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Itw's Itw with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of Illinois Tool Works: Retooling for Continued Growth and Profitability Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Illinois Tool Works: Retooling for Continued Growth and Profitability needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Illinois Tool Works: Retooling for Continued Growth and Profitability is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Illinois Tool Works: Retooling for Continued Growth and Profitability is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Illinois Tool Works: Retooling for Continued Growth and Profitability is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Itw's Itw needs to make to build a sustainable competitive advantage.
