Illinois Tool Works (ITW) SWOT Analysis / TOWS Matrix / MBA Resources
Auto & Truck Parts
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Illinois Tool Works (United States)
Based on various researches at Oak Spring University , Illinois Tool Works is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, there is increasing trade war between United States & China, increasing commodity prices, there is backlash against globalization, increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing,
digital marketing is dominated by two big players Facebook and Google, geopolitical disruptions, etc
Introduction to SWOT Analysis of Illinois Tool Works
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Illinois Tool Works can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Illinois Tool Works, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Illinois Tool Works 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 can be done for the following purposes –
1. Strategic planning of Illinois Tool Works
2. Improving business portfolio management of Illinois Tool Works
3. Assessing feasibility of the new initiative in United States
4. Making a Auto & Truck Parts sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Illinois Tool Works
Strengths of Illinois Tool Works | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Illinois Tool Works are -
Low bargaining power of suppliers
– Suppliers of Illinois Tool Works in the Consumer Cyclical sector have low bargaining power. Illinois Tool Works has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Illinois Tool Works to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Auto & Truck Parts industry
- digital transformation varies from industry to industry. For Illinois Tool Works digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Illinois Tool Works has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to recruit top talent
– Illinois Tool Works is one of the leading players in the Auto & Truck Parts industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.
Learning organization
- Illinois Tool Works 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 Illinois Tool Works is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Illinois Tool Works emphasize – knowledge, initiative, and innovation.
Ability to lead change in Auto & Truck Parts
– Illinois Tool Works is one of the leading players in the Auto & Truck Parts industry in United States. Over the years it has not only transformed the business landscape in the Auto & Truck Parts industry in United States but also across the existing markets. The ability to lead change has enabled Illinois Tool Works in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Illinois Tool Works has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Auto & Truck Parts industry. Secondly the value chain collaborators of Illinois Tool Works have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– Illinois Tool Works is one of the most innovative firm in Auto & Truck Parts sector.
Effective Research and Development (R&D)
– Illinois Tool Works has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Illinois Tool Works staying ahead in the Auto & Truck Parts industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High switching costs
– The high switching costs that Illinois Tool Works 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.
Organizational Resilience of Illinois Tool Works
– The covid-19 pandemic has put organizational resilience at the centre of everthing Illinois Tool Works does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Analytics focus
– Illinois Tool Works is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Auto & Truck Parts industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Sustainable margins compare to other players in Auto & Truck Parts industry
– Illinois Tool Works has clearly differentiated products in the market place. This has enabled Illinois Tool Works to fetch slight price premium compare to the competitors in the Auto & Truck Parts industry. The sustainable margins have also helped Illinois Tool Works to invest into research and development (R&D) and innovation.
Weaknesses of Illinois Tool Works | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Illinois Tool Works are -
Products dominated business model
– Even though Illinois Tool Works has some of the most successful models in the Auto & Truck Parts industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Illinois Tool Works should strive to include more intangible value offerings along with its core products and services.
Need for greater diversity
– Illinois Tool Works 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.
Ability to respond to the competition
– As the decision making is very deliberative at Illinois Tool Works, in the dynamic environment of Auto & Truck Parts industry it has struggled to respond to the nimble upstart competition. Illinois Tool Works has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Skills based hiring in Auto & Truck Parts industry
– The stress on hiring functional specialists at Illinois Tool Works 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.
Lack of clear differentiation of Illinois Tool Works products
– To increase the profitability and margins on the products, Illinois Tool Works needs to provide more differentiated products than what it is currently offering in the marketplace.
High bargaining power of channel partners in Auto & Truck Parts industry
– because of the regulatory requirements in United States, Illinois Tool Works 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 Auto & Truck Parts industry.
Employees’ less understanding of Illinois Tool Works strategy
– From the outside it seems that the employees of Illinois Tool Works don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Compensation and incentives
– The revenue per employee of Illinois Tool Works is just above the Auto & Truck Parts industry average. It 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.
High cash cycle compare to competitors
Illinois Tool Works has a high cash cycle compare to other players in the Auto & Truck Parts industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High operating costs
– Compare to the competitors, Illinois Tool Works has high operating costs in the Auto & Truck Parts industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Illinois Tool Works lucrative customers.
Slow decision making process
– As mentioned earlier in the report, Illinois Tool Works has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Auto & Truck Parts industry over the last five years. Illinois Tool Works 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.
Illinois Tool Works Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Illinois Tool Works are -
Leveraging digital technologies
– Illinois Tool Works can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Use of Bitcoin and other crypto currencies for transactions in Auto & Truck Parts industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Illinois Tool Works in the Auto & Truck Parts industry. Now Illinois Tool Works can target international markets with far fewer capital restrictions requirements than the existing system.
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. Illinois Tool Works can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 Illinois Tool Works 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.
Developing new processes and practices
– Illinois Tool Works can develop new processes and procedures in Auto & Truck Parts 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.
Manufacturing automation
– Illinois Tool Works can use the latest technology developments to improve its manufacturing and designing process in Auto & Truck Parts sector. 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.
Building a culture of innovation
– managers at Illinois Tool Works can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Auto & Truck Parts industry.
Low interest rates
– Even though inflation is raising its head in most developed economies, Illinois Tool Works 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Auto & Truck Parts industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Illinois Tool Works can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Illinois Tool Works can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Loyalty marketing
– Illinois Tool Works 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.
Buying journey improvements
– Illinois Tool Works can improve the customer journey of consumers in the Auto & Truck Parts industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Illinois Tool Works is facing challenges because of the dominance of functional experts in the organization. Illinois Tool Works can utilize new technology in the field of Auto & Truck Parts industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Using analytics as competitive advantage
– Illinois Tool Works has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Auto & Truck Parts sector. This continuous investment in analytics has enabled Illinois Tool Works to build a competitive advantage using analytics. The analytics driven competitive advantage can help Illinois Tool Works to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Illinois Tool Works External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Illinois Tool Works are -
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. Illinois Tool Works needs to understand the core reasons impacting the Auto & Truck Parts industry. This will help it in building a better workplace.
Environmental challenges
– Illinois Tool Works needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Illinois Tool Works can take advantage of this fund but it will also bring new competitors in the Auto & Truck Parts industry.
Increasing wage structure of Illinois Tool Works
– 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 Illinois Tool Works.
High dependence on third party suppliers
– Illinois Tool Works 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.
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 Illinois Tool Works in the Auto & Truck Parts sector and impact the bottomline of the organization.
Shortening product life cycle
– it is one of the major threat that Illinois Tool Works is facing in Auto & Truck Parts sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology acceleration in Forth Industrial Revolution
– Illinois Tool Works has witnessed rapid integration of technology during Covid-19 in the Auto & Truck Parts industry. As one of the leading players in the industry, Illinois Tool Works needs to keep up with the evolution of technology in the Auto & Truck Parts sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Illinois Tool Works business can come under increasing regulations regarding data privacy, data security, etc.
Consumer confidence and its impact on Illinois Tool Works 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 Auto & Truck Parts industry and other sectors.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Regulatory challenges
– Illinois Tool Works 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 Auto & Truck Parts industry regulations.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Illinois Tool Works can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Illinois Tool Works prominent markets.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Illinois Tool Works in Auto & Truck Parts industry. The Auto & Truck Parts 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.
Weighted SWOT Analysis of Illinois Tool Works Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Illinois Tool Works 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 Illinois Tool Works 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 Illinois Tool Works 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 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 Illinois Tool Works needs to make to build a sustainable competitive advantage.