Illinois Tool Works: The Essence of Innovative Business

G. Stolyarov II
 
Issue XIV - May 16, 2003
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Recently I have had the privilege of embarking upon a guided tour of one of Illinois Tool Works’ 600 mini-companies, a strap manufacturing plant near the company’s headquarters in Glenview, Illinois. Signode Strap, a product invented within a firm owned by ITW, is the most prevalent of its sort in the market. It is furnished of entirely recyclable materials (pop bottle remnants) into gargantuan plastic sheets that are conveyed through rollers at phenomenal temperatures of over 300 degrees Fahrenheit. I was able to observe the plastic rolled into colossal coils, then unwound again to be sliced into uniform strips, while the excess material would be transported back to the beginning of the process, which is 100% efficient. Then, an immense conveyer line stretched out before my eyes where the plastic at last obtained the desired width and thickness of one of the 80 brands of strap manufactured by the plant. A swift, buzzing robot arm was positioned at the terminus to wholly accommodate the packaging of the finished product, an effort that had once required the toil of tens of laborers under conditions prone to cause injury.

An abstract intellectual such as myself needs more frequently to embark upon such thrilling experiences in order to conceptualize fully what it is that serves as the lifeblood of human progress, as well as to perceive directly the glorious and uplifting sensation of a product unfolding before one’s eyes that is intended to ameliorate and elevate man’s standard of living to heights unfathomable in the pristine wilderness. While I had always been an advocate of the forward stride of technology and the liberation of business from government hindrance, this visit, as well as the plant foreman’s informative commentary on the dynamics of his particular branch of production, instilled in me a profound appreciation of market capitalism and the activities of innovative businessmen on a concrete and perceptually accessible scale. Illinois Tool Works’ ultra-efficient structure in its general and particular characteristics further fostered the ardent conviction that optimal improvement of man’s life can only be attained by aspiring innovators heeding the conclusions of their own rational minds.

ITW was founded in 1912 by Chicago financier Byron L. Smith, who had advertised in search of “a growing manufacturing business.” His expectation proved true over the next ninety-one years. Having begun as manufacturer of metal-cutting tools, ITW has steadily expanded into other realms. The diversity of its products is immense; they range from the plastic labels on soda bottles, door handles on automobiles, nail guns, welders, paint sprayers, kitchen counter tops, and compact dishwashers that are more energy-efficient than the conventional sort.

Illinois Tool Works has been able to achieve this variety of innovative products due to a steady rate of acquisitions, especially in the past eight years, under the direction of CEO James Farrell. Over six billion dollars have been spent to absorb over two hundred companies, including restaurant equipment manufacturers, such as Premark International Inc., and construction equipment producers that have formed the ITW Construction Products Group. Farrell’s approach deviates from that of the majority of corporations in that he does not eliminate many of the unique aspects of every acquired business through what he refers to as “slash-and-burn consolidation.” That is, he does not pursue a policy of laying off employees and incorporating the new company into a centralized management structure. Instead, he takes the opposite path of dividing the company into further managerial units, frequently creating several groups that are assigned to the same task. His managers receive the authority nearly equivalent that of entrepreneurs, and there are few expenditures on a cumbersome monitoring infrastructure. Farrell trusts the expertise and decision-making capacity of his personnel and, through the very institutional layout of his company, communicates a message that boosts his subordinates’ confidence, a mindset that they are competent enough to be left to their own devices without supervision. The statistics prove this approach to be functional; five years after the acquisition of a new company, its operating margin increased from 9% to 19%. Moreover, ITW’s costs are 75 percent lower than those of the average centralized company. This part is commonsense; with scant bureaucratic infrastructure and smaller makeup of each individual task force, an enormous chunk of the costs is eliminated, and the saved funds can be redirected toward marketing, technological design, and product manufacture. ITW’s revenues have, in the meantime, doubled from five to ten billion dollars from 1993 to 2000.

Another unique approach that distinguishes ITW from its competition involves the so-called 80/20 process, wherein it is recognized that twenty percent of the customers provide eighty percent of the sales. ITW focuses the majority of its advertising and products toward those twenty percent of its customers, while gradually phasing out less profitable connections. This also contributes to the simplification of infrastructure, since the entirety of the company’s operations is now directed toward a smaller customer market. In turn, the key customers experience a higher rate of satisfaction with the products ITW offers them due to the increased time and monetary investment derived from this strategy.

ITW also offers specific measures by which to reward its most innovative and productive employees. A prestigious organization under its fold is the ITW Patent Society, which rewards in various degrees the accomplishments of designers of new technologies and production methods patented in the United States and abroad. This stimulus may be a vast contribution to the 14000 patents that ITW currently holds. Another factor in such a figure may be a focus that differs from the majority of ITW’s competitors. The company claims that it’s goal is “not to create a bestseller, but to enhance customers’ operations.” Instead of focusing on publicity and riding the wave of crazes, ITW concentrates on improving the plants and worksites of the buyers of its products. While yielding obvious benefits in the realm of customer relations, this method also permits ITW product designers to venture into areas which are profitable, but typically not hype material, areas in which few have trodden and where there exists ample room for discovery and innovation.

ITW’s safety and efficiency initiatives also demonstrate that the mutual gain of all can be attained only by businesses pursuing their optimal self-interests. It is within ITW’s profit motive to employ inexpensive recyclable material for the manufacture of its strap, and, moreover, to ensure that not a single morsel of plastic is disposed of in vain. Much of ITW’s products are furnished from reusable materials, and done so
for financial profit. While traversing the plant’s warehouse on the way to the manufacturing line itself, I directed my attention toward mountains of ragged cardboard bound by (you guessed it!) Signode Strap. My guide informed me that all of this was to be recycled within the company’s premises and reused for packaging, as well as within the office.  ITW also furnishes its own electricity during the peak period of conventional power usage. Instead of falling prey to local utility monopolies’ bizarre rates (institutionalized by government zoning edicts), ITW has managed to save itself sufficient electrical expenses to compensate for all of the machinery within the strap manufacturing plant. In the meantime, a greater amount of electricity generated by the conventional monopoly can be directed toward smaller businesses and household consumers. Even ITW’s schedules are intended to elicit the highest possible degree of satisfaction from its employees. Only forty-eight men are needed to maintain a process of colossal spatial proportions and intricate mechanical detail. Only twelve of them are required at a time. Each team of twelve works a twelve-hour shift per day, two days on, two days off. Workers are immensely content to possess half of their lifetime at their leisure, while being paid at respectable rates.

When businesses are let alone to venture beyond convention, to defy the hype, the paradigm, and the common-denominator expectation; to produce in the most cost-efficient manner essential components of a proper standard of living, all of their affiliates benefit; the consumers, the employees, and the general community. Illinois Tool Works’ prudent and autonomous infrastructure on both a macroscopic and microscopic level should be a further imperative toward deregulation of the market.

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This TRA feature has been edited in accordance with TRA Statement of Policy.

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Learn about Mr. Stolyarov's novel, Eden against the Colossus, here.

Read Mr. Stolyarov's comprehensive treatise, A Rational Cosmology, explicating such terms as the universe, matter, space, time, sound, light, life, consciousness, and volition, here.

Read Mr. Stolyarov's four-act play, Implied Consent, a futuristic intellectual drama on the sanctity of human life, here.