ITW Depends On Its People For Manufacturing Success

Illinois Tool Works is a $16-billion industrial conglomerate headquartered in Glenview, Illinois, with 46,000 employees operating in 56 different countries, churning out products in seven different industrial segments. ITW makes automotive components, construction products, food equipment, polymers and other fluids, electronic testing and measurement products, and welding equipment.

Yet it’s largely the commonalities ITW applies to its strategy and operations that have boosted the Fortune 200 global manufacturing leader from revenues of $12.6 billion in 2020 as ITW’s share price has gained more than 40 percent over that time.

Most of that track record of success occurred under E. Scott Santi, ITW’s CEO beginning in 2012, who retired as chief at the end of 2023 and now is non-executive chairman. Santi was succeeded by Christopher O’Herlihy, who was appointed president and CEO of ITW at the beginning of this year after rising through the company in a 35-year career.

Another veteran leader of the 125-year-old manufacturer is Katie Lawler, who has been senior vice president and CHRO of ITW for a decade. Formerly an attorney before she got drawn into human-capital management with rail-system operator GATX, Lawler tells Chief Executive that she’s “always being challenged by different aspects of the business” at ITW “and how to drive success. There are macro considerations, but also dynamics” within each of ITW’s 85 different operating segments, “each with its own P&L, and decentralized entrepreneurial culture.”

Along with O’Herlihy, she says, the CHRO role gives Lawler “a holistic view of the organization, a unique position and unique responsibility.” She helped Santi implement a so-called “enterprise strategy” that transformed ITW from a holding company “managing a portfolio of assets” to one with a core business model that is consistent across the company.

Here are some elements of ITW’s strategy that manufacturing CEOs might apply to their own operations:

Consider the 80/20 principle. ITW is a devotee of the Pareto Principle, or the 80/20 rule, which in general posits that 80 percent of outcomes come from 20 percent of causes and is often used to point out that 80 percent of a company’s revenue is generated by 20 percent of its customers. But ITW applies the principle specifically to the idea of “identifying things that deliver the most results for our business, the most profitable customers and the most profitable products,” Lawler says.

“So we have to teach people our 80/20 business practices; it’s one attribute I can’t hire for,” Lawler says. “It drives how you think about talent. And it helps create a lot of ownership and accountability across the workforce.”

Move accountability to the front. For ITW’s thousands of manufacturing workers, applying the 80/20 rule means “if you show up at one of our locations, and it is an equipment business, you’ll see that the line is managing itself. [Workers] come in and see what orders need to be filled and take authority for their own work stations.”

To that end, Lawler says, “We don’t do a lot of [production] forecasting. We use our system, the market rate of demand, and that drives production schedules and processes. This simplifies and streamlines things and give production colleagues ownership and leeway at their work stations.”

Thus ITW practices “visible management,” Lawler says. “Front-line colleagues have a full view not only of what work they need to do that day, but of the resources they need to do it. The goal is to give them clarity of what their ‘80’ is and let them figure out the best way to do that. They’re not waiting for someone in another part of the organization to tell them how many, say, commercial dishwashers to make that day. They have full view within our reporting system.”

Labor-market dynamics. The worker squeeze exacerbated by the pandemic prompted ITW to pivot more toward internal development of manufacturing talent from its previous approach of seeking necessary skills on the outside.

“For example, a toolmaker is a highly specialized skill set, and in our maintenance area, our equipment is pretty sophisticated,” Lawler says. “We had a tendency to go out and hire for those skill sets instead of developing capabilities internally. So we’ve been switching from a ‘buy’ to a ‘build’ mentality for the last six or seven years. It’s a real culture shift to be able to develop our own capabilities, and a time and resource commitment and job structure to put a process around that. But it’s an organizational pivot we’ve been making.”

Automation to the fore. ITW also has been “investing much more in automation over a similar period,” Lawler says. “We’ve removed a lot of the low-skill jobs that can be more easily automated. That solves the problem of finding lower-skilled labor. But you do need the technicians and skill sets and capabilities to operate more advanced equipment and robotics.”

The automation push helps make manufacturing jobs more appealing. “We’re investing more in our employees’ development,” Lawler says, “and paying more attention to the workplace experience they have and the environment in which they’re working.”