ITW was born in a partnership between Byron L. Smith, founder of The Northern Trust Company, and four tooling company employees from Rockford, Illinois, who came to Smith as a potential investor in their new method for making more precise industrial gears. After initially resisting the proposal of these four men—Frank W. Englund, Carl G. Olson, Paul B. Goddard, and Oscar T. Hegg—Smith finally agreed to back their venture. Together, they launched Illinois Tool Works, which began selling cutters, hobs, jigs, and other machining tools in 1912 from a leased lot at the corner of Huron and Franklin streets in Chicago.
The fledgling company quickly thrived, soon finding itself in need of employees and 12,000 square feet of additional space to keep up with the demand for its products. And though most new companies remain in the red for some years after launching, Illinois Tool Works managed to post a profit of $42.94 in its first year of operation—an auspicious beginning made possible by hard work, dedication, and a drive to innovate that has been the hallmark of ITW in the century since then.
CUSTOMER APPLICATION ENGINEERING—
INNOVATING FOR THE CUSTOMER
Illinois Tool Works' founders quickly realized that the company's future lay not in mass producing common items but rather in inventing and building—and later patenting—items specially designed for customers' needs. From the very beginning, the leadership grasped what was necessary to bring that strategy to life—giving its designers' creative minds the freedom and the tools they needed.
One of those minds belonged to Jack Gribbie, a sales manager at Shakeproof Screw and Nut Lock Company, which was acquired by Illinois Tool Works in 1923 and soon became the company's largest division. Gribbie was convinced that any number of new applications for Shakeproof fasteners could be found in industries that weren't yet using them. To find new applications for ITW products, Gribbie pioneered "customer application engineering." This was a method of investigating customers' processes and products in order to find new ways that Shakeproof products could help them.
Customer Application Engineering enabled ITW to invent thousands of products, ranging from simple to very complex, each addressing an identified customer need. One of the most notable was the Hi-Cone beverage can carrier developed in the late 1950s and early 1960s. Though a tough sell at first, the Hi-Cone carrier was eventually embraced by the beverage producers and brought them enormous savings over the costs of the paper carriers that they had been manufacturing. By the 1980s, the Hi-Cone carrier had become an important contributor to the growth and profitability of ITW.
FROM INNOVATION TO DIVERSIFICATION TO ACQUISITION
ITW has been diversifying its product lines and markets almost from the moment it was founded. In the early years, the bulk of ITW's revenues came from the automotive industry. But the automakers and their suppliers were prone to ups and downs, which prompted the company to seek new markets. Beginning in 1919, ITW began marketing its tooling products to the radio and farm equipment industries. International Harvester became a customer at that time and remains so today.
Ever since that initial market diversification—and its first major product diversification in 1923 with the licensing of the Shakeproof lock washer—ITW has aggressively sought out new products and new markets. Today, the company manufactures products for industry segments around the world, including food and beverage, construction, electronics, and automotive. In addition to its historic core products, the company now makes plastic components, adhesives, coatings and resins, cooking equipment, welding equipment, and testing and measurement equipment, among others.
Of course, a critical component for a company intent on diversified growth is acquisition, which started for ITW with the Shakeproof acquisition in 1923. But acquisitions remained infrequent until much later. In the late 1970s, ITW's leadership realized that acquisitions needed to play a larger role in the company's growth. Senior leadership began to focus on how other companies would fit into or expand the ITW portfolio of holdings, complement existing business units or create an opportunity for new ones. Since 1993, the company has completed hundreds of acquisitions that complement the company's core business platforms.
A growing, decentralized ITW has retained a unified culture and remained close to its customers by developing a signature set of best practices dubbed the "ITW Toolbox." In the mid-1980s management began exploring concepts that could be applied to all of its businesses, such as the 80/20 principle of reducing unnecessary complexity and improving performance. By the 1990s, it was clear that the 80/20 rule worked well, and it evolved into new tools like product line simplification, in-lining, and market rate of demand. In 2000, ITW adopted a new tool, market segmentation selling, and had engaged all of its businesses with the toolbox—even implementing online training to ensure alignment across the company.
MORE GROWTH AHEAD
ITW has emerged strong from the recession of 2008-2009 and begins its second century prepared to tackle the challenges and opportunities ahead. Though it hasn't been immune to the effects of the global economic crisis of recent years, the fundamentals that have given the company its strength for 100 years have not been compromised. The company is busy setting its sights on tomorrow with all of the confidence and expectation for success that has guided it through challenges in the past.
