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ITW Shifts Portfolio to Better ‘Drive Innovation’

CEO: Shift is part of ITW's increasing focus on organic growth.

Organic sales for Illinois Tool Works' automotive OEM segment jumped 11.5 percent year-over-year during the third quarter, far exceeding the 4 percent worldwide increase in auto builds, the company says. John Brooklier, vice president of investor relations, said during the company's third-quarter conference call that ITW's advanced value-added engineering of products for worldwide OEMs helped the company to grow well beyond builds.

To replicate that success, ITW is shifting its portfolio toward areas that can, like automotive OEM, capitalize on the potential for innovation, said CEO E. Scott Santi.

"I think the automotive business represents a great example of what the rest of the company ultimately is in the process of becoming," Santi said. "As we refocus the portfolio only on areas that have the ability to drive innovation as a core part of the market characteristics in which we operate, it really elevates, from the standpoint of overall impact on the company, our ability to have a certain amount of our organic growth within our own control through the amount of innovation that we drive."

Santi said the shift is more about ITW's portfolio than it is about increasing R&D spending, since ITW's welding and automotive OEM businesses have been investing heavily in customer-centric R&D for a long time. "We've never restricted our investment in R&D, but we've been very thoughtful about investing only in places where it can really generate significant benefit," he said.

The portfolio shift is part of ITW's decreasing focus on acquisitive growth, Santi said. Over the past 20-25 years, more than two-thirds of growth for ITW has been acquisitive. Moving forward, ITW is aiming for two-thirds of growth to be organic, he said.

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