Farrell, Jim 1943–
Chairman and chief executive officer, Illinois Tool Works
Career: Illinois Tool Works, 1965–1995, various positions; 1995–1996, chief executive officer; 1996–, chairman and chief executive officer.
Address: Illinois Tool Works, 3600 West Lake Avenue, Glenview, Illinois 60025-8511; http://www.itw.com.
■ W. James (Jim) Farrell joined Illinois Tool Works (ITW) in 1965. He was involved in most facets of the business at ITW throughout his career, which ultimately led to him becoming CEO and chairman. ITW is a multinational manufacturer of engineered products and specialty systems, with 625 companies in 44 countries. Founded in 1910, this Fortune 200 company is categorized as a diversified industrial manufacturer. After assuming the position of chairman in 1996, Farrell doubled ITW's sales by 2001 to $10 billion and increased its earnings by 14 percent.
ITW makes products used in the automotive, construction, paper products, and food and beverage industries. Industrial machinery and equipment manufacturing are its primary areas of focus, with secondary sales in food service, food retail equipment, and metal fabrication. ITW serves construction, automotive, food-service, and general industrial markets. The company's engineered-products segment manufactures nail guns, industrial adhesives, and automotive-transmission components. Other specialty products include paint-application equipment and welding machines.
THE 80/20 MODEL
Farrell's primary business model was based on a decentralized management style, which he termed the 80/20 approach. As explained on the company Web site: "Eighty percent of a business's sales are derived from the twenty percent of its product offering being sold to key customers" (http://www.itw.com/80_20/about_80_20.html). In other words, Farrell believed that the majority of his company's efforts should target the 20 percent of customers who purchased the greater numbers of products. Using this philosophy, Farrell targeted his marketing accordingly while dropping smaller buyers and product lines. He told BusinessWeek online, "we think small." When asked if ITW was inefficient, compared with more centralized companies, he replied, "We're competitive in the marketplace…. It seems to me my decentralized costs are lower than your centralized costs" (September 17, 2001).
"CONQUER AND DIVIDE"
Forbes magazine dubbed Farrell's business style "conquer and divide" (April 16, 2001). Farrell frequently made acquisitions and then broke down the acquired companies into smaller units, putting managers closer to their customers and encouraging them to act like entrepreneurs. He preferred many little deals to fewer large-scale acquisitions. An example of this preference was ITW's August 2003 acquisition of Acme Packaging Company.
Like many successful companies, ITW flourished with a steady pace of acquisitions on Farrell's watch. BusinessWeek online called Farrell a "shopaholic" based on his having bought more than two hundred companies since 1995, at a cost of over $6 billion (September 17, 2001). Farrell's style was to buy small, niche companies and increase their efficiency. He also was not averse to selling off what he no longer needed. The company sold its holdings in consumer products such as appliances, cookware, exercise equipment, and ceramic tile.
Rather than lay off employees of newly absorbed companies, Farrell preferred to decentralize management and allow greater autonomy to managers, even if it meant a loosely organized corporation. The bottom line showed that this method worked. From 1993 to 2000 ITW's revenues doubled from $5 billion to $10 billion. Farrell felt that he could keep business managers closer to their customers with smaller, independent units headed by managers acting as entrepreneurs or smallscale CEOs.
A SMALL LAG, BUT A PROMISING FUTURE
The years 2002 and 2003 were difficult for the company, with unpredictable North American markets and weak capital spending. At an annual meeting, Farrell said he was waiting for capital investment to pick up. ITW's reported net income in 2002 was down 12 percent from 2001 to $713 million. ITW's 2003 operating revenues were $10 billion, and it had 47,500 employees in 2004.
To ensure the company's continuing success in creating high-quality products based on current technology, Farrell promoted outstanding service along with the development of highly engineered products and systems. His decentralized approach allowed for higher spending on marketing, technology, and manufacturing. ITW typically ranked in the top one hundred patent recipients in the United States; in 2003 it had more than 14,000 unexpired patents and pending patent applications worldwide. This commitment to research and development consistently kept ITW's market share high. In addition to his duties at ITW, Farrell served on the boards of Allstate, Sears, Kraft Foods, United Airlines, and the Federal Reserve Bank of Chicago.
See also entry on Illinois Tool Works Inc. in International Directory of Company Histories.
sources for further information
"About 80/20," Illinois Tool Works.com, http://www.itw.com/80_20/about_80_20.html.
"Anemic Spending Saps ITW's Vitality," Crain's Chicago Business, May 12, 2003, http://chicagobusiness.com/cgi?bin/mag/article.pl?article_id=19981&bt=illinois+tool+works&searchType=phrase.
"ITW Buys Strapping Manufacturer," Crain's Chicago Business, August 17, 2003, http://chicagobusiness.com/cgi?bin/news.pl?id=9815&bt=illinois+tool+works&searchType=phrase.
Jones, Sandra, and Alby Gallun, "Let's Make a Deal," Crain's Chicago Business, March 15, 2004, http://chicagobusiness.com/cgi?bin/mag/article.pl?article_id=21327&bt=illinois+tool+works&searchType=phrase.
"Running 600 Businesses at the Same Time," BusinessWeek Online, September 17, 2001, http://www.businessweek.com/@@NQ5tgIUQyGzZsRYA/magazine/content/01_38/b3749033.htm.
Tatge, Mark, "Conquer and Divide," Forbes, April 16, 2001, http://www.forbes.com/forbes/2001/0416/080.html.