The ITW Business Model is our company’s defining competitive advantage. It is a powerful and proprietary set of strategic, operational, and cultural practices that have been in a state of continual development and evolution inside the company for over 30 years. For the past seven years, we have been executing a strategy centered squarely on our commitment to leveraging the differentiated performance capability of the ITW Business Model to full potential across the company. As a result, today, the ITW Business Model is more powerful and our people are more skilled in applying it than ever before in our history – by a significant margin. The ITW Business Model is comprised of three elements:

• 80/20 Front-to-Back defines how we operate.
• It is a unique set of proprietary tools and methodologies that our divisions use to structure and operate their businesses to maximize the performance, execution, and value-add they provide to their largest and most profitable customers, and minimize the costs, complexity, and distractions associated with serving small customers. Through the application of ITW’s 80/20 Front-to-Back process, our divisions deliver best-in-class customer-facing execution, high-quality organic growth, and superior profitability and return on capital performance.
• Customer-Back Innovation drives how we innovate.
• At ITW, we innovate from the customer back, not from the research and development center out. Our divisions partner with their key customers to create unique solutions that solve difficult technical challenges and improve business performance. The deep capabilities and creativity of our people in this regard are evidenced by our portfolio of approximately 18,000 granted and pending patents, including more than 1,900 new patent applications filed in 2019.
• Our Decentralized, Entrepreneurial Culture is the key to how we execute.
• Our people are clear about what is expected of them with regard to our business model, our strategy, and our values. Within this framework, we empower our business teams to make decisions and customize their approach in order to maximize the relevance and impact of the ITW Business Model for their specific customers and end-markets. Our people thrive in ITW’s “flexibility within the framework” culture; they think and act like entrepreneurs, they are accountable, and they deliver.

When we launched our enterprise strategy in 2012, our stated goals were to deliver solid growth with best-in-class margins and returns. Over the course of the past seven years, we have made significant progress toward achieving these goals. In 2019, ITW’s operating margins were the highest in our proxy peer group, we ranked number two in our peer group in return on capital performance, and in a challenging macro environment, we outgrew our markets by one percent. Through the execution of our enterprise strategy, our aim is to position the company to deliver top-tier industrial sector performance over any five-year period regardless of the environment. In order to do so, we need to be able to generate high-quality growth when market conditions are favorable and be resilient enough to continue to perform and execute on our long-term strategy when they are not.

ITW's business portfolio is comprised of seven market-leading segments and although they operate in different industries, they all share fundamental characteristics:

• They serve end-markets with strong and sustainable differentiated attributes where the performance of the products and services they develop and market is the dominant value driver for their customers.

• Their end-markets are supported by positive long-term macro fundamentals.

• They have strong and enduring competitive advantages relative to key market trends.

• They have significant potential to drive above-market organic growth over the long-term.

• They have the ability to leverage the ITW Business Model to generate consistent best-in-class margins and returns.

Core to our enterprise strategy is our highly focused and disciplined approach to capital allocation. We invest only where we can leverage the ITW Business Model to create compelling competitive advantage and deliver sustained differentiated performance. We will not deploy capital in areas of opportunity that reside outside of our core capabilities. Internal investments to grow and support our highly profitable core businesses remain our top capital allocation priority. As a result, every internal investment that fits our strategy and meets our return criteria is fully funded. We allocate capital to discrete projects and strategies, not in lump sums to our businesses, ensuring that every investment we make is aligned with our business model, our strategy and our financial objectives. Our second priority is an attractive dividend, which we view as a very important component of our total shareholder return equation given the strong and consistent cash flow-generating attributes of our business model. We have increased our annual dividend consecutively for more than 55 years, including a 7% increase in 2019, bringing the dividend to $4.28 per share on an annualized basis.

While organic growth will remain our number one long-term priority, we expect that compelling opportunities to supplement our organic growth agenda with a high-quality strategic acquisition may emerge. Given the significant performance improvement capabilities embedded in the ITW Business Model, we would be positively disposed to these opportunities provided that they (a) expand the organic growth potential of one of our existing segments or provide us with an entree into a new industry that opens up an additional avenue of long-term profitable organic growth for the company and (b) can be acquired at a price that makes financial sense for the company. After funding these capital allocation priorities, we will continue to utilize an active share repurchase program to return any surplus capital to our shareholders.