by Denise Ramos, Chief Executive Officer, ITT
Earlier this year ITT (ITT) announced we were “demerging” or separating our $11 billion, diversified, multinational corporation into three stand-alone businesses. We weren’t the only ones – nearly a dozen Fortune 500 companies made some type of similar announcement during 2011.
For ITT, it won’t be the first time we’ve reinvented ourselves. Throughout each chapter in our history – from the founding of International Telephone & Telegraph in 1920, to our conglomerate years in the 1960s and 1970s, to our first demerger in 1995 – we have been known for holding tightly to our legacy values while adjusting to meet the needs of our customers and markets.
With the spin off now complete, we are a $2.1 billion public company with four businesses that make highly engineered and customized products for the general industrial, aerospace, transportation, and oil and gas industries. These are not commodities or widgets. From complex pumps and valves, to advanced brake pads, to sophisticated connectors, we make products that provide enduring solutions to the key industries that underpin our modern way of life.
While it’s a dynamic set of businesses, I’ve been asked many times since January, “What drove your decision to separate into three independent companies?” When I think about the answer from my former role as chief financial officer, I would say a number of things.
For example, we concluded that our businesses had strong enough institutional, financial and cultural infrastructures to utilize all of the advantages inherent in being standalone companies. That it was apparent that having our own capital structure, balance sheet and financial policies consistent with investment grade metrics would be an advantage. That an independent board of directors would be a huge asset.
These are important considerations. But, when I think of the answer from my new role as chief executive officer and president, my answer revolves around using our more sharply focused company to drive value.
With this split, the “new” ITT can put a spotlight on its products, customers and employees. We can invest our resources in innovation that meets the specific needs of our industrial, oil and gas, transportation and aerospace end markets. We’ll be able to target our attention on providing simple and reliable solutions that solve the complex challenges our customers face. And with a sharper set of priorities and initiatives, we’ll enhance the engagement and empowerment of our employees.
We’ll also be able to better focus on the key drivers that are specific to our businesses and that will accelerate the velocity of our growth.
First, emerging markets. Right now, 60 percent of our revenue comes from outside the United States with a quarter of our revenue coming from emerging markets. We have a strong manufacturing footprint with more than 40 facilities in 18 countries, including a strong presence in China. We are going to continue to go where the growth will be – and, importantly, we are often being pulled into these markets by customers.
Second, we have a strong position in the profitable aftermarket business. This means we don’t have a “one and done” sales model. We are able to take advantage of the fact that our customers come back for service and replacement parts long after the initial order. We definitely have more room to grow this revenue stream across our businesses.
Third, the spin-off will enable us to be even more focused on investing in technology and innovation to facilitate new platform and project wins that will drive incremental growth and recurring revenue. The ITT team is committed to use its skill sets to build and deliver products in a way that differentiates us from our competitors.
At the same time, we recognize that we’re can’t take a “field of dreams” approach to our business. Just because we build it doesn’t mean customers will come. We have to combine essential products with exceptional customer service that ensures every part of the marketing and distribution process is superior.
Next, as a more focused company, we have the opportunity to drive significant operational improvements through Six Sigma and other targeted process improvements that lower costs and drive increased margins. We’ll be able to hone in on those specific initiatives that make our businesses more lean, effective and productive.
And, finally, we’ll use our strong free cash flow in a way fuels our growth – whether organically or through targeted acquisitions that help us expand specific capabilities, markets or geographies.
From Day One, I and the new ITT team will use our new structure and strategy to focus on these drivers to enhance our long-term growth. We’ll ensure our businesses are better able than ever to do what they do best – providing often invisible but invaluable products and services that keep planes flying, oil and gas flowing, trains chugging, and pumps and valves working around the world.
At ITT, we’ve long been known as being highly engineered, but with our new vision and capabilities, we look forward to demonstrating we also are “engineered for growth,” enhancing value creation and enabling the venerable ITT brand to make its way deep into this still new century.
Disclosure: I am ITT's CEO