Stanley Black & Decker is an ambitious company known for performance. We want people—our people and all people—to flourish, and are actively working to make that happen. And we know it all starts with performance. Our ability to make an outsized contribution to the world, and to those who make it, is built on how well we perform as a business.
Since Stanley Black & Decker came together, we have been known for strong results even in challenging environments, a reputation earned and grown out of our unwavering focus on operational excellence. And as the world has changed, so has our operating model, which now embraces and encompasses excellence of all kinds: digital, commercial, manufacturing and human.
Our Evolving Operating Model
Our long-successful, long-standing SFS Operating Model has continually evolved and serves as the cornerstone for how we align our focus across the organization to sustain top-quartile financial performance. In light of the rapidly moving dynamics of the world we are operating in, including the rapid acceleration of technology, geopolitical instability and unpredictability, and the changing nature of work, this past year we decided to take a fresh look. The result is the new Stanley Black & Decker Operating Model: Winning in the 2020s. Winning in the 2020s is our next evolution of the operating model, designed to propel the company with a renewed energy and prioritization to deliver sustained above-market organic growth with margin expansion and high asset efficiency.
The five pillars of the model are: People Intersecting with Technology; Performance Resiliency; Extreme Innovation; Operations Excellence; and Extraordinary Customer Experience. These pillars co-exist synergistically with one another in a system-based approach.
People and Technology
This pillar emphasizes our belief that the right combination of digitally proficient people applying technology such as artificial intelligence, machine learning, advanced analytics, IoT and others in focused ways can be an enormous source of value creation and sustainability for the corporation. It also brings to light the changing nature of work and the talent and skillsets required for individuals and institutions to thrive in the future. With technology infiltrating the workplace at an increasingly rapid pace, we believe that the winners in the 2020s will invest heavily in reskilling, upskilling and lifelong learning, with an emphasis on the places where people and technology intersect.
In other words, technology can make humans more powerful and productive if, and only if, humans know how to apply the technology to maximum advantage. We have created plans and programs, as well as a new leadership model to ensure our people have the right skills, tools and mindsets to thrive in this era. The ability of our employees to embrace technology, learn and relearn new skills and take advantage of the opportunities presented in this new world will be critical to our success.
If there is one thing the last two years have reinforced, it’s the criticality of resiliency. We think of performance resiliency as the agility, flexibility and adaptability to sustain strong performance regardless of operating environment conditions. That is causing us to plan for the unexpected and anticipate exogenous volatility as the new normal. Technology, applied to our key processes, products and business models, will be a key enabler for value creation and performance resiliency as we execute sustainable, ongoing transformation across the enterprise.
Stanley Black & Decker has a strong heritage of innovation, consistently launching more than 1,000 products a year, including breakthroughs such as DEWALT FLEXVOLT, ATOMIC and XTREME. In recent years, we’ve expanded our innovation-focused internal teams and external partnerships, but now we are growing that innovation ecosystem at a rapid pace, expanding the number of external collaborations with startups and entrepreneurs, academic institutions, research labs and others. This innovation culture, which includes a focus on social impact in addition to our traditional product and customer focus, enables our Company to introduce products to market faster and reimagine how we operate in today’s technology-enabled, fast-paced world.
An intense focus on operations excellence and asset efficiency is mandatory in a dynamic world in which the bar for competitiveness is always moving higher. To help maintain our edge, a much more agile, adaptable and technology-enabled supply chain is necessary. Industry 4.0 is essential to this transformation. For several years, we have been moving to a “Make Where We Sell” and “Buy Where We Make” system, where more products are being manufactured in local markets. Today, about 50% of the products sold in North America are made in North America and our target is to continue to push that higher. This will improve customer responsiveness, lower lead times, reduce costs and mitigate geopolitical and currency risk, while facilitating major improvements in carbon footprint.
Extraordinary Customer Experience
Customers are increasingly demanding world class experiences from their brands and expectations for execution at the customer level are growing every day. It is no longer sufficient to have great products on the shelf or in the catalog. We know that to sustain our market share growth, we need to evolve and adapt to provide the types of experiences that our customers now expect. While commercial excellence has always been a big part of SFS 2.0 and will continue to be part of our new model, our new thrust in this area takes it to another level. Each of our businesses is making a baseline assessment and segmentation of their various customer experiences, while systematically gaining insights into what can be done to elevate them to the extraordinary level. Once again, the interaction between people and technology will define our success in this area.
Value Creation Model
Strategic Capital Deployment
We employ an investor-friendly capital allocation approach that looks to invest half of our excess capital in accretive acquisitions and return half to our shareholders through a strong and growing dividend and opportunistic share repurchases.
Total shareholder return continues to be a key metric in gauging our success. For dividends, we target a 30–35 percent payout ratio. This is the 143rd consecutive year we have paid a dividend—the longest unbroken string of dividend payments among NYSE-listed industrial companies—and we have increased it each year for the past 52 years.
Acquisition Focus Areas
While continuing to be opportunistic in our efforts to grow by acquisition, we are also actively pursuing strategic moves to strengthen our enterprise in key areas.
Growing and diversifying our Industrial business is a key priority for the company. Recent actions included the IES acquisition, which tripled the size of our Hydraulics business, and the addition of Nelson Fastener Systems, which brought increased general industrial exposure to our Engineered Fastening business. Additionally, in January 2020, we announced the acquisition of Consolidated Aerospace Manufacturing (CAM), which increases our exposure to the high-growth, high-margin aerospace market as a bolt-on to our Engineered Fastening business. These moves diversified our Industrial portfolio, reducing our exposure to the automotive sector while generating growth.
We have greatly strengthened our foothold in Outdoor Power Equipment with a 20 percent stake in MTD, a leader in the industry—a deal structured with a full purchase option beginning in 2021. This is a compelling long-term investment in an attractive, adjacent market where our brands and technology can flourish, and we have already begun to collaborate with MTD on innovative, game-changing solutions in this arena.
Finally, we will continue to consolidate the tool industry when the opportunities present themselves. Recent examples include the purchase of Newell Tools, which brought the Lenox and Irwin brands, the purchase of the Craftsman brand, and small bolt-on acquisitions globally. Future areas of focus include geographic expansion to countries where our brands have penetration opportunities, and expanding product segments, such as power tool accessories and new customer segments in areas such as the trades or within industrial tooling.