Rome significant changes have taken place within the top echelon of Rafael Advanced Defense Systems in the last two years. Minister of Defense Avigdor Lieberman appointed a member of his own party and the former Minister of Tourism, Uzi Landau, as the Chairman of the Board of Directors. Maj. Gen. (res.) Yoav Har-Even, formerly a member of the IDF supreme command as Head of the Operations Directorate at IDF GHQ, was appointed as Rafael's CEO.
Maj. Gen. (res.) Har-Even is one of very few IDF officers who rose through the ranks of the IDF Artillery Corps to the position of commander of an IDF armored division and subsequently reached the General Staff (in fact, only Maj. Gen. [res.] Dan Harel, who eventually became the general commanding IDF Southern Command, Deputy Chief of Staff and Director General of IMOD, had accomplished that before Har-Even). Previously, Har-Even had served as personal assistant to the IDF Chief of Staff at the beginning of the last decade, Lt. Gen. Moshe ("Bogie") Ya'alon (who subsequently became Minister of Defense until he was replaced by Lieberman). Har-Even also served as Chief of Staff of the IDF Ground Arm. During his tenure as Head of the IDF Operations Directorate, the IDF launched two major operations in the Gaza Strip: Operation Pillar of Defense (2012) and Operation Protective Edge (2014).
So far, Har-Even has been steering Rafael Advanced Defense Systems as if he has been a civilian executive since time immemorial.
How was your transition from the IDF to civilian life?
"I had exhausted my military career after 31 years in an extensive range of appointments," Har-Even told us in a first-ever interview as Rafael's CEO. "My final project, as Head of the IDF Operations Directorate, was to complete the formulation of the IDF strategy document. That process had been launched near the outset of my term as Head of the Operations Directorate (Har-Even served in that position between 2012 and 2015). When Lt. Gen. Gadi Eizenkot became IDF Chief of Staff, he asked me to complete the document, and I led the team as a mission assigned by him, all the way to final submission.
"Generally, I think that the tools I had been provided with during my years in the IDF serve me well in civilian life. The military, especially for anyone with experience in both command and staff positions, provides you with an extensive range of management capabilities. All of the criticism leveled at the military notwithstanding, the IDF, at the end of the day, has numerous advantages with regard to strategic thinking as well as short-term and long-term planning capabilities. As Chief of Staff of the IDF Ground Arm and as Head of the IDF Operations Directorate, I was extensively involved in force build-up processes. I was provided with numerous tools that currently help me understand projects, not just with regard to the operational aspect but also with regard to the resources required.
"In civilian life as well as in the IDF, it is a matter of managing substantial, complex systems. Admittedly, the economic/accounting-oriented way of thinking is less prevalent in the IDF, but as Chief of Staff of the IDF Ground Arm, for example, I managed budgets on the scope of close to US$ 1.25 billion, as well as long-term empowerment budgets, subject to serious constraints. In the military, there are no profit and loss reports, but the people – most definitely those in staff positions – fully understand the implications of the decisions they make, as far as costs are concerned. So there are gaps that must be filled in the transition to civilian life, but I had also studied economics and business administration at Tel-Aviv University, and that did not hurt either…"
One of the qualities the CEO of a corporation like Rafael has to possess is salesmanship vis-à-vis senior executives from overseas. Do you have it? What have you discovered about yourself?
"The ability to present things has nothing to do with the question of whether you are involved in business or in the operational field. Either you possess the ability to stand in front of people, present things, explain the relevant considerations and convince your audience that your way is the right way – or you don't. "In senior management, the lion's share of your activity is not about discussing the financial specifics with the client, as there are people who specialize in that kind of thing. You are expected to come in and speak about the capabilities, about the products, about the added value to the client and about why the client should do it with Rafael of all others. It is perfectly legitimate to speak about money, too, but not everything begins and ends with that."
Does 2017 seem to be a good year for Rafael?
"I think that 2017, like the years before it, has – all things considered – been a good year. It has been a year of growth in Israel and overseas, during which we focused on the things where we can offer a real added value.
"Our added value is in the products, which stand at the forefront of technology and constitute a force multiplier for anyone acquiring them. Naturally, the lion's share of our activity is opposite the IDF, which always were and will continue to be a strategic client. We had set a goal of increasing our export percentage, but not at the expense of the overall pie. Today, close to 50% of our sales are domestic. Our goal is to increase the export element, and in my view, we will gradually accomplish that goal.
"The one thing that characterizes Rafael and will continue to set it apart, in my view, is the fact that it is a government defense industry which, since the day of its inception has served as Israel's national research and development laboratory (Rafael evolved from an auxiliary unit of IMOD to a government company to all intents and purposes in 2002 – A.R.). This has been reflected in the relative share of Rafael's research and development activity. Rafael invests close to 8% of its own budget in R&D. This amounts to nearly 700 million ILS. When you sum up the overall share of R&D activity, including R&D ordered from Rafael, you can say it amounts to nearly 50% of Rafael's activity. This stems from a technological depth, from the fact that we are a national laboratory and possess national research infrastructures. That is the foundation of Rafael.
"Rafael is also the largest employer in the northern part of the country. This year we crossed the line of 7,000 employees, and in view of the increase in our orders and sales, we will advance to a complement of 7,400 employees by the end of the year. At the same time, we employ nearly 400 students. Our activity supports close to 20,000 households, mainly in the peripheral area, directly by us and through the various sub-contractors."
What is your current backlog of orders?
"At the moment, it is approximately 21 billion ILS, which is the equivalent of 2.5 years of sales – in Israel and overseas. Rafael is profitable and growing. Since it became a business corporation, it paid close to one and a half billion ILS as dividends to the State. Every year, we transfer 50% of our profit to the State and are very proud of it. The balance is invested in the development of future technologies, which constitute the real strength of Rafael."
Rafael underwent several organizational revisions in the last five-year period. Is this process still on-going?
"Rafael had initiated a very significant organizational revision even before I came here, in 2014, for various reasons, both internal and external. At the conclusion of that process, Rafael was organized in divisions and business units that match the content worlds of the clients. The organizational revision was excellent. We must be flexible. When I came here I found a well-organized company. I made some adjustments associated with operations, but no substantial changes were required. Instead, we focused on thinking about the Company's strategy for the next decade. The heads of our divisions and departments, as well as close to 200 mid-level managers took part in the strategic thinking process we initiated. The process started with a diagnosis of the current situation, spotting of strengths and weaknesses and understanding of the market needs. As part of the process, we established work teams that examined internal and mainly external processes. That took about a year, and eventually, we came to the conclusions as to how we wanted things to happen, where we wanted to go and which fields of activity we wanted to enter.
"Eventually, our strategy is linked to Rafael's vision and values. According to this strategy, Rafael has always been and will continue to be unique – as I said before (with regard to the issue of R&D – A.R.). It operates, first and foremost, for the benefit of Israel's national security, while being run as a profitable, growing and global business corporation. This vision remains valid, and it is the domain of the employees. On the other hand – we will not become a company that now builds electrical power stations or manufactures civilian vehicles. The core of our business has always been and will continue to be military products at the cutting edge of technology which offer added value to the client – at sea, on land, and in the air, along with the recent addition of cyber. Even the naval theater includes, as far as we are concerned, several dimensions."
The Modern Battlefield
What about warfare in the subterranean medium?
"That is not a business activity. It has to do with the national security of the State of Israel. Eventually, several other activities will constitute our future growth engines. One thing is to keep on doing what we are doing today. For example – 'Spike' – we realize that in order to remain leaders in this field, we must advance, so at the last exhibition in Paris (the Paris Air Show) we launched the Spike LR2 – a fifth-generation missile system. Our Litening pods are the market leaders in their category, so two years ago we launched the Litening-5. In fact, it has already been sold to clients. We always say that we should press on with whatever we do best. The challenge is to remain at the forefront at all times. Here it was very clear to us that we must offer a technological added value but we realized that the price issue is also very important to the clients. While ten years ago you could speak only about the technology, today it is very clear to us that we must also improve processes associated with our business excellence and the attractiveness of our manufacturing vis-à-vis the client.
"It is very clear to us that there are some fields of activity we have to enter. Our strategy is to switch from products to systems and to system-of-systems projects. Eventually, all of the elements are right there before us – and now all we have to do is put them together." We possess many assets we have accumulated over the years, such as our aerial communication systems that are already capable of connecting to the ground communication systems, among other things. Eventually, you have to download all of that wealth of intelligence that you collect to processing stations.
"Today you need wideband communication – and all of that can be connected to Rafael's excellent strike weapons, which are capable of operating in all combat environments, under any weather conditions, during the day and night and without GPS – now all of the elements are there before you and all you have to do is come over and put them together. That means switching from stand-alone solutions to systemic solutions. The future is actually turning the battlefield into an environment where systemic solutions, based on network-centric warfare, are in use. This concept has been around for many years, but Rafael's advantage is the fact that this concept is easy for us to implement using our capabilities. On top of all that, you can add our cybersecurity capabilities to Rafael's various products.
"Secondly, we realized that cutting-edge defense solutions for the non-military world – we call it 'non-military defense' – are not HLS, but much more than HLS. I do not call it HLS intentionally. I think that today you are looking at clients that have the resource capabilities of states and even more than that. They have strategic needs associated with defending their assets – and you can provide them with solutions based on elements that range from cybersecurity to sensors and processing and analysis capabilities, and that is much more than HLS.
"So we took all of those capabilities that already exist at Rafael and concentrated them under an administration called 'Intelligence & Cyber,' which handles this field of activity. Heading this administration is Brig. Gen. (res.) Ariel Karo (formerly the IDF Chief Intelligence Officer), and it was established three years ago, initially as the Intelligence Administration and then we added the cyber activity and admittedly, we accomplished the breakthrough when we won the National CERT tender, and more recently we have won the tender for securing the credit activity of the Bank of Israel.
"We realize that there is a number of clients around the world that are not necessarily military clients – they may be police forces, banks and so forth, and now we want to reach those clients and present Rafael's capabilities and show them that we can do all of that. Now we have to see how we can improve and incorporate in our business thinking the entire activity of customer service, customer support – this activity already exists at Rafael, but we have recently set it as a goal to improve it.
"So we have the infrastructure that will continue to account for 85% of our core business, add the activity of network-centric warfare and what I have described, add the issue of the security space, add the customer service world and everything, combined, will point you in the directions where you should be heading."
So what else have you decided to avoid, apart from the civilian activity? You do not manufacture UAS, for example.
"We will not manufacture large UAS – we do not have any advantage there. We will not manufacture platforms, namely – we have no intention of starting to manufacture tanks or aircraft. We can take any platform in the world and enter it – be it large, small or old – and upgrade it. We can take a third-generation aircraft and upgrade it to generation 4.5 as the platform itself is less interesting for us. There are activities where you realize that they are already becoming blurred. Unmanned vehicles for example – there is the range of platforms – for example the category of drones (multicopters), small robots – how do I provide a holistic solution for such a thing – in that case, without a doubt, you must enter this field of activity."
How do you translate the amazing technological success of the 'Iron Dome' system into commercial success?
"It is, first and foremost, an operational success, and only then a technological success. Look, the defense market is a traditional market in principle. Military organizations do not always identify the imminent threats facing them. 'Iron Dome' is a classic example of failing to identify an imminent threat. Generally, throughout the State of Israel, the task of coping with the steep-trajectory threat is not something regarding which we had said it could not be dealt with. The concept of 'defense' was not a part of the IDF jargon. We had concentrated on the attack.
"I think the story of the 'Iron Dome' system is about our ability to take the system and make the necessary adjustments so as to adapt it to the clients' needs. It does not only provide a solution to a specific need. At the end of the day, the 'Iron Dome' system will have a different position and tier – it will not necessarily be the same 'Iron Dome' system originally intended to cope with the steep-trajectory threat. I think that at the end of the day, with all of the evolution the 'Iron Dome' system has undergone, we will be able to make the adaptations and find the clients that need this product."
What is the current status of another one of your major projects, the development of the 'Magic Wand' defense system against medium-range missiles and cruise missiles (IDF designation 'David's Sling') – the joint venture with Raytheon of the USA?
"The 'David's Sling' system is fully operational and has been delivered to the IDF. It is an operational system currently employed by the IAF, and we continue to support it. We have completed the first phase, defined as Preliminary Operational Capability. Like the 'Iron Dome' system, this system will grow and develop opposite the existing and evolving threats. Today, the 'Iron Dome' system is essentially different from the 'Iron Dome' system originally developed with Raytheon. I hope we can find a way to incorporate elements of the 'David's Sling' system in US systems. We are currently working with Raytheon on incorporating the interceptors of the 'David's Sling' system in the US 'Patriot' systems.
"The value of this thing is the fact that you take operational systems and incorporate in them cutting-edge (2017) interceptors at a cost that is much lower than the cost of the original Patriot missiles and with equal performance characteristics. I hope we can find the right markets for this activity."
What about the air-to-air missile category?
"Air-to-air missiles by Rafael are global leaders, and we will continue to lead this field worldwide."
Were you disappointed by the cancellation of the major air-defense tender in India?
"Of course. At the end of the day, the system we presented in that competition successfully passed all of the tests and met all of the client's expectations regarding whatever the client had specified and even more. Sometimes, other considerations are involved."
Is it also true regarding the active protection ('Trophy') tender in India, which has been suspended after you had already conducted some successful demonstrations?
"In that case, there was a tender deadline where we made the short list of the active protection systems, but they decided they wanted to review other alternatives as well. We invest substantially in the Indian market, owing to its strategic importance and also because of our connections. Eventually, we will find the way."
What about the 'Spike' missile system? Is it a major success in India?
"Two weeks ago we inaugurated a plant in India where the 'Spike' missiles should be manufactured in the context of our partnership with the local industry, in line with the Indian policy of 'Make in India.'
"The 'Spike' missile system has been sold to 20 countries worldwide, and some of our partnerships include local manufacturing. Our partnership with Poland, for example, had been established 20 years ago, and we are very proud of it, and they continue to manufacture the missile on Polish soil."
Do you have a strategy of acquiring other companies, in Israel or overseas?
"People may be less aware of this fact, but Rafael has 30 subsidiaries, of which 22 are business ventures and the rest are marketing companies. A part of our strategy is to acquire companies in Israel and overseas, in line with such considerations as how the acquisition would benefit us with regard to the technological and marketing aspects.
"Accordingly, we have recently completed the acquisition of the DSIT Company and incorporated the Vision Map Company into Rafael. We had owned 50% of Vision Map, and now we own it 100%. We have opened an office in Australia, and as I said – we have inaugurated a manufacturing plant in India."
Why Australia, of all places?
"Our office in Australia has been inaugurated against the background of our understanding that the market over there requires a permanent presence by us. They have many empowerment plans over there, and we are there with Rafael's products, which may include the 'Spike' missile system or night vision products – our products."
What can you tell us about the competition against and the cooperative alliances with the other defense industries in Israel?
"We have dozens of business cooperation alliances, including alliances with IAI and Elbit Systems. I think that in principle, competition is a healthy process. At the same time, there is more room for cooperation – definitely in the sea of Israeli industries, in those spaces where cooperative alliances are possible. You do not engage in a cooperative alliance just for the sake of cooperation, but in worlds where working together offers you an advantage, you will create an advantage for both parties when you come to the global market together instead of competing against one another. This is the dialog I am involved in with both Yossi (Yossi Weiss, IAI President & CEO) and Bootsie (Bezhalel Machlis, Elbit Systems President & CEO). We communicate where we can and meet quite often. I think we should seek, aspire for and insist on finding places where cooperative alliances can be established."
But in reality, there is competition, and sometimes it is fierce.
"I do not think there is fierce competition – there is competition. But in line with Rafael's ethics, at least, we will never defame our competitors, both Israeli and external. We will always speak only about what we're good at and what we're less good at."
Do you think that in the long run, following the privatization of IMI, there will be room for just two major government defense industries – Rafael and IAI?
"Every industry has its own uniqueness and added value. Now if you make changes, every move has its cost. Take unification, for example. We should ask ourselves what the alternative cost is – is there room for it? Should we unite? At this point, I do not think it is relevant, so I encourage and support cooperative alliances, and I do not attempt to initiate any other processes. It will not be relevant for the next few years. What will happen in 15 years? I do not know. Let's speak again when we get there."
In the photo: Maj. Gen. (res.) Yoav Har-Even (Photography: Meir Azulay)