Today's workers are looking for something different. Once upon a time, if you wanted a workplace that offered excellent employment conditions, challenging advanced technology, sabbaticals, advancement and a company car, you went into Israel's defense sector. Today, this is no longer enough. Everyone wants to work for the Chromatis of six months ago.
Semi-Conductor Devices (SCD) grasped this point. SCD is jointly owned by Rafael (Israel Armament Development Authority) and El-Op. SCD's plant is located in Carmiel, employing 225 people. SCD develops and manufactures thermal infrared devices for night vision. The company mainly markets its products to the military sector, through its owners. There is also a civilian market for thermal sensors, such as medical and diagnostic equipment and industrial manufacturing monitoring.
This company cannot launch an issue. Period. So what can it do to keep employees?
SCD general manager Baruch Glick explains the spin-off solution. SCD spun off a subsidiary CyOptics, opened an options plan for employees designed to meet the challenge of intensifying competition in the industry. CyOptics allowed SCD to enter the optics and laser field, thereby enabling the company to offer its employees something more than high salaries. Think of it: CyOptics raised $16 million in April, at an estimated company value of $60 million, after money.
"Globes": Is a defense industry company with annual sales of $27 million and growing profits a part of the old economy?
Glick: "No. We did spring from there, but we are not in the Internet software field. We have a plant that is judged according to its revenues and profits. However, we are in the technology market, and the entrepreneurship we are trying to develop is definitely part of the new economy."
Have you suffered from high employee departure?
"In places like this, where people have incredible technological knowledge, even the departure of two-three a year can hurt. There is no stampede to get out, because the company combines Zionism, defense and technology. But I can tell you that if we hadn't offered options to our employees, we would have had a problem."
The dream you offer you employees in the form of options, will ultimately lead to an issue by CyOptics.
"Since it is not possible to issue SCD, because it is a national defense company, we decided on an alternative model - subsidiaries that could offer options to be allocated to our employees. We thus combine both worlds. On one hand, employees get options and can dream, and on the other they can realize their options only if their company succeeds."
Has the penetration of the civilian market succeeded?
"Knowledge is developed in a company like ours, just like in technology companies, and we are always looking for way to apply this knowledge. Defense industries in Israel are always looking for spin-off opportunities. They may not always succeed, but in our case, the path was already open. We took a military technology in the laser field, and entered it into the civilian market as a spin-off. This spin-off succeeded, because we are not seeking military-based spin-offs here."
Despite sales, you're burning cash fast. Do you receive State support?
"Every industry like ours receives State support from both the Ministry of Industry and Trade Chief Scientist and the Ministry of Defense. It is simply impossible to develop high-end products that will move technology in Israel forward without State support. This support exists on a large scale in the US, France and Belgium. If the State supports companies like Intel and Tower Semiconductor, why shouldn't it support plants like ours?"
Why do companies like El-Op and Rafael not just buy your products, but also own you?
"This is characteristic of the defense industry. In systems of this kind, such as Lockheed-Martin and Raytheon, it is said that it is not enough to be a customer, since it provides a critical element for the larger system. So they want to be the owners as well. They need control. As a thought experiment, imagine a sophisticated air-to-air missile. If he missile's sensor provided by a company like ours, ceases working, then the entire system can be thrown into the garbage. Therefore, such organizations establish in-house capabilities. Today, following restructuring between El-Op and Elscint, we are defined as cooperation between El-Op and Elscint Systems."
Selling your products to your owners is very nice, but selling solely to them delays the realization of your dream.
"True, what happens in this market both locally and internationally is that a company builds very expensive infrastructures for itself, and hires high-value staff such as engineers and physicists who also seek challenges. The company then goes to the owners and asks to sell to other companies as well. This is what we are doing now: we develop products military and civilian customers across the world.
"Everyone wants to take the infrastructure, knowledge and technology and run with them to some new business field, without contradicting historical, moral or Zionist commitment to the defense market. It is very important, otherwise we could not work (because our owners would not let us), and we therefore seek out that fine line. CyOptics was one success, but we have other capabilities and technologies, and we are examining other possibilities.
Contact
Telephone: 972 4 890 6622/36
Fax: 972 4 890 6626
Web site: www.rafael.gov.il/oldweb/division/subsid/scd.html
Published by Israel's Business Arena on 4 September 2000