Ami Appelbaum: Innovation must be linked to growth

Ami Appelbaum Photo: Eyal Yitzhar

The Israel Innovation Authority's new chairperson Ami Appelbaum sets out his vision for the Startup Nation. 

The new position to which Dr. Ami Appelbaum was appointed in September was once called "the Chief Scientist in the Ministry of Industry and Trade." The title was changed a year ago to "chairperson of the Israel Innovation Authority in the Ministry of the Economy and Industry." Despite this change, which signals distance from science, industry, and commerce, the Israel Innovation Authority now wants to return to its roots: commerce and industry. It is still identified with support for new startups and young projects in high-tech companies, but it is now seeking a significant expansion of its role.

This is part of the change taking place in the entire Israeli economy and, actually, in the entire world. High tech is no longer a separate world; it is penetrating all spheres of life and revolutionizing industry and commerce. The Israel Innovation Authority sees this as an opportunity to utilize the startup nation's capabilities to achieve prosperity in many areas that are not regarded as high tech par excellence, especially in industry and manufacturing. The great dream is of this change narrowing the social gaps between those who have hitherto benefited from the fruits of Israeli high tech and the other sector of the economy.

This reform, which began before Appelbaum became Innovation Authority chairperson, was epitomized by turning the Office of the Chief Scientist into an independent authority, but Appelbaum is the one who has to transform the vision into a reality. Following an impressive career of many years in the semiconductors industry, he now faces a new challenge: connecting high tech and low tech.

"Israel is a leader in innovation, but the country can't make a living from that," Appelbaum tells "Globes" in his first interview since becoming chairperson. "The title of startup nation is a great honor, and I give credit to all of my predecessors who brought us to this. Now, however, we have to achieve a different task by 2030-2040: being both a country of innovation and a country of growth."

"We have to put the robots into action"

In Appelbaum's vision, all of Israel's industry should rely on excellence and technological capability, not just the startups on Rothschild Boulevard. He wants to harness technology for industry on a large scale in order to spur a revolution that will once again make Israel a country of production and restore to it the industries it has lost to countries in which labor is cheap. He wants to create a high-tech-based supply chain in commercial sectors now experiencing difficulties, such as hotels, in order to make them global leaders.

The Innovation Authority's activity in industry is carried out through its advanced manufacturing division, which is responsible for the connection with industry. Last week, the Innovation Authority opened the division to companies in several new areas with a high ratio of production workers, such as chemicals, cosmetics, electrical products, and auto parts. The division offers guidance to companies in solving production problems, testing R&D viability, and enhancing productivity, as well as, obviously, monetary grants. In 2016, when the manufacturing division began operating, its grants budget was only NIS 85 million - less than 5% of all the grants provided by the Innovation Authority. This budget grew to NIS 125 million in 2017 and NIS 140 million in 2018, but that does not make the challenge facing Appelbaum any simpler.

"The startups and R&D projects in high-tech companies are flooding us with requests," he says. "In industry, on the other hand, we're the ones who have to go to the companies. Thinking about innovation doesn't come to them easily. Even if they have an idea or a need, they find it difficult to take time off from thinking about their regular business. We talk with them, given them a training program in innovation, and in effect mine the innovation from them. It's true that hotels aren't a high-tech industry, but Airbnb and Hotels.com are high tech. So there's something to be done in every industry to give it high productivity and reach a position in which we create entire companies, not just beginnings of companies."

Appelbaum draws his optimism about a possible revolution in Israeli manufacturing from the company he led from 2002 until his current appointment: Tencor KLA, which provides control systems for the chip manufacturing industry. "The chip industry makes itself over completely every two years in accordance with the requirements of the consumer electronics market. Tencor KLA therefore has to remake itself every two years for innovation based on the cutting edge of science, and to produce masses of final products based on it," he explains.

When Appelbaum was appointed head of the company's Israeli activity, he proposed transferring its manufacturing to Israel to then-CEO Kenneth Levy. "When I told him that I would cut production costs by 30% if he would move to Israel, they asked me, 'What did you drink and what did you smoke?', but I don't drink and I don't smoke. Today, the company employs 550 workers in Israel, including 50 doctors, and all of this is happening in Migdal HaEmek. We focused on the final production and assembly, where we realized that we had added value; we recruited the best engineers and adopted advanced management methods. We discovered that the robots that we bought in Japan did not fulfill our requirements, so we developed better, cheaper, faster, and cleaner robots by ourselves. The Israeli robots were eventually adopted by Tencor KLA everywhere."

According to Appelbaum, this is exactly what has to be done in the rest of industry. "Everything I have to do in the Innovation Authority on a macro scale I have already done at Tencor KLA on a micro scale. The idea is to create not only a world leading R&D apparatus, but an entire industry that bases a supply chain on this R&D. Little Israel has the capability to be the best in the world, not only in science, development, and integration, but also in production."

"Globes": They say that Teva's tablets factory in Jerusalem is being shut down because it was not competitive."

Appelbaum: "There is no justification for closing down a plant in Israel because production in Israel is more expensive. The factory managers should constantly act as if someone was chasing them - only paranoids survive. As long as spending on production is any number above zero, there is a need for streamlining, and they mustn't be complacent. It's clear - when you're inefficient, your fate is sealed."

Have Teva and ECI, which is also making layoffs, degenerated, and are they no longer in the forefront of manufacturing technology?

"I'm not saying that, God forbid; I'm not familiar enough with them, but if they're making layoffs, it's a sign that they haven't managed to provide work for their employees."

Your aim is to increase employment, but the initial effect of production efficiency through robotics and advanced systems is liable to be layoffs.

"You also need someone to operate the robot, and furthermore, if Israel manufactures efficiently, international companies will bring more projects here and employ the surplus workers. Nine out of 10 people made redundant by robots can simply produce more goods. Teva acquired many overseas plants. Why? If they were afraid of streamlining in Jerusalem because of layoffs, wouldn't it have been preferable to convert the existing plant to other products, instead of buying another plant to make those products?"

Maybe not everyone suitable for being a production worker is suitable for operating a robot on a high level. Some of them are no longer young.

"When threatened with being laid off, people aged 40-50 can also learning something new.

"The Histadrut should help us"

Together with its report for 2017 published last October, the Innovation Authority set a target for increasing the proportion of all workers employed in high tech to 15% within a decade, which will increase the number of those employed in the sector from 270,000 to over 500,000. The plan is to increase the number of graduates in the high-tech professions in higher education by 1,500 per year, training 1,000 graduates of Coding Academy Bootcamps a year, and integrating 1,500 returning Israelis, new immigrants, and foreign workers coming to Israel each year.

Appelbaum is especially enthusiastic about the coding bootcamps. "They say that 25% of the high-tech personnel in the US come from short training programs like these. What's great about this business model is that we pay the training concern only for those who successfully complete the course, so they have a big incentive to select people who are really suitable for the work, and to teach exactly what the market needs."

The Israel Innovation Authority believes that the digital health, pharma, and medical equipment industry can be expanded by 4,000 new employees in the coming decade, and 3,500 people a year can be added through the innovation revolution in production, including promotion of industrial application of the Internet of Things (IoT). Hiring by growth companies is projected to amount to 3,000 a year, 2,500 through international companies hiring non-engineering workers in R&D centers, and 4,000 new related employees a year as a result of growth in the number of technological personnel.

At this point, the Israel Innovation Authority's explanations are somewhat inadequate. It does not explain where the thousands of new employees for the jobs to be opened up will come from if such impressive growth does occur in industry. The gap between the number of graduates in the high-tech professions in higher education and in other frameworks on the one hand and the number needed on the other is still very wide. The coding bootcamps could theoretically provide a solution, but in order to recreate the US success, 67,000 of the 230,000 workers to be added in the next decade must be trained. Only NIS 10 million has been budgeted for the coding bootcamps program this year, which will be enough to train only 250 graduates. The rate is slated to reach 450 graduates in three years, which is still far from enough.

"It's a pilot," Appelbaum explains, "but in our opinion, it's a spark that will also encourage other entities, such as companies, schools for engineering technicians, and universities to establish such training institutes." Other parties that can promote the matter, he says, are workers' committees and the Histadrut (General Federation of Labor in Israel). "I tell the committees to create a worker whom people will fight to hire. In Europe, the labor unions work hand in hand, and when workers are laid off at one plant, they move them to a different relevant job. Imagine if the workers' committees worked like this in Israel - if they were to tell the CEO, 'I'll help you with the layoffs, but I'll take your workers out to other companies.' When companies compete for workers, it's more effective than when a committee strives for an agreement that the company can't fulfill."

Another new section in the Israel Innovation Authority is the International Collaboration Division. It has created tracks that enable companies in Israel to cooperate with overseas companies, bring foreign investments to Israeli companies, strengthen the connection with development centers of international companies, and obtain help for entering new markets. The Israel-India fund for technological innovation launched last week by Prime Minister Benjamin Netanyahu and Indian Prime Minister Narendra Modi is one of this division's ventures.

The invention for increasing the Israel Innovation Authority's budget

Despite all these new ventures, the Israel Innovation Authority still operates mainly within the Israeli high-tech industry. As of now, it provides NIS 1.64 billion in support for 1,185 projects involving nearly 700 companies. Half of the grants budget is administered through its Growth Division, which supports mainly high-risk R&D in established high-tech companies. Nearly a quarter of the money is injected into startups and incubator companies through the Startup Division. Another older division is the Technological Infrastructure Division, which supports research infrastructure used by many companies, such as a tissue bank and shared laboratories.

"I'm exposed to startups whose creativity knocks me off my feet," Appelbaum says. "I'm originally from agriculture. My father planted the orchards at Kibbutz Saad in 1948. They told him then, 'Why are you planting apples in the Negev? The leaves won't drop, because it's not cold.' He answered, 'The orchards will be here, and they will grow.' The orchards were exemplary, and the earnings from them were amazing, but the question always remained - what is the most efficient way of picking the fruit? Along comes a startup and picks the fruit using robots. The Innovation Center is a fascinating place."

Are there specific sectors that you want to emphasize?

"We divide the money only bottom-up, meaning to the best projects reaching us. We do mark medical companies as a future growth engine that doesn't pay for itself yet, so it needs special help, and we definitely give priority to the outlying areas."

It turns out that the Israel Innovation Authority also has creative ideas about how to increase its budget by providing scientific and technological advice to other government ministries. "We have established capabilities here that have led all the government ministries to ask us for advice and help. For example, the Ministry of Environmental Protection asked us how to make it possible to manufacture more cleanly, instead of restricting industry. The Ministry of Health, Ministry of Transport, Ministry of Agriculture, and National Emergency Management Authority consult us about how to develop solutions that can later be commercialized for the entire world."

Another inter-ministerial initiative, albeit one that will not add to the Israel Innovation Authority's budget, is the use of government ministries as initial customers or theaters for pilots of startups supported by the Innovation Authority with a monetary investment by these ministries. Such matchmaking can sometimes be far more important from the standpoint of business experience than from the financial standpoint, due to the shortage of large-scale customers in the Israeli market.

According to the reform instituted in the Office of the Chief Scientist, which turned it into the Innovation Authority, the Innovation Authority became an independent agency receiving its budget from the Ministry of the Economy and Industry. The Innovation Authority's board is composed of parties from the government and industry, and is managed by a CEO who is not a state employee. The first person to serve on this format is former Apple Israel CEO Aharon Aharon.

How is the Israel Innovation Authority's responsibility divided between you and Aharon Aharon?

"Like in any company, there is a CEO and a chairperson. I'm responsible for policy and working with the government and international entities. The council approves the policy, and Aharon leads its implementation. I'm also chairperson of all the research committees. We're mature people, and know how to divide the work. We have a really good surprise in working together. It's excellent."

Published by Globes [online], Israel Business News - www.globes-online.com - on January 28, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Ami Appelbaum Photo: Eyal Yitzhar
Ami Appelbaum Photo: Eyal Yitzhar
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