Transformations in the Israeli Defense Development and Production System, and the Contemporary Relevance

Chapter II – Defense Industry

The development of the MoD approach to R&D and production in the defense industry, and the increasing weight of non-defense interests within the considerations of the MoD.
Four periods can be identified in the development of the MoD's policy regarding defense R&D and production, as follows:

The first period:

This period, from the establishment of the State of Israel until Ben- Gurion’s retirement, is characterized by a visionary approach that emphasized the fostering of science and its channeling for military uses. This approach considered the domestic development of advanced and unique weapon systems as a vital defense component, in the framework of striving for independence from foreign arm suppliers (autarchy). This approach occasionally attached less importance to economic considerations and market constraints, when making decisions about domestic R&D and manufacture, and was more flexible about the uncertainties and risks involved in R&D. This attitude was reflected in the sharp increase in defense spending in the 1950s and early 1960s and in the accelerated growth in the R&D activities of the industry.[14] In addition, we should remember that one person –David Ben-Gurion – laid down the principle of independence in the armaments field while having the authority, as Prime Minister and Defense Minister, to realize it. According to Ben-Gurion’s doctrine, foreign affairs and defense policy were bound up with one another, and this led to the incursion of the Ministry of Defense into foreign affairs.

The second “incursion” of the MoD, as the spokesperson for the needs of the entire defense establishment, was in the area of technological modernization and private industry. Gradually, the MoD took into its hands direct responsibility for the ammunition, aircraft and electronics industries, whose manufacturing capacity was designed to ensure the readiness of the IDF. This two-pronged expansion[15] of the organizational authority of the MoD, into foreign relations on the one hand and into defense production on the other, put it in a strong position, and shaped the “DNA” of R&D and defense production.

The second period:

From the beginning of the 1960s with the ascension of Levi Eshkol to the premiership, a more pragmatic view appeared in relation to the conceptual approach bequeathed by Ben-Gurion. This view gave more importance to economic considerations in the decision- making process and more weight to the economic consequences involved in armaments development and domestic production. However, since the uncertainty and risks involved in the production stage are smaller than those inherent in the R&D stage, and because the contribution of manufacturing to employment and to the balance of payments was large, this pragmatic approach was more flexible when it came to investments that were not based on domestic R&D, but rather on the acquisition of know-how. Thus it happened that the pragmatic view indeed curbed the accelerated growth in R&D investment, but at the same time allowed - this time for economic reasons - the continued development of the defense industry.[16]

One manifestation of the economic approach to the industry was its use to carry out national policies in various fields such as population dispersion to the periphery and promoting employment. For example, 32 IMI plants were scattered over 16 different sites, including development towns such as Kiryat Shmona, Ma’alot, Nazareth and Lod as well as development areas like Ramat Beka and Mishor Adumim.[17] Later on, the fact that IMI became so important for employment in peripheral areas, impeded the recovery process that IMI had to go through, and some would say it had (and still has) a major impact on decisions about primary force design processes.[18]

The third period:

From the end of the 1960s to the mid-1980s the approach was influenced by the wars of 1967 and 1973, and by the French embargo imposed on the eve of the Six Day War. Following the Yom Kippur War defense expenditures soared, reflecting a clear defense-centric approach, while economic considerations were of a lower priority. Massive armaments development such as air-to-air missiles (Shafrir 1 and 2), transport aircraft (Arava), fighter aircraft production (Kfir), missile boats (Saar 4), a tank (Merkava), the first UAV and even the self-development of an advanced fighter aircraft (Lavi) - all these are only some of the activities initiated for the first time by the defense industry, and all within one decade. The principle of non-dependence bequeathed by Ben-Gurion, and the broader view of domestic development and production, were reinforced and acquired a shade of existential necessity due to the events of the period.

However, these were not enough to change the direction set by Eshkol regarding the strengthening of the economic dimension of the industry. At the end of the 1960s IAI became a government company, while Elbit and Tadiran, which were 50% owned by the government, were privatized. The tension between the rapid development of the industry due to existential defense concerns, and their consolidation on the basis of an economic rationale, was resolved through defense exports designed to effectively realize the full economic potential of armaments development, thereby injecting huge sums of money into the expanding industry, but not at the expense of the State’s coffers. Thus, in the 1970s the Israel MoD International Defense Cooperation Directorate (SIBAT) was established. This was due to the realization that despite the many needs of the army, without exports, the defense industry would not be able to carry on its shoulders the economic burden of R&D as necessary to manufacture the complex technological products needed for the State’s security.[19]

One of the most fascinating things about SIBAT is that although it was a clearly a marketing body whose sole purpose was to support the export of defense products, throughout most of its existence it also served as a regulator responsible for granting export licenses. Only in 2007 was the regulatory function split off from SIBAT and it became a separate body, the Defense Export Controls Agency (DECA) under the MoD, even though a significant part of its the supervisory role relates to foreign policy.[20] This organizational reality testifies to the overriding status of the Ministry of Defense in relation to other government ministries, and to its bureaucratic independence regarding defense exports.

The fourth period:

This period began with the implementation of the restrained economic policy of the mid-1980s and with a deep economic crisis that hit the economy in general and the defense industry in particular. And it has continued for 30 years. Until this point, company managers had assumed that the government would come to their rescue if and when they found themselves in financial difficulties, and they therefore adopted an approach which favored growth and expansion over risk management and safety margins for a crisis. These prioritized technological challenges while neglecting business aspects.[21] The deep crisis of the mid 1980s made it clear that the industry had developed an organizational culture that ran counter to a pure business rationale. The process of fixing this culture involved strengthening the economic dimension of the companies, and a transition to comprehensive recovery and streamlining programs as well as a further push to defense exports. Recovery measures implemented by the industry and improving economic management patterns continued into the 1990s, with some continuing to this day.[22]

In addition, the principle of independence, bequeathed by Ben- Gurion and strengthened following the Six Day War embargo, began to crack, perhaps for the first time, during this period. The turning point was the decision to terminate the “Lavi” project, which was accompanied by the decision to allocate part of the freed resources to a cluster of programs called the “Lavi Alternatives.” The new approach pushed the non-dependence principle to second place and in its place came the idea of “force multipliers” – original and unique solutions that would work alongside the primary weapon systems (which would be bought abroad using the massive aid budgets). The new approach reflected a sober outlook on the international arms market. In the 1980s, due to a global decline in defense demand, across the globe countries struggled to ensure the economic survival of their industrial-defense bases. As a consequence, arms manufacturers were increasingly willing to offer innovative systems, and the distribution of advanced military technologies expanded. In these circumstances only a unique local development – that is, one not offered on the global market and kept in secret until its use on the battlefield – would be able to provide a surprise tactical ability, and tactical surprises could be consolidated into a strategic advantage.[23]

This approach might have made economic sense, at least in retrospect. It enhanced innovation in the industry and provided it with a unique competitive edge in a market where supply was substantially larger than demand. The outcomes of the business- oriented policy of the period, alongside the diversion of resources from the idea of non-dependence to the idea of innovation, led to a recovery of the industry and, consequently, to a renewed thriving defense exports.

Currently, the status of defense exports is almost iconic, of supreme and direct importance for the economy and for securing the qualitative edge of the IDF. See for example the following paragraph from the State Comptroller’s report:[24]

Defense exports increase the sales of the defense companies, making it possible to preserve the industrial infrastructure, the know-how and the human capital of the defense industry. These are necessary to allow the existence of a defense industry at the forefront of know-how and technology, thus providing a unique qualitative edge for the IDF. Furthermore, defense exports promote the political, strategic and economic interests of the State of Israel. The Ministry of Defense supports the defense exports. The Israel MoD International Defense Cooperation Directorate (SIBAT) is tasked by the MoD with promoting defense exports, in line with defense establishment policy and with supporting the defense industry in promoting defense exports. SIBAT is responsible for coordinating staff work and for promoting defense exports by acting to promote marketing, provide assistance to exporters and manage export transactions between the Government of Israel and foreign governments as well as supporting defense export transactions.

Or for example the following paragraph from the MoD website[25]: Defense exports constitute one of the leading export sectors in Israel, used to leverage economic growth and contribute to the Israeli economy. The defense industry in Israel fulfills a central role in creating an economic-industrial infrastructure for the country and in protecting national defense goals. They are characterized by innovation, creativity and the development of advanced technological capabilities which provide an essential contribution to the IDF and to the entire defense establishment.

According to the currently accepted concept, the defense industry’s human capital, innovation and technology are tied to the IDF’s qualitative edge, and in the same breath - all these could not be achieved without maintaining and reinforcing the economic strength of the industry. However, the preservation and strengthening of the industry over time has led to the diversion of attention toward customers other than the IDF, and the adoption of business practices whose very existence contradict by their nature the interests of the military.

The MoD ascribes to the defense industry a double strategic importance, for the economy as well as for security, but its declared policy ignores the inherent tension between the two; a tension which has grown over the years. Local R&D and defense production are still justified due to their service to the IDF as they did in the past, and more than that, they are perceived as being the basis of the “qualitative edge,” but at the same time they are increasingly directed by the MoD toward business and economic considerations.

In practice the MoD presents the defense companies under its ownership with contradictory demands: On one hand to be profitable and the other hand to maintain manufacturing capacity of existing weapon systems, even if they are not profitable, and to develop strategic weapons systems for the IDF which they will clearly not be able to sell abroad.

The MoD resolves these tensions by encouraging and assisting defense exports and presents its success as essential to the entire system. One example illustrating the change in MoD policy by can be seen by comparing the organization mission statements of MAFAT – one from 1983 and the second from 2007. This last one includes, among other roles – the preservation and cultivation of the industries through development assistance budgets for defense exports. These roles did not exist on the original MAFAT mission statement but were consolidated over the years until receiving an official stamp of approval in the revised organization mission statement. Thus, the organization whose primary responsibility is the promotion of technological innovation for the IDF, is also responsible for preserving existing companies.

In summary, the defense industry was established and developed from the ground up to serve the IDF. But during the process of its establishment, it gradually became significantly dependent on commercial conduct and in serving overseas customers. In the same language used in the introduction to this article, it can be said that the economic rationale, which was originally subordinate to the military rationale, has gradually became a business rationale – and is no longer subordinate to the military one. A business rationale is concerned with the question of how to build a thriving industry, and the answer is not by serving the IDF, unless it contributes to the profitability of the industry.

Chapter III – Threat trends

The balance of power between the Ministry of Defense and the General Staff, and how an organizational reality was created in which force design in the IDF is shaped from the outside.

So far we have described how (a) the defense industry evolved from being a support industry supplying the immediate necessities of the IDF into a thriving arms exporter guided by commercial practices; (b) how the strategic-economic role of the industry has changed and non-defense dimensions grew within the system of considerations shaping MoD policy.

In this chapter, I wish to describe how the balance of power between the MoD and the IDF General Staff has changed regarding all aspects of R&D and defense production, in such a manner that the General Staff has currently lost the ability to prioritize the military interest over the economic interests of the defense companies whenever a tension arises between their interests and those of the IDF. This chapter is divided into three parts: The first part describes the “Diminution of the Center” of the IDF – how the General Staff gradually lost its ability to shape and control technological force design. The second part describes a complementary process – the establishment and growth of MAFAT leading to the strengthening of the MoD in shaping technological force design in the IDF. The third part will summarize the chapter and provide additional illumination from other important viewpoints about the nature of the basic tension between the two processes.

The diminution of the center of the IDF

As an organization is forced to engage in a larger number of fields of knowledge, it becomes increasingly decentralized. Greater decentralization leads to higher specialization, but also to wider management scope, which leads to the establishment of further levels of hierarchy within the organization, which are intended to assist with the management of the new professional departments.

Indeed, striving for a more professional organization comes at a price in the form of a vertical-departmental organizational structure – like a collection of isolated “silos.” Within this type of structure, cross-organizational processes have to be coordinated through the top of the pyramid, creating a bottleneck that impedes the performance of the organization. In order to manage cross-organizational coordination, without harming the vertical structure that enables specialization, there is a need to formalize standard processes. Where formalization is too limiting, it is necessary to establish internal bodies to engage in horizontal implementation, coordination and supervision on the basis of a functional division. Thus, a horizontal dimension is added to the organization. While the vertical dimension enables the professionalism necessary to the organization, the horizontal dimension enables the functioning of the organization itself.

In militaries, the need to maintain a horizontal dimension is due to the demand for unity of purpose on the battlefield, while maintaining a vertical dimension is due to the requirement for service-professional specialization. The late Maj. Gen. Israel Tal pointed out that technological developments have given the professional specialization of the different services a growing importance, making them the exclusive patrons of particular resources and technologies. The coordinating staffs that were concerned with inter-service synthesis and jointness with “horizontal” force design were weakened. Maj. Gen. Tal had already analyzed this phenomenon in relation to the IDF in 1977 and he determined that the IDF had not undertaken a re-organization as required by the development of new technologies, and as a result the General Staff had grown weaker in the context of force design.[26]

Needless to say, since Maj. Gen. Tal’s insight, technology has developed at an increasing rate, and with it the level of expertise required. Coordinating staffs and horizontal entities were established and strengthened, but only within the services themselves, which further weakened the General Staff. In the context of this research, over the years, the balance of power between the General Staff and the services increasingly shifted towards the latter.[27]

Alongside the process of strengthening the vertical dimension of the IDF at the expense of the lateral control of the General Staff, a decentralization process also took place in the General Staff itself over the years. During the first years of the State, the IDF was very centralized – all authority and required know-how for operational planning and force design planning were centered in one entity – the General Staff Branch[28] - which was headed by the Deputy Chief of Staff. Over the years the General Staff Branch was weakened and subordinate departments gained independent status as separate branches – the Operations Directorate and Planning Directorate.[29] Through this process the General Staff gradually lost its ability to influence the shaping of force design. Today, the technological discourse at the General Staff level takes place, if at all, within the temporary framework of the planning of the multi-year program, to a large extent in the form of resource optimization within the framework of a set paradigm.[30] In other words, the General Staff has lost more and more of its ability to determine and implement force design processes which are subject to the operational logic of “victory” and became a collection of entities engaged in monitoring and “damage control” of processes that are shaped and created elsewhere.

The creation of MAFAT

Until 1971, an Armaments Department existed under the historical General Staff Branch, whose role was to coordinate and direct development for almost the entire IDF.[31] Its function was to define operational requirements, turn them into technological specifications and to recommend procurement methods – acquisition or development (and in cases of development – to recommend a development body). This department gained authority both by virtue of being subordinate to the strongest branch of the IDF, headed by the Deputy Chief of Staff, and by being at the meeting point of knowledge about operational requirements and operational concepts on the one hand, and technology and armament development processes on the other. Against the backdrop of growing tensions between the General Staff and the MoD concerning key decisions about technological force design, it was decided to establish a joint unit to take responsibility for directing R&D in the defense industry – the R&D unit. This unit combined armaments development and the Chief Defense Scientist’s Office which included both military and civilian personnel. The unit’s chief was subordinate to both the MoD and the Chief of Staff. Yitzhak Yaakov who headed the unit after its establishment, described it in this way, in his colorful language: Chera (Zvi Tzur) and Dado (David Elazar), [respectively the Deputy Defense Minister and Deputy Chief of Staff at the time] decided to combine the Armaments Department [with the role of] Deputy Chief Scientist, and to establish an R&D unit that would bear responsibility for all activities in this area, and be subordinate to both. Previously, the decision makers on issues of military R&D were Shimon Peres and the Chief of Staff Yitzhak Rabin. Peres’ authority stemmed from his control of the budget and Rabin’s authority came from his control of the requirements of the combatants – the consumers. Since Peres and Rabin cooperated like a hyena and a dingo, it is no wonder that during their friction- laden rule the link between military requirements and the key issues of the development institutions was strained and obstacle laden.[32]

The idea was that the inherent contradictions between military considerations and political and economic considerations could be resolved within this unit. Until that time, disputes of this type had to reach the highest levels – the Chief of Staff and Defense Minister – in order to be settled. Uzi Eilam, who was then the head of Armaments Department and later the deputy R&D chief, describes it as follows:

The R&D unit, which was established because of the dichotomy between the General Staff and the MoD with regard to research and development, was supposed to prevent friction [...] We discovered, already during the first steps of the R&D unit that senior defense officials were indeed freed from confrontation, but the split personality had already entered the unit.[33]

While uniformed military personnel served in the R&D unit, in practice, due to the fact that it was organizationally subordinate to the MoD too, it could not really produce a dialectic that would balance operational requirements and other considerations. At least, not in a way that would satisfy the army.

Elsewhere Eilam wrote:

During its first year of operations the R&D unit had to undergo a process of adaptation. The IDF’s department heads had to internalize the existence of the MoD and defense companies with policies and considerations which were different from the military requirements. The civilian department heads had to be aware of the requests of the IDF services, but at the same time to be strong and confident while handling issues in their own fields, and not give in to the demands and whims of military personnel. This insight has not changed over the years.[34]

The concentration of authority in one unit allowed it to gain power and influence. Yitzhak Yaakov describes it thus: “For the first time there was a staff body with authority that could propose and determine policy, to plan multi-year programs – to set priorities – and to support its decision with a budget and budgetary control.”[35] The unification indeed lowered the flames between the parties, but that was simply because it reduced the resistance of one while reinforcing the dominance of the other. The fundamental contradictions between the different interests obviously did not disappear as they are derived from different rationales. (See the introduction).

The R&D unit grew stronger over the years. Already in its first years, it had turned from a department into a branch headed by a brigadier-general and later it was re-organized, becoming the Administration for the Development of Weapons and Technological Infrastructure (MAFAT). Since then MAFAT has grown stronger, both in terms of budgetary control and in terms of its role and responsibilities – from a staff body with consultative powers, responsible for coordination and monitoring, into an entity bearing national responsibility for maintaining the capacity to develop weaponry for the IDF; from a “coordinating” and “recommending” body on R&D issues into a “policy formulating,” “directing” and “managing” body; from an body that initiates scientific and infrastructure research of a preliminary nature into a body that initiates projects which integrate existing capabilities in order to provide responses to relevant operational requirements (under the new term “pre-project”); from a body that mainly managed R&D projects and feasibility studies, into a body that regularly manages projects long after the procurement stage. Resource-rich projects which, at least at the level of potential, are of huge operational importance. MAFAT not only grew stronger, but it also acquired responsibility for the economic aspects of the defense companies and in particular, chose to assume the role of maintaining and nurturing the defense industry through development budgets and assistance for defense exports, as can be seen in its latest organizational order. All this took place in parallel to the general erosion of the status of the General Staff Branch and the weakening of the General Staff in relation to the services with regard to force design. The tensions between the MoD and the IDF took on a slightly different form – between R&D and the services. But the services, unlike the old General Staff Branch, which controlled the General Staff budget and was the supreme authority in these matters, at least within the IDF, are much weaker and their area of responsibility is limited to the needs of each service. In addition, the services are busy with their current assignments, and the level of their involvement with and knowledge of issues relating to R&D in the defense industry are substantially lower than that of the R&D unit.

It must also be remembered that R&D is the first stage of all technology projects. He who controls the R&D projects of today determines which projects the IDF will be able to consider purchasing in the future. Therefore, alongside the formal powers vested in MAFAT and the authority stemming from the important know-how that only it can develop – operational knowledge created at the junction of the army, technology and the defense industry – MAFAT also gains power from the fact that it de-facto determines the range of technological possibilities available to the IDF. If there were a clear separation between short-term and long- term R&D, we could discuss the possibility that short-term R&D would be done within the IDF. However, there is no such separation. The entire range of R&D to be handled by the defense industry, from infrastructure and long-term, to projects requiring quick responses to acute and immediate necessities, is within the authority of MAFAT.

The balance of power between the MoD and the General Staff, concerning technological force design.

Control of the defense budget gives its holder the ability to influence force design priorities. Consequently, both the MoD and the IDF have tried to increase their control over the defense budget. The MoD justifies its control of the budget by emphasizing, inter alia, its broader perspective regarding R&D and the defense industry, as opposed to the IDF approach, which would always prefer immediate operational considerations and military readiness over domestic defense development and production. By the mid 1960’s the hold and influence of the MoD over the budget grew and solidified. It coordinated the relationships with the Ministry of Finance, managed the procurement budget, R&D and the defense industry. By controlling the defense budget the ministry worked to implement its expansionary policy regarding domestic development and production.[36] In practice, if the MoD saw fit to prefer a specific technological project for the IDF due to its own considerations, it could do so even against IDF objections. If a professional debate did take place, the MoD had MAFAT at its side – a recognized authority which was just as familiar with both the technological issues and the requirements of the IDF, as any IDF General Staff body.

The issues that are considered by the MoD are broader, and include, in addition to the security dimension, economic and other issues, such as foreign relations and the accompanying inherent political pressures - indeed it is a government ministry. The issues considered by the army, however, are more focused on the purely military characteristics which are its area of responsibility. When some actors argued that buying arms abroad (or at least manufacturing arms by copying existing models) would be better than developing them in Israel, others promoted domestic military R&D. The first considered R&D as non-profitable, involving risks and extra investment beyond what is required for the IDF's needs. The latter assigned to R&D a strategic-visionary weight beyond the immediate needs of the IDF. Today, it is evident that most IDF force design is based on political considerations, which are extraneous to the military ones. These considerations, which are sometimes referred to as “national interests,” could be the preservation of certain knowledge hubs in the defense industry, maintaining industrial production lines and workforces or assisting with defense exports.[37]

The tension between the interests of the political and the military echelons is unavoidable because each is driven by a different interests. Since both interests are essential and at the same time conflicting, both must have an appropriate and balanced representation within the system. Such representation should be realized at the organizational level by the division of knowledge domains, responsibility and jurisdiction among the different bodies, in a way that would promote a dialectic between the conflicting interests, leading to solutions which are as balanced as possible. In the context of technology development this tension was apparently[38] viewed by the decision-makers as something that should be reduced by creating a unified entity – the R&D unit. However, the R&D unit, or MAFAT, due to its dual subordination is unable to ignore the policy of the MoD – and the IDF itself is subordinate to the MoD. In other words, the two rationales are not appropriately represented in the system since the entities supposed to represent them are in a hierarchical relationship.

The two tendencies described above are the two sides of the same coin – the strengthening of the MoD in technological force design at the expense of weakening the General Staff in the same area. MAFAT was sucked into the vacuum created by the General Staff and established itself – if not formally, but certainly in terms of status and function – as the General Staff coordinating entity for technological military force design. In this manner, the vacuum in the General Staff is not felt and therefore there is no real debate about it. The problem is of course that MAFAT is subordinate to the policy of the MoD and is not responsible to the General Staff. The dialectic needed for an effective discourse between the military and the political echelons no longer exists – the entire discourse is contained within the MoD, and the IDF has become inconsequential to the process.

The implications of the above in light of chapters I and II -

In the first two chapters of this article I described the three main changes in the defense development and production: (1) How the defense industry evolved from a support industry, supplying the immediate needs of the IDF, into an arms exporter managed by commercial practices; (2) How the strategic-economic role of the industry changed in the eyes of the MoD; (3) How non-defense dimensions increased within its policy considerations. In the current chapter, I showed how the last gatekeeper of the operational military interest, the General Staff, lost this power to the army’s operational echelons, i.e. the different services, and to the responsible governmental echelon, the MoD. In the absence of a central force promoting a military rationale, and precisely because of the growth of the other forces, the center of gravity of the defense industry shifted towards commercial, economic, public and political aspects. In other words, from an integrative-general staff viewpoint, force design in the IDF, in terms of technology and armaments, became to a large extent dependent on processes outside its control.

It is worth asking – Does the MoD not feel at least the same level of responsibility for security matters as the IDF? The answer to this is not simple. I will answer in two ways: the economic issues in the defense budget; and the phenomenology (a description of the process of experience) of R&D decision making.

1. The importance given to economic issues – As noted above, the considerations taken into account by the MoD are broad and include other issues (mostly very important, such as employment in the periphery) which conflict with security matters. At present the defense industry is profitable, but its dependence on exports is dramatic and without exports the industry would collapse. The domestic defense budget, which has effectively shrunk over the years, is unable to sustain the defense industry, which has grown to be enormous from an Israeli perspective. The government, which also owns much of the defense industry, works to maintain and nurture the strength of the industry it owns. It has several tools, including: diverting money from the defense budget into R&D for new technologies, granting export licenses for defense exports and paving the way for export to certain countries through foreign relations. The MoD has jurisdiction over all of these issues, and it can therefore carry them out, legally and practically, even when they contradict IDF policy, which is strictly limited to defense issues. There is an inherent conflict of interest within the MoD.

2. The nature of R&D decision making – The operational benefits of R&D lie in the future, and are always in dispute. The economic damage in not transferring resources to a specific defense company is immediate and tangible. Risk-averse decision making systems are biased in favor of preserving what already exists, at the expense of innovation which may not be based on the existing defense companies. With any project you can find very serious people supporting the project enthusiastically, and others, who are no less serious, opposing the project with exactly the same enthusiasm. The dynamics of decision making in this kind of debate are ruled by risk minimization. That is to say, since the debate could be decided either way, the party that can prove more immediate and more substantial damage will win. To illustrate this point, imagine a debate about an extensive armor project for the ground forces; a project that, even if it was initiated right now would not become operational for several years (and be used on the battlefield...who knows?). We can easily find defense experts who would oppose the operational cost-benefits of such a project. But if it were proven that by not funding the project the relevant production lines in the industry would be shut down, and hundreds of employees would lose their jobs, which position would the decision maker favor?

In summary, the IDF's inability to express its position on the tension between security matters and political issues is manifested in two key ways: first, the IDF has no central force design entity responsible for the technological domain, except MAFAT which is, as mentioned above, subordinate to MoD policy. Second, the IDF's authority to direct the defense industry to fulfill its requirements have narrowed over the years to the point of being almost nonexistent. The lack of a central IDF staff body responsible for technological force design, with at a minimum the responsibility for developing relevant knowledge in the field and being able to present sophisticated and constructive positions, reduces the possibility of a dialectic taking place between the IDF and the MoD on R&D direction. More importantly, the absence of such a body reduces the likelihood that ideas about technological innovation will nourish military conceptual thinking and vice versa. Against the backdrop of the strengthening of MAFAT and the increasing bias of MoD policy in favor of economic considerations, the IDF's ability to initiate force design measures which are anchored in a broad operational concept is extremely limited. This is all the more so if these measures conflict with complex considerations relating to foreign affairs, economic policy, social policy and other political considerations. The outcome is that the primary IDF force design is in fact shaped from the outside.

Chapter IV –Technological trends

The congruence between the requirements of the IDF and the defense industry’s technological enterprise, and how the gap has widened between the ideal and the reality of the traditional defense industry

In this chapter, we will review the shrinking congruence between the requirements of the IDF and technological enterprise in the defense industry. We will see that the changes in the defense establishment’s environment, both in terms of threats and in the global technological environment, did not translate into the required structural and conceptual changes, thereby increasing the gap between what is needed and the traditional defense industry’s ability to provide it.

The growing dimension of uncertainty in armaments development

Over the years, the tension between military and political policies regarding R&D took many forms, but until recently it almost did not affect R&D itself. The debate about developing a tank or an aircraft in the 1960’s did not touch upon the importance of such a weapon system for the IDF. The main question was: “Should these be manufactured in Israel or bought abroad?” Up to that time, R&D was directed by the considerable gaps in the “classic” arms race against the Arab states. Further on, until the mid-1980s, R&D was mainly directed by the available supply in the American industry – the leading rationale was “That which is good for the most advanced army in the world is good for us too.” However, from the moment that we fell into line with the great powers we were required to utilize more creativity. A better tank at a lower cost can be a first-class R&D challenge, but it still relies on extensive military traditions and know-how regarding the question: what is a tank and what is its role in combat. These do not have to be re-invented.

The defense establishment experienced a quantum leap in terms of the complexity of the solutions to be developed when it was forced to invent something completely new - where the development of the operational concept and the weapons systems are interwoven. The development of fire capabilities and networked intelligence capabilities against armored columns of Arab armies in the 1990s might be regarded as just such a quantum leap. However, this historic case benefits from certain attenuating circumstances - a clear and detailed reference scenario and the assumption of a symmetrical conflict against regular Arab armies. (By the way, by the time most of these capabilities and projects had matured towards the end of the 1990s and the beginning of the last decade, Israel was already facing completely different major threat scenarios...).

W ith the rise of the dominance of asymmetrical scenarios, alongside the accelerated rate of change of threats and technological development, the defense establishment was required to make decisions in a framework of extreme uncertainty. Which is the relevant reference scenario? What are the necessary armaments and the appropriate synthesis for this scenario? Which technologies to choose? How and where to implement them? Etc. It seems that we can no longer separate between “What is needed?” and “How to achieve it?” because everything is necessary and there are a multitude of ways to accomplish any particular objective. The playground has become one of risk minimization and exploiting opportunities, which demand a closer and more intense dialogue between weapons developers and their future users.

The impact of the transition of the center of gravity towards software

The congruence between the needs of the IDF and the technological endeavor within the industries, which has been high over the years, has shrunk significantly in the last two decades. On the one hand, defense technological needs have changed, and on the other, the primary development and production characteristics of the industry have changed. We have already discussed in the previous chapters the change in the role of the defense industry and its transformation into an arms exporter, therefore this chapter will focus on the changing needs of the IDF and the change in the nature of the relations between the industry and the army.

In the past, Israel had to arm its young army so that it would be able to deal with an Arab enemy, armed by a technological superpower, the Soviet Union. Due to the justified fear that Israel’s allies would refrain from supplying it with weapons in times of need, the politicians viewed domestic R&D as an existential- security necessity, thus the defense industry was created. Since then, the role of technology in the IDF has changed. The IDF today is a technology-intensive army, and does not suffer in any way from inferiority in arms in relation to its enemies, as it did in its early years. The principle of non-dependence has lost its weight while American defense aid has already habituated the system to the procurement of essential items from the United States. Fundamental changes in the nature of warfare that began penetrating corporate consciousness in the 1990s, along with the increasing dominance of information technology, have led to a change in military technology requirements. For instance, the IDF needs fewer new generations of primary weapons systems such as tanks, missiles and aircraft and requires more software technology – information systems, command and control systems, inter-system networking (InSyNet) and developments in the intelligence and cyber domains. These software solutions can stand on their own or as force multipliers for existing weapons systems. In traditional weapons systems too, the main novelty and “smarts” increasingly resides in their software dimension and less in the physical one. Thus, for example, applying an additional layer of armor onto a tank to protect it against anti-tank missiles, is not as effective or worthwhile as the integration of an active defense system, which is a much more software-oriented system than passive armor. The traditional defense industry does not necessarily have an advantage over the civilian industry in this type of technology and it may even be inferior in this respect, due to its traditional structures and corporate culture.

Context sensitive technology

The role of technology in the military domain has changed. In the past, military technology was primarily designed to fill gaps at the tactical level and dealt mainly with arms development. (It’s no wonder then that force design bodies in the army were called armaments bodies). With the development of the discourse on operational art, in tandem with the accelerated development of technology and the enormous range of possibilities it can offer, came the perception that technology enables the realization of systemic ideas. This means, in the context of the present study, that the definition of a problem and certainly the design of a solution, are increasingly dependent on a specific context.

The Merkava tank is indeed an Israeli tank suited to our environment, but it is first of all tank, in the generic sense. That is to say that there exists a broad field of knowledge and experience, external to the IDF and to the specific period when the development decisions are made, on the basis of which a tank is developed. An ICT project, on the other hand, depends entirely, in almost all of its components, on the specific context of the various systems that must be linked, on the characteristics of the operational scenarios and on the operational doctrine and user requirements.

The more a project is context-dependent, the less legacy technological assets can assist in its development. While in the world of traditional weapons systems – for instance missiles, naval vessels, UAVs, and even radar and electronic warfare systems – the Israeli defense industry has made extraordinary achievements and amassed technological assets, in projects where a context-sensitive component is overwhelming, its edge is shrinking. In this type of project the “assets” of a firm should be integral to the development processes and to a rapid cyclical process where requirements are quickly translated into capabilities, and use of these capabilities creates additional demand and so on.

The linear procurement processes which were developed over the years in the MoD, and the working patterns to which the defense industry became accustomed, do not adapt well to this type of development process. While the civilian information technology industries conduct iterative projects (cyclic projects), turn to open- source development and continue to improve their products after they have been marketed (with regular software updates on the customer’s computer), the defense development process is linear, closed and prolonged. In the defense domain, projects are still conducted using an approach based on a linear process with a beginning, middle and end. According to this traditional concept, procurement is the last and final stage, coming after a prolonged and risk-intensive development process. Another example is the use of procurement tenders, which require the specification of requirements and features in advance. Software projects include a significant dimension of uncertainty and the software world is constantly changing. This is why the emphasis in the technological industries today is focused on time to market and on continuous development of the product even after reaching the market. In a world like this, a contract based on pre-pricing and a commitment to provide all the features of a specific road map is doomed to failure. The problem is that the ability to freeze the requirements is a basic premise of the tender system, in order to empirically compare the contenders and to choose the winner among them. For these and other reasons, many software projects and those whose context dependence is high, are conducted “in house” within the IDF, and are not outsourced to industry at all. The intelligence and ICT branches of the IDF specialize in this. The projects that are outsourced to industry tend to go over budget and involve delays, and in many cases are not to the customer’s satisfaction. Some of them have even been terminated before the procurement stage. This is a further sign that a significant gap has opened in the technology domain which is critical to the IDF, in much the same way that key weapons systems were critical in the 1960’s, but the defense industry does not know how to provide the goods in the same way that it does in traditional domains.

In a complex and risk-intensive world the defense establishment tends to focus on its existing relative advantages. The defense industry shapes itself in light of what can be sold abroad – i.e. lower security clearance items in order to enable export licenses; monolithic systems which can be sold more easily to military organizations; and risk minimization in development processes – i.e. less innovation. Additionally, developed countries prefer their armies to purchase domestic products, therefore export efforts are directed mainly to developing countries where the armies grow bigger but an advanced domestic defense industry has not yet evolved. In other words, the industry has invested most of its efforts in developing systems that meet the needs of other armies – usually less advanced than the IDF:

South American sales are expected to continue to grow [...] the area where security sales are expected to register the strongest growth through 2020 is Asia [...] In contrast, sales in the US and Western Europe markets are expected to continue to shrink due to cuts in the defense budgets of these countries.[39]

The scope of Israel's defense exports to African countries increased in 2014 by 40 percent compared to 2013. [...] in the last six years the value of the contracts signed by Israeli weapons exporters with African countries has risen almost every year [...] According to a source in the defense industry, countries in Africa and Latin America are the only markets which are still considered “emerging markets” - that is, those where demand for weapons and technology for military and internal security is growing year by year.[40]

The industry builds monolithic systems of a type that can be sold to customers as “full kit.” In the weapons and operational context, these systems are less and less suitable to the IDF. They certainly do not help the IDF in implementing the combined arms principle which has been a high priority for several decades now, but which has enjoyed only partial success. These statements are not intended to underestimate or undermine the overall enormous contribution of the defense industry to the IDF, or to argue that the total number of successful cases are not greater than the number of unsuccessful ones. This paragraph clarifies structural problems with allow us to understand the less successful cases, thus opening the door to improving the system.

To summarize, if the business rationale is in tension with the military one, it should at least provide a continuous incentive for innovation. However, government involvement in the sector turns it into a unique branch – with R&D diverted towards “risk-adverse” policy. What makes this policy viable is the fact that there is a market for high-quality, though monolithic and less software- oriented defense products. The market exists, and is the most convenient export market for the system. The IDF finds itself supplied by a system that is not fully exploiting the innovative potential of the new era, precisely at a time when the defense challenges badly need innovative solutions that cannot be found in any “generic” weapons development tradition across the world. This would have been very frustrating, but the IDF, as noted above, gave up its ability to engage in independent technological- conceptual thinking, and is hardly aware of this state of affairs.

The dependence of the industry on the IDF

The competitive edge on which the defense industry is based within the global arms market is its strong link to the IDF.[41] The prestige of the IDF in the eyes of many countries beginning from the Six Day War, coupled with the regular ongoing operational usage of the armaments produced by the industry, allows the industries to shorten R&D processes as well as the process of ensuring systems are mature, and gives them a “stamp of approval” of operational experience at a rapid rate, relative to competitors. This recognition, in light of the trend to regard defense exports as defining a new identity, has led to a reshaping of the nature of the relationship between the IDF and the industry: From a one-way relationship in which the IDF depends on the industry as a supplier, to a two-way relationship where the industry also depends to some extent on the IDF as a customer. The industry wants the IDF to buy what it may designate (or has already designated) for sale to foreign customers and for that purpose it activates its marketing systems. The problem is that the operational context of foreign customers is essentially different (and will always be different) from the operational context of the IDF, therefore, sometimes, there is limited congruence between what those customers wish to buy and what the IDF requires.

Chapter V – The digital era

The entry into the digital era from an operational perspective, and how it should redefine technology for military use.

Much has been said about the digital era (also known as the information age), and how computers and the internet have penetrated every corner of the world, revolutionizing almost every aspect of life. The importance of this issue to our case relates to the fact that the transition to the digital age has happened (and is still happening at an increasingly faster rate) during the period under review in this study. As will be described below, the organizational systems responsible for the development of military technology have not made the necessary adjustments needed to adapt to the changes which have taken place during this period, and as a result they find it difficult to fulfill the purpose for which they were established in the first place.

Software as a new phenomenon

It is customary to think of the internet as representing, more than anything else, the essence of the digital age, but in fact the internet was not possible without the previous appearance of the computer. In many ways the internet is just an application, however revolutionary, but is still just one of many made possible by the computer. The computer, however, is a singular phenomenon – a genuine leap forward in the history of technological development. The reason is that for the first time in history a machine was invented, which performs an action plan written in the same language and the same medium in which the operations themselves are carried out.

This is one of the properties of the Turing Machine – an idea proposed by the mathematician Alan M. Turing in the first half of the 20th century, thus laying the foundations for the computer as we know it today. A Turing Machine or computer is a machine that converts a certain combination of symbols (bits, in the modern computer) into some other combination of symbols, according to instructions dictated themselves as another combination of symbols. This unique trait allows this universal machine to perform operations upon other operations and upon the results of operations over and over again in a recursive manner, and in doing so creating a system which are increasingly complex and sophisticated.

In this respect, the significance of the advent of the computer constitutes, in a sense, the breakdown of the barriers to sophistication and complexity that were the fate of all machines or devices that man had invented till then. Through the evolving standardization in the world of computing and telecommunications, it became possible to overcome the linkage between physical (computer hardware) and software resources used. Software can “run” on different computers, shift between computers, interchange data and act in synchronization. In fact the computer and the standardization that has developed around it allowed the creation of a new domain - known as "cyberspace" - where virtual machines operate, which in principle are not limited to the familiar physical barriers of physical machines. Indeed, there are two fundamental limitations to software. The first is that the type of actions that a computer can perform are limited to those that can be described as mathematical-formal, i.e. "computational operations." The second limitation is that the number of computational operations performed at a given moment depends on the physical limitations of the hardware running them. But both of these limitations, as explained below, are becoming “ imperceptible.”

The first limitation, relating to the fact that a computer is able to perform only computational operations is becoming almost irrelevant due to the recursive nature of software. As noted above, this characteristic allows the creation, using a combination of basic arithmetic functions, of more complex operations and, through a sequence of these operations, to program more complex operations, and so on. Imagine a person sitting at a computer and performing, for example, a price comparison among different vendors and then also purchasing and ordering a product from China that will be sent automatically to his home. Impossible to imagine, but this operation is immeasurably complex, made possible by billions and billions of basic arithmetic functions of the kind that changes the value of the bits from 1 to 0 and back. When we look at the world of software development, we are witnessing layers upon layers of code. At any given moment, software development is done on the upper layers (because the lower layers have already been done, and can be used as they are), leading to the development of new layers that will allow in turn additional layers and so on. In this way, software development, at least in practical terms, is shifting away from the "limiting" elements of mathematical calculations, thus, the natural assumption among developers is that now anything can be done through software.

The other limit noted above, the number of calculations that can be performed in a given time, is also shrinking at an increasing rate. This phenomenon is called "Moore's Law," named after the founder of Intel Corp, Gordon Moore, who proposed a thesis that the density of transistors on integrated circuits would double every two years or so. For these and other reasons, Moore's prediction has been validated for over 40 years, and the computational power and storage capacity of digital information have soared at an exponential rate. Concurrently, computer hardware prices have fallen sharply since the invention of the computer and they are still declining.[42]

Another layer to Moore's Law, which supports the contention that restrictions on computing power are becoming increasingly less relevant, is linked to the development of the internet, and particularly in the last decade - the development of cloud technology. Using only an internet connection, one can now use any computer to easily compute heavy and immensely complicated calculations. These activities are carried out in practice in huge server farms that are built and maintained by giants such as Amazon and Google, and provided as services that anyone can consume on their home computer, at a relatively negligible cost.[43] Conversely and more commonly (though perhaps less known), most of the actions we undertake online actually happen on our PC – a website that one has entered sends code segments to our home computer to be processed locally. In this way, a particular site can serve millions of users, while the overall computational load is decentralized between millions of computers. Thus, the internet and cloud technology development trends join Moore's Law in making hardware an even more trivial matter.

Trends and developments in the digital age

In the following sections we will briefly review the most significant developments of the digital age:

1. Hardware is being replaced by software: Following the exponential development of digital components alongside falling prices, traditional mechanical solutions are becoming extinct, replaced by digital alternatives. These alternatives, although effective and more sophisticated, are considerably cheaper. The consequences of the transition to software are extensive and some are listed below.

2. The center of gravity moves from the platform to the network: The elimination of the linkage between software and the computer that makes it possible, created a new domain for developments – the one taking place in the medium between computers - cyberspace. This domain enables the development of solutions based on horizontal synergies, which in many cases are more cost- effective than solutions limited to a single platform. As hardware is replaced by software permeating all the means at our disposal, everything is becoming a part of cyberspace, and the potential synergies, offered by this space, keep increasing.

3. A growing uncertainty: The endless variety of software possibilities, the rapid development of the digital world and the creation of cyberspace, where everything is linked to everything and can affect anything – are leading an increased rate of change and to a growing dimension of uncertainty. The concept of uncertainty as it was known fifty years ago is in no way like the one that exists today.

4. Traditional design and production methods are being replaced: Early planning is intended to remove uncertainty and thus minimize project risk. The price of this method is time – the time needed for detailed early planning. The increasing uncertainty brought by the current era led to the adoption of new management practices relating to intrinsic uncertainty as a factor that cannot be removed throughout the life of the project. Furthermore, in a world which is managed at software development speed, one cannot allocate time to planning as a preliminary and separate stage. Thus, instead of regarding performance against planning as a benchmark for the progress of a project, new methodologies relate to design itself as something that should evolve over time, to adapt itself to the changing demands and new insights accumulated throughout the project. The result is a short design, development, deployment, feedback and reiteration cycle. These methodologies, which in general are a part of the “Agile” approach to software development, evolved and gained momentum in the mid 1990’s. Many of these were affected by the “Lean Manufacturing” methods originating in the Japanese automotive industry in the 1970’s.

5. Civilian technology bypasses military technology: In an age when technology drives the economy, market competition in the age of globalization is driving progress. High-tech companies are in an innovation race to be the first to offer a more advanced generation of technology. The fact that software allows the re-use of existing assets and the fact that the internet allows the sharing of information and code among developers, led to the creation of global open source communities, which contribute their energy and talent to technological improvement. If during the industrial age, size and government budgets assured that the defense industries would always lead progress, in the digital age the latest technologies are developed elsewhere. Moreover, they are available to everyone, even to enemies.

6. Production capacity moves to the periphery: In the current era the end user can increasingly take part in the production process, achieving what previously could only be achieved by established industries. This is becoming possible thanks to the growing availability of information on the internet, to the fact that most of the “smarts” are shifting to software, which as we know can be replicated, and further developed easily, and to the ease with which anyone can order parts and materials or even print them on a three-dimensional home printer. A simple Google search can come up with detailed instructions on how to produce your own pipe bomb or a UAV with a camera.

The consequences for military affairs

The special nature of the digital era brings with it structural changes in the way that technology, especially technology as used for military purposes, is developed and acquired. Traditional processes that involve a detailed design process followed by oversight that confirms that the implementation adheres to the original design become useless when specifications must be adapted throughout the project lifetime in order for the project to remain relevant when it becomes operational, and when planning tools cannot anticipate critical problems which are likely to arise. Access to information and tools allows individuals to obtain capabilities that were previously the preserve of technological powers, creating extreme uncertainty from the perspective of the battlefield as well. While in the past, military technology development was coupled with a relatively symmetrical arms race, and was measured by who would be able to more quickly achieve a technological advantage, now the question is how fast we can meet an unanticipated new threat in the theater.

The private sector economy promotes technology faster than state mechanisms. Defense companies that until recently enjoyed a technological advantage, thanks to state resources earmarked for R&D, have gradually lost that advantage, while the global economy as a whole relies increasingly on technology. The classic bureaucratic processes that characterize the structures of government bodies and workers’ unions prevent the possibility of benefiting from the accelerated momentum of technology. On the other hand, the enemies - who are not “bound” by heavy organizational bureaucracies – such as non-state organizations, have increasingly greater access to technologies that until recently were considered advanced and the exclusive domain of states, such as digital mapping, satellite navigation, encryption, broadband communications, drones and more.

Aside from the development agencies that have their own production capacity and are spread throughout the services, the IDF’s force design structure is based on concepts from a previous era, the industrial age. The premise of the current specification, planning and approval process, such as “Regulation 10/1 for the Procurement of Armaments” (J5/IDF Planning Directorate Regulation) or procedures for tender/contractor selection committees at MAFAT, is that success and relevancy depend on careful early and rigorous planning. These long processes avoid the fact, perhaps unfortunate, that the risks which these processes are meant to reduce are not necessarily the risks that the project will actually encounter along the way. On the contrary, as a project gets underway, and is burdened by additional requirements that were forced upon it by these processes, and the later it is actually launched, thus the risk of technical hitches rises, and the projects relevance at delivery is decreased. In other words, the same processes that were originally devised to ensure that force design would yield the highest value from a basket of given resources, harm that same value while extending the duration of development.

The planning tools that were originally intended to enable management to take control of events and make sure that projects reached their conclusion have over the years and with changes in technology, lost their effectiveness. It remains a means of control and nothing else. In many ways, the system has lost its relevance, but the political power obtained through the bureaucratic process is too valuable for those holding it to make changes.[44] The desire to retain control over defense R&D leads the coordinating and controlling elements of the R&D processes to stick with the old design and project-oriented control methods – which are no longer relevant to the current era. These organizational systems, designed to promote military technology, became powerful over the years and now – in order not to lose their power - actually hinder progress as they adhere to basic assumptions whose roots lie in the industrial era.

As if this was not enough, the support of MAFAT and the MoD and their promotion of the defense industry is inconsistent with ideas of the free economy that shape and accelerate civilian technology. The traditional defense companies were established prior to the digital era and most of them are still owned by the government. From workers' unions to management practices – they are different from the high-tech industries which are shaped by the difficult competitive environment of the private market and the defense companies therefore find it difficult to close the gap. Furthermore, defense exports, which are considered by the MoD as the key to the prosperity of the industry, actually perpetuate the traditional power components of the defense industry, relating primarily to platform-centric projects, as opposed to network-centric ones. For example, the volume of activity in IT solutions - in terms of defense exports is about 6 percent only. However the IDF needs less and less advanced missiles and tanks, and more and more network- driven solutions of integration and connectivity between systems. In fact, in the civilian world these are almost trivial matters, but they are a real challenge in the military world.

Conclusion

Israel’s defense R&D system is among the strongest and arguably among the most successful in the Western world. Its accomplishments and innovation do not have to be detailed in this study. The “Iron Dome” system is a model for relevant and rapid defense development, and is considered an unquestionable accomplishment for Israel. However, it would not be right to allow the significant success stories of the defense system to hide the big picture, reflecting the fact that for decades the IDF has found it difficult to find a convincing military response to the threats facing it. Repeated operations in Gaza, the Second Lebanon War and other evidence indicate that the IDF, like other Western armies, has not completed the process of adapting to the new asymmetric challenges confronting it. If we pay a little more attention to the most prominent success stories we will recall that a major part of the success of the development of the “Iron Dome” was due to the willingness of a number of individuals – the Defense Minister and the Head of R&D in this case - to act against the wishes of the majority of the system. In this study, we assumed a positive correlation between technological innovation and military conceptual adaptability. If we accept this assumption, the question arises – why, despite all of its impressive achievements, has the force design system failed to enable the IDF to adjust better and faster. This study has provided an array of insights which together constitute a possible answer to this troubling question:

First, in a process that stretched over several decades, the dominant rationale that directs the activity of the defense industry has become primarily a commercial rationale, at the expense of a primarily security-military one.

Second, in a parallel process, Israel's defense establishment, represented by the MoD and MAFAT within it, has become a system whose main rationale is protecting the ongoing existence and prosperity of the defense industry.

Third, by giving up a strong technological-conceptual body within the General Staff, the IDF has found itself not only incapable of genuinely influencing R&D processes, but also lacking a self- awareness of the emerging real gap in its own capacity for conceptual renewal.

These three points describe a significant gap in the functioning of the Israeli defense system. This is analogous to a ship sailing at sea, whose crew members are becoming increasingly disconnected and whose engine room crew develop interests that oppose those of the bridge crew. This analogy turns from a story about incompetence to a real tragedy when an iceberg appears in the ship’s path. This iceberg is the fourth insight that I have made in the study.

Fourth, the information technology age has replaced the industrial age and changed the rules of the game. The new definition of power is related more to software than the hardware and platforms in which the defense industry has specialized. The software world advances at speeds that the bureaucratic defense system cannot match. The institutional protective shell protecting the defense industry, as well as export markets in developing countries, have blunted the incentives for a fundamental change in the industry.

In an era in which the IDF repeatedly insists on the need for combined arms operations, that is jointness, the defense companies continue to equip the army with advanced and innovative combat systems that are usually monolithic. Military concept designers and force engagement personnel function within a framework of assumptions about the nature of military power at their disposal. The Israeli defense companies are among the most innovative and energetic in the world, but as described in this study, this is not enough to meet the innovation needs of the IDF. Moreover, more dramatic and dynamic innovation is possible and natural in the digital age. It is the force design system itself which hinders the creative ability that had previously defined the IDF's qualitative edge.

The ship is sailing towards the iceberg. But the end of the story has not yet been written. The purpose of this study is not to criticize the system for the sake of criticism, but to enable it to change and maintain its strength and vitality to Israel's security.

[1] Mr. Nissim Hania is a Research Fellow at the Dado Center.

[2] Aaron Kleinman, Double Edged Sword, pp. 41-42

[3] Lifshitz, Yaacov. “The strategic and economic role of the defense industry in Israel” [Hebrew]

[4] Munya Mardor, RAFAEL, p. 172 [Hebrew]

[5] Uzi Eilam, “Defense Export Controls: State of Affairs”

[6] Yitzhak Greenberg, “Economic and security aspects of the resolution to produce aircraft and tanks in Israel,” pp. 179-178 [Hebrew]

[7] Wikipedia

[8] Source: SIBAT

[9] SIBAT – journalists briefing

[10] SIBAT – journalists briefing

[11] According to Globes Dun's 100 rating, 2015

[12] Defense Minister Ya'alon: "Defense exports are driving all Israeli exports. The security establishment gives preference to the periphery - the Merkava project employs about 10,000 families in the periphery of the country." David Rafaeli, “Defense Minister: Israel sells weapons and security know how for 7.5 billion dollars a year” Calcalist, 25.11.14. [Hebrew]

[13] Tal Litman, “Defense Ministry: Defense Industry Sales in 2010 rose 3% to 9.6 billion dollars.” Calcalist 16.06.2011.

[14] Yitzhak Greenberg, "Laying the groundwork for defense development and production: Aspects of policy and budget," p. 176. [Hebrew]

[15] Aaron Kleiman, A Double-Edged Sword. [Hebrew]

[16] Yitzhak Greenberg, "Laying the groundwork for defense development and production: Aspects of policy and budget," p. 184 [Hebrew]

[17] Talmud and Yanovitzky, “The conflicting requirement paradox: the link between social interweaving and a government company’s performance capability.” [Hebrew]

[18] For example: “Merkava tank and Namer APC projects are spread over 200 plants around the country, mostly in the periphery, employing about 10,000 people, directly and indirectly. 54 of the plants are located in the periphery and benefit from preferential treatment in tenders,” in the Ministry of Defense, “increasing the number of Namer APCs”(5 May 2015), [Hebrew] Http://goo.gl/egJ2VX;

Or the remarks made by the Defense Minister to the Mayor of Kiryat Shmona and factory managers in its vicinity: “I have determined that the Merkava’s production line will not close despite budget limitations. For me, it is an anchor [...] I also see the importance of the existence of such a project, because I understand the need for employment here. I do not view this only from the security aspect, but also from the economic, social and national angles [...] we will continue to purchase Merkava tanks every year, and you will continue to manufacture. Therefore, we will continue producing Merkava tanks,” in Motti Bassok, “Ya’alon: Despite Budgetary limitations – I won’t close the Merkava Project.” The Marker, August 13, 2013. [Hebrew]

[19] SIBAT. July 2012

[20] DECA was established in order to ensure Israel's national security and defense interests through its licensing duties, both in terms of defense equipment, know- how and technology counter proliferation and in terms of preventing damage to Israel's foreign relations, national interests and other strategic aspects.” The Ministry of Defense website: http://www.exportctrl.mod.gov.il/ExportCtrl/ENGLISH/About+DECA/

[21] Yaacov Lifshitz. “The strategic and economic role of the defense industry in Israel” p.5. [Hebrew]

[22] For example the Israel Military Industries recovery program which is still continuing today, and in particular the current debate about its privatization.

[23] Yaacov Lifshitz, “The strategic and economic role of the defense industries in Israel” p. 10.

[24] Israel State Comptroller Annual Audit Report No. 61 for 2011, "Aspects of promoting and overseeing defense export transactions."

[25] See SIBAT, the Ministry of Defense website: http://www.mod.gov.il/Departments/Pages/Defense-exports.aspx

[26] "The services played and continue to play a crucial role in force design in the IDF and its quality. What's more, this is an army established as a regular army during a war, built and hardened in a continuous state of emergency. But alongside the contribution of the services, there also evolved the inevitable process that occurred in all other armies. The services’ organization became anachronistic - the professional staff neutralizes the coordinating headquarters and "horizontal" organization loses out. It is not surprising, therefore, that there was an outcry in recent years about the injustice done to "combined arms combat." Israel Tal, the Purpose and Organization of Ground Forces. [Hebrew]

[27] See for example: "In our distorted organizational structure, the Commander of the Air Force is the only source of knowledge for the Chief of Staff and the government, concerning military aviation. He is a service commander and a staff officer in one. In other words, he is the mouthpiece of the Air Force to the Chief of Staff, while advising the Chief of Staff, and through him the government, about responding to matters he presents to them... A clear conflict of interests, worsening as the level of expertise in the service deepens, makes it difficult to understand by the unskilled.” Joash Sidon, Day and Night in Fog. [Hebrew]

[28] At the time – the General Staff Branch.

[29] On the process of the disintegration of the General Staff Branch see at length in Nurit Gal, “Who moved my authority?” pp. 80-85.

[30] See Eran Ortal, "Is the IDF Capable of an Intellectual Breakthrough?" p. 447. Ortal analyzes, as part of a study at the National Defense College, the General Staff's ability to develop a technological-operational discourse of the type required by the IDF in order to produce learning that will push force design toward significant achievements. He links, inter alia, the splitting of the General Staff Branch - into an Operations Branch and a Planning branch - to the loss of this capability.

[31] Uzi Eilam – Eilam's Arc, p. 98

[32] Yitzhak Yaakov, Sir, Nothing in a Square

[33] Uzi Eilam. Eilam’s Arc.

[34] Ibid.

[35] Yitzhak Yaakov, Sir, Nothing in a Square.

[36] Yitzhak Greenberg, Defense Budgets and Military Power, p. 133.

[37] Yitzhak Greenberg, “Economic and security aspects of the decisions to produce aircraft and tanks in Israel,” pp. 11, 17, 179-178.

[38] It can certainly be argued that it did not go unnoticed by decision-makers, and that this was a conscious decision of some MoD staff to appropriate for themselves greater power at the expense of the General Staff. On the historical power struggles between the different bodies and the personalities staffing them, see Ibid.

[39] Israel Defense, “Defense industry sales in Latin America to Rise,” 27 April 2014, http://goo.gl/Gue4Nm

[40] Gili Cohen, “Israeli Arms Exports Down $1 Billion in 2014” Ha'aretz, 21 May, 2015, http://www.haaretz.com/israel-news/.premium-1.657613.

[41] Rafael CEO Yedidia Yaari: "The IDF does not sponsor all of Rafael’s R&D. Each year we invest 8 percent of our turnover in R&D and develop products that the IDF has not yet ordered. Almost everything we develop for the IDF is eventually translated into a production version intended for export. Our basic concept is that we develop and sell products with zero profit to the IDF, while the IDF's accumulated experience helps us in marketing these products abroad later. ROI is possible only by selling abroad. This model allows us to return the investment and develop the next generation of products. The entire Israeli defense industry is based on its ability to export. In Rafael it is more acute than in other companies, due to the high component of sales to the Ministry of Defense. Almost 50 percent of our turnover comes from the Ministry of Defense. Exports represent about 80 – 90 percent of IAI or Elbit sales, so in Rafael this constraint makes it more difficult."

[42] Matthew McKenzie, “Hardware vs. Software: The Great Price Divide.” Information Week, 8.9.2012 http://www.informationweek.com/mobile/hardware- vs-software-the-great-price-divide/d/d-id/1082102

[43] Relatively negligible means that the cloud services cost component in a software project will typically be several orders of magnitude smaller than the human resources cost of developing the software supposed to run on the same cloud servers.

[44] This is not just an Israeli matter. See, for example: "The reason that bespoke software acquisitions takes so long is that DOD relies on the waterfall method, long been discredited in the private sector [...] Waterfall imposes the order that the Pentagon brass craves but does so at the expense of price, quality, and speed." Schoeni, Daniel E. “Top-Down IT Approach Too Slow To Meet Threats.”