Strategic dilemmas

The achievements of the visionary founder of Scitex are in sharp contrast to the misdeeds of the current crop of Israeli tycoons

Efi Arazi521 (photo credit: courtesy)
Efi Arazi521
(photo credit: courtesy)
There are at least half a dozen candidates for the title “father of Israeli high-tech,” including Stef Wertheimer (Iskar), Uziah Galil (Elron, Elbit), Eli Hurvitz (Teva), Dan Tolkovsky (venture capitalist) and Yossi Vardi (involved in dozens of start-ups).
But if I had to pick only one name, it would be Efraim R. (Efi) Arazi, founder of Scitex, who died on his birthday, April 14, age 76, after a long battle with Alzheimer’s.
Arazi was a fearless larger-than-life role model who revolutionized color printing and showed how to build global high-tech startups, long before the word high-tech was invented. His first company, Scitex, founded in 1968, blazed the trail for other start-ups, manufactured all its products in Israel and, at its peak, employed 4,000 Israelis. Scitex was a school whose ‘graduates’ went on to launch many other successful start-ups.
As Arazi’s friend Benny Landa, founder of Indigo and himself a pioneer in color printing, noted in his blog, “In today’s age of smart phones and iPads, it’s almost impossible to imagine our world of the 1960s, when everything was manual. Yet, Efi Arazi had already envisaged a digital world: if he could combine the digital scanner with the computer, the arduous manual task of preparing graphic information for printing could be automated. And thus, digital prepress was born – and the printing industry was changed forever.”
Indigo, now part of Hewlett Packard, pioneered high-quality computer-to-drum digital color printing. The two Israelis, Landa and Arazi, changed color printing forever.
In 2005, despite lapses of memory and loss of words, Arazi was still able to recount his life story to Dalit Milstein, who wrote and published a fine biography, aptly titled “His Way.” Arazi tackled this task with the same courage and determination that he used to build his start-ups.
Arazi was only 13 when he decided his life’s passion was electronics. But schooling did not come easy. His younger brother Dani told the Herzliya Interdisciplinary Center radio station that their mother, now 98 years old, was told that her sons were being expelled, each from three different schools.
Efi ended up at the Israel Air Force Technical High School as a cadet and won a prize for his innovations during his military service.
In 1959, after finishing his army service, with only $50 in his pocket, knowing almost no English and without a high school diploma, Arazi left Israel for America, knocked on the door of the admissions officer at Boston’s Massachusetts Institute of Technology (MIT) and asked to be admitted. After the interview, he was accepted as an “extraordinary student” and eventually graduated. Today, I doubt any college in Israel or America would accept him.
While at MIT, Arazi supported himself by working for Itek, a Route 128 defense contractor specializing in spy cameras. He rose quickly to a high-level position and was surprised to learn later that two of his MIT lecturers were his subordinates at Itek. In 1969, on Apollo 11, Itek’s camera sent back pictures of Neil Armstrong walking on the moon; Arazi is said to have made major contributions to developing it, especially its scanning technology.
Arazi rushed back to Israel in 1967, just after the Six Day War, and in 1968 founded Scitex (Scientific Technologies), with nine American-trained Israeli engineers that he brought with him to form the backbone of the company. At first, Scitex sold software and computers that enabled color printing directly from mini-computer screens to textiles.
But Arazi quickly saw another, more important use for his technology – preparing color plates directly from a computer screen for printing magazines and newspapers, in place of the existing costly, laborious cut-paste-and-film method. This pre-print technology existed but Scitex massively improved it. Scitex grew to capture 46 percent of this market, thanks in part to a major contract with the American daily USA Today, a pioneer in the use of color in newspapers.
According to the late Zvi Zur, a former member of the Scitex board, cited in Milstein’s biography, “Scitex was a super-technology company with a very advanced marketing organization. Today every company likes to define itself as global, but Scitex was global from its very first day with branches in New York and Boston, Belgium and Japan, and with professional teams, systems, display rooms and service people in each one. In this, too, Scitex was a real pioneer and operated ‘far and wide’ in the fullest meaning.”
Evidence of the unique atmosphere Arazi created at Scitex is (a play on the word ex-Scitex), the website of Scitex alums, now with 1,818 members. A great many Israeli high-tech leaders and founders cut their teeth on Arazi’s unique team-based management style and the ambiance he created. Among them is the current Minister of Agriculture Yair Shamir, Scitex CEO for seven years.
“I worked with Efi from late 1987, when I joined Scitex, until January 1989 (when Efi was replaced by Robert Maxwell as chairman), but I continued to be in touch with him for at least 20 years afterward,” Shamir told me. “Efi was a unique person, very different from other people; even simple, everyday life activities he did in a different way. He had his own way and he always had an educated explanation why his way was the best way.
“Efi was the ultimate innovator, not just in the field of technology. When he was in the process of creating a new idea, he focused only and absolutely on this. Nothing could have changed his course of thinking and dreaming, which could last for days or even weeks. Once he was satisfied with the outcome he had imagined, he got someone to put the idea on paper. And then started to push for execution, bringing his idea into a final working product.”
“If I expect you to build me a ‘Mercedes,’” Arazi once said, “I must give you surroundings that look like a Mercedes.”
And he did. He demanded long hours of work from his workers but took pains to serve them dinner in a Scitex dining room whose culinary level was so high that journalist Yaron London, then a restaurant critic, came to dine there and reviewed the meal (highly favorably) in his newspaper column.
Arazi told biographer Milstein, “my focus on colors, shapes, acoustics… was essential to employee performance and the impression made on customers and potential investors.
They have a striking effect on the activities of the entire company. Everyone today is aware that the benefits from the business standpoint are indisputable.” Google’s famous Mountain View, California, headquarters features highquality restaurants with executive chefs; Arazi did it 40 years ago.
Arazi resigned as chairman of the Board of Scitex in 1988, when media magnate Maxwell bought a quarter of the company’s shares and then appointed himself chair. Why did Arazi quit? Arazi told the business daily Globes seven years later, “No other high-tech firm, not even Microsoft, gives out dividends. The high-tech way of thought is to channel every profit into the next project. But Scitex allotted dividends and kept on with the same existing products, without being concerned about future products.” This was a hint of what was to come in Israel, when local and foreign tycoons plundered high-tech companies to finance reckless plunges into real estate.
Arazi was indomitable. He went to Silicon Valley, raised some money and launched EFI (Electronics for Imaging), which pioneered in creating software that turned color photocopiers into color printers. EFI’s shares today have a market value of $1.18 billion.
Nor was Arazi finished with his start-up career. At his death, he was still chair of Seerun, which sells customer relationship management software.
When he died, it is perhaps well that Arazi was not fully aware of the fate of Scitex.
Part of Scitex was sold to Hewlett-Packard; in 2005, part became Scailex, 79 percent of which is owned by Suny Electronics, of which 73 percent in turn is owned by tycoon Ilan Ben-Dov, who used Scitex cash and enormous debt to take over cellular operator Partner. Scailex now admits “the continuation of our operations as a going concern is in doubt,” a result “as far from Arazi’s vision as east is from west,” noted the daily Haaretz.
Tycoon Nochi Dankner acquired Koor, once Israel’s industrial giant, and according to Haaretz turned it “into mostly an option on the Swiss banking industry.” Real estate tycoon Motti Zisser bought cash-rich Elbit Medical Imaging, formerly Elscint, a pioneering advanced medical imaging company, and used it to leverage bad real estate investments in Eastern Europe. Zisser now struggles to pay his debts.
When, I wonder, did the leadership of Israel’s economic future shift from technology visionaries, like Efi Arazi, to reckless financial gamblers like Ben-Dov, Dankner, Zisser and others? And how did we allow this to happen? A soon-to-be-published report by the State Comptroller reveals that between 2008 and 2011, there were 94 “haircuts” (debt forgiveness plans), that wrote off NIS 21 billion ($5.8 billion) owed to banks and pension funds. In 2011, according to this report, 72 percent of all bank credit went to only 2 percent of borrowers – the tycoons – who borrowed with little or no real collateral.
It is the Israeli public who now pays the price, through loss of their pension assets, of the unholy collaboration between the banks and the tycoons.
If the misdeeds of the tycoons help Israel reestablish its business leadership in the hands of visionary entrepreneurs like Efi Arazi, there may be some small benefit in the huge losses they caused.
The first step must be to stiffen the proposed Anti-Concentration Act, now being discussed in the Knesset Finance Committee, to absolutely forbid the kind of pyramids that Dankner and other tycoons built. And the banks’ practice of forgiving tycoons’ debts while foreclosing on mortgages and debts ordinary citizens struggle to pay must also end.  The writer is a senior research fellow at the S. Neaman Institute, Technion.