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Dear industrialists, entrepreneurs, investors and partners,

I am honored to present the 2016 innovation report “Innovation in Israel – Overview.” This is the second year that we are issuing a periodical report, and it is coming out during a special time

The report was written during the last days of the Office of Chief Scientist in the Ministry of Economy and Industry, and the first days of the Israel Innovation Authority. Therefore, it represents the conceptual and practical transition of Israeli innovation policy, which shifts from being focused on encouraging R&D activities, to a more complex policy based on the broad vision of the Israeli innovation ecosystem, and ensuring the infrastructure necessary to support it.

These are exciting times. After more than forty years, the Office of Chief Scientist (OCS) that has faithfully served Israeli industry and contributed to the boom in the hi-tech industry, draws the curtains. A huge chapter has been finished, and now, as we are standing at the beginning of a new chapter, we feel great excitement and responsibility. This new phase represents more than just an institutional-technical change: it is a strategic change in the perception of our mission. The challenges arrayed before industry and government are part of this mission, and they are more diversified and complex. No more focusing, as we did in the 1990s, on creating the innovation industry – not an easy task in itself. No more being satisfied with scientific leadership and standing at the forefront of technology. Now we are striving to pour content into the vision of economic prosperity for the Israeli economy and society through technological innovation, while empowering Israel as a global innovation center. To do this, we must first of all deal with challenges such as the shortage of skilled and relevant manpower that in the long-term undermines the foundations of the hi-tech industry’s success. We also must ensure the leadership of Israeli industry in international markets, based on technological innovation. All this in a world that is becoming increasingly more technological and competitive. While other countries are “revving their engines” and launching their technological innovation fields, the Israeli hi-tech industry has already reached a stable state after the great leap it made in the 1990s. That is why we are currently working on the preparation of a strategic plan to stimulate the innovation industry in Israel.

This institutional change was not carried out with a light heart. The Office of Chief Scientist in the Ministry of Economy and Industry was a model of excellence in government service, and was highly regarded by industry and government officials from Israel and around the world. Accordingly, the establishment of the Israel Innovation Authority does not come to destroy or abandon the extensive knowledge gained from the OCS, on the contrary, we strive to preserve the experience, knowledge and expertise accumulated by OCS over decades, while turning it into a quicker, more efficient and more effective institution, thus becoming world's best innovation authority for the world's best innovation industry.

The partnership between government and industry is an important basic principle that we seek to preserve and enhance. This partnership is reflected in the structure of the Authority Council, which is the body that outlines the Israel Innovation Authority's policy. For the first time, the Council reflects not only the state government's vision, but also the promptings of the Authority's customers, through public representatives of industry in the Council. This structure will ensure effective policy formulation, which will be relevant to the needs of industry, along with promotion of government priorities.

The core of this partnership is a shared vision that we will strive to promote together with the industry, whereby technological innovation will flow to all sectors of the Israeli economy, and will serve as a lever for economic prosperity. This is not an instrumental partnership whereby government funding of R&D is transferred between two sides of a “pipeline,” but a fundamental partnership for addressing the significant challenges facing Israeli industry, economy and society. These challenges include reducing the economic gaps between demographic segments by absorbing Israel's diverse population in the hi-tech industry; raising the level of technological innovation and productivity in the manufacturing sectors, as well as improving public services through technological innovation. All this while maintaining the relative advantage of Israeli innovation in the global arena, and leveraging of economic activity around this core. Only this kind of partnership will ensure that all of us will achieve prosperity and a better quality of life.

While preserving OCS advantages, we strive to create something new: an organization that serves industry better; an organization well versed in the challenges faced by different audiences; an organization that can quickly and effectively respond, while carrying out ongoing examinations of emerging and future trends of the innovation industry. For this purpose, the Israel Innovation Authority is based on several divisions, each of which focuses on a particular target audience, and develops appropriate responses to its challenges. The divisions include Early Stage, Growth, Advanced Manufacturing, Technological Infrastructure, the International Collaboration division and the Societal Challenges division, all of which operate in their new form now. The familiar OCS support tracks are assigned to the divisions and managed by them. Moreover, new support tools are getting their final approvals before launch, and the application processing and operations systems, as well as marketing and customer relations divisions, are all getting a facelift.

Like all institutional and organizational change, the transition will experience birth pangs. However, we believe that the new organization, born out of these difficulties, will be better, and will improve the government's support of the innovation industry and research and development bodies. To cope with the difficulties of transition, we ask you, the Israel Innovation Authority customers, for your patience, understanding, and cooperation. In addition, we invite you to directly comment and offer suggestions about this change.

This report represents the transition going on these days between the activities of the Office of Chief Scientist and the Israel Innovation Authority. This transition is reflected, among other things, in using these terms interchangeably: when we refer to activities in the past year, we are talking about the Office of Chief Scientist, and when we consider future activities, we use the name Israel Innovation Authority. As mentioned above, the change is not merely semantic but reflects a new strategic, institutional and organizational paradigm.

The report reviews the major trends taking place in the hi-tech industry in Israel. It also reflects the focus of the Israel Innovation Authority on securing infrastructure for the growth of the innovation industry, which includes expanding the number of minority workers in the R&D sector, revealing new financing tools, supporting the creation of open innovation platforms, and fostering a cooperative international system for innovation and R&D. The report also sheds light on a new focus of the Authority, the manufacturing sector, which was previously included under the limited definition of traditional industry. At the same time, the Authority is working continuously to support breakthrough technologies, as described in the chapter about robotics.

Israeli hi-tech industry was born from a "perfect storm" that combined technological readiness on the brink of explosion, market reforms and integration into international markets, and the arrival of thousands of skilled engineers from the former Soviet Union. Hi-tech industry had a historic role in the Israeli economy, and it largely shaped the economy as we know it today. Now, the hi-tech industry is at a crossroads: is it heading for renewed growth or for stagnation resulting from increased competition? On the one hand, Israel has a great opportunity to harness its innovation and make it the growth engine for the entire economy, positively affecting the daily life of all citizens in the country – through improving government and municipal services, and making digital education accessible to all; through new and useful consumer products; through growing of small companies into large enterprises, and through direct and indirect employment of large populations in technology-oriented industries. On the other hand, there is a great threat, because apart from missing out on the benefits inherent in the opportunity described above, stagnation means deterioration and going backwards in terms of economic performance. A decay of the technology industry, in a world that is becoming more and more technological, means dependency on other countries.

Greater investment in technological innovation is inevitable – the world becomes more technological and more competitive every day. We must not rest on our laurels and remain indifferent when circumstances are undermining the success of the Israeli hi-tech industry. The Israeli government, which recognizes the strategic need to support the innovation industry, decided to invest in upgrading the activity of the Office of Chief Scientist, and transformed it into the Israel Innovation Authority. Now, the new agency must put the fostering of innovation in general, and of technological innovation in particular, on top of its priority list, harness all relevant bodies in favor of this national mission, and devote considerable resources to it. This is the only way to bring wider economic prosperity to Israel.


Avi Hasson,
Israel Innovation Authority Chairman and Chief Scientist at the Ministry of Economy and Industry


What have we chosen to focus on this year?

The ecosystem in which the hi-tech industry operates is multi-dimensional and complex. We have identified five core components of this ecosystem: innovation policy, human capital, funding, industry innovation and international operations. This year, in addition to the description of hi-tech trends, we have chosen to focus on six issues related to the core ecosystem components: increase in the number of growth companies, open innovation, integration of minorities in the hi-tech sector, manufacturing industries in Israel, development of the Israeli robotics industry, and the innovation revolution in China.