Their hearts belong to Iscar

Employees of the global cutting-tool giant are exceptionally satisfied and fiercely loyal.
And the managers, known for their modesty and cohesiveness, are passionately
committed to their companys impressive performance.
By Tali Heruti-Sover | Sep.29, 2012 | 2:36 AM
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)ere are three examples to show why no employee ever .uits at Iscar.
/. The year is /012. 3acob )arpa!, a young temporary worker at Iscar, is wounded in the ,om 4ippur
5ar. *ne day 'tef 5ertheimer, the companys founder and then-"E*, comes to see how he is doing.
)arpa! is so impressed by the companys support during his convalescence that he returns to his 6ob
after his recovery. )e is currently Iscars "E*, a position he has held for the last 7$ years, and is
responsible for many of the companys achievements.
7. It is 7$$0. 8ike other companies around the globe, Iscar is struggling amid the economic crisis. It
is now part of 5arren -uffetts -erkshire )athaway 9roup, which purchased :$; of Iscar in 7$$<,
and its sales have dropped by =$;. >anagement convenes and takes a strategic decision? @o
employee will be laid off. )arpa!, who personally experienced the founders care for employees, goes
in person to explain this to -uffett. As one employee puts it, Awhile thousands lost their 6obs
elsewhere, we took salary cuts and got rid of bonuses, and no one was fired. 5ere loyal to the
company, because its loyal to us.B
2. In 7$//, Israeli soldier 9ilad 'halit returns home after more than five years in )amas captivity in
9a!a. )is mother, Aviva, and his father, @oam, who has been employed in Iscars marketing division
since /00=, will no longer need the 3erusalem apartment placed at their disposal by the 5ertheimer
family #not subsidi!ed by company funds%. They will surely remain grateful to the 5ertheimers and
to Iscar for all the support they received during their sons long captivity. After his sons release,
@oam 'halit decides to enter politics, with the blessing of his employers.
-ut these exceptional human relations, which undoubtedly played a ma6or part in transforming Iscar
from a small workshop in the 9alilee into a global leader in hard-metal cutting tools worth C/$
billion, cannot fully account for its success. @either can its success all be attributed to the novel
vision, the responsiveness to demands or many years of excellent leadership. 8ike other companies,
Iscar is multifaceted. In order to understand how all these components combine to create one of the
biggest success stories in Israeli industry, one must examine the unorthodox way they interact. ,et
even this will not guarantee a repeat of the companys success.
-orn in 9ermany, 'tef 5ertheimer was a poor student and never completed /7 years of schooling. In
/021, when he was //, he and his family came to >andatory &alestine. )is first professional
experience was as a technician with the -ritish Army during 5orld 5ar II, and then in weapons
development for the pre-state 3ewish militia )aganah and its elite strike force, &almach. After the
establishment of the state in /0=:, he worked for +afael Advanced Defense 'ystems. )e was fired in
/0E7 because he lacked a formal degree in engineering.
)e then set up a small metalworking workshop in a shack next to his @ahariya home. At first, he
supplied the local defense industry, which was enough work to provide for his family. )owever, he
reali!ed local demand was limited. As opposed to other entrepreneurs, he was not intimidated by
foreign markets, reali!ing that the main business arena is abroad. )e therefore established
relationships with foreign clients, mainly in Europe. *ver the years his small workshop became a
ma6or, multi-national enterprise that manufactures mainly hard-metal cutting tools for lathes and
milling machines. )is clients include some of the largest global aircraft and car makers.
Even after its expansion, Iscar was never 6ust another factory in northern Israel. 5ertheimer had a
far-sighted vision for developing the 9alilee by establishing industrial parks that would serve as
anchors for new initiatives. )e managed to persuade the government to support his vision. The next
Iscar factory was built in the early /0:$s in the Tefen industrial park, which 5ertheimer established.
At the same time, he obtained 1,$$$ dunams #1$$ hectares% from the Israel 8ands Administration to
build the community of 4far Fradim, designed to entice workers seeking a better .uality of life to
move north. @o other developer managed to obtain land from the authorities like this.
The Iscar venture made the 5ertheimers into Israels richest family, with their worth recently
estimated at C<.: billion to C1.< billion. This has not diminished their image as modest, hardworking
people, and they never became the targets of public criticism like so many other tycoons. 'tef
5ertheimers many initiatives for developing the 9alilee and advancing vocational education, his
record of public service and avoidance of media exposure, and his image as a hardworking man who
built his empire with his own hands have established him as a man of values, devoted to developing
the country and its industry, rather than someone interested only in his empires financial success.
The Location: A position that forces self-reliance
5ertheimers determination to keep Iscar in northern Israel gave him an unexpected advantage.
A5hen you are far from the Tel Aviv hub and its way of doing things, you develop your own uni.ue
organi!ational culture,B says someone close to the company management. AIscar did not follow
trends and its managers nurtured independent thinking. *ne remains much more focused on ones
goals when there are no distractions.B
-eing removed from the center had another far-reaching advantage. 5ith no easy access to service
providers, Iscar had to be independent from the outset, providing its own services and inputs.
This remains so even today. *ther companies view outsourcing as a way of increasing efficiency.
Iscar holds the opposite view, and does everything, including all its bookkeeping and public
relations, in-house. The company even has its own system for data analysis, the core of any large
business. Iscar seeks out external service providers only when it has no alternative. Thus, for
example, it hired the Eitan->ehulal 8aw 9roup to manage the companys sale to -erkshire.
The strategy: Real profits, No financial Gimmicks
>any companies seek to go public on the stock exchange. Iscar has never done so. Its guiding
principle over the years has been to focus on manufacturing, rather than on financial gimmickry.
5ertheimers basic idea is that a successful economy relies on real, not virtual, products.
Iscar never branched out laterally into areas not directly connected to its core activities. 'ince it was
not publicly held, its trade secrets remained hidden from in.uisitive eyes. During the /01$s, Iscar
tried partnering with Discount Investment. )owever, the 5ertheimers were not happy with this
connection to the financial markets and the reporting re.uirements it entailed. The partnership
ended when they bought out Discount Investment and became the companys sole owners.
5ertheimer still routinely expresses his disgust with virtual finances. )e recently rebuked
industrialists who were complaining about the credit crunch, urging them to work harder and meet
their needs on their own. A>ake more money so that you dont depend on credit, and bid farewell to
the banks,B said 5ertheimer at a conference held by the accounting firm -D* Giv )aft. )is words
once again echoed the founding principles on which Iscar was built? self-reliance, hard work and
operating in traditional industries.
"ontinuity? The father, the son and the managing director
Transferring authority from father to son can work well for a family business, but it is also fraught
with risks and sometimes leads to the companys early demise. This transition happened at Iscar out
of necessity when 'tef 5ertheimer suffered a severe concussion in a /0:= car accident. (or many
months it was unclear whether he would ever return to work. )is son Eitan, who had 6oined the
company a year earlier, became "E*. The move was initially temporary, but it later became
permanent at 'tefs re.uest.
Even though Eitan 5ertheimers ascendancy was sudden and unexpected, the transition was
seamless due to the strong, supportive managing team. Eitan 5ertheimer stresses the importance of
teamwork, which was critical during the transition. )is fathers absence helped avert potential
intergenerational conflict and ego issues that often characteri!e such transitions.
Iscar veterans relate that although the companys guiding vision was 'tef 5ertheimers, Eitan and
his right-hand man 3acob )arpa!, who was in charge of marketing, brought novel ideas. The two
men are responsible for turning Iscar into an international firm worth billions. 'tef 5ertheimer, who
is now Iscars honorary chairman, never returned to an operative role in the company. )e still shows
up in his office in Tefen every day, focusing on advancing his agenda of developing the 9alilee and its
local industry.
A further potentially explosive transition occurred eight years later, when Eitan 5ertheimer
relin.uished his position to become the companys chairman. Again, the transition went smoothlyH
)arpa!, who had been groomed for the 6ob for years, assumed the daily management of affairs.
-uffetts ac.uisition of Iscar in 7$$< also went smoothly. As a precondition to the deal, the
5ertheimers had stipulated that nothing would change except the ownership.
The obsession: First at any cost
5hile Iscar is often compared to Teva, another Israeli flagship business, there is a big difference
between the two companies. In contrast to Teva, Iscar did not grow through mergers and
ac.uisitions #with the exception of the purchase of the 3apanese tool-cutting manufacturer Tungaloy
in 7$$:, for C/ billion%. Its growth was organic, resulting from a steady increase of market share.
In its field of hard-metal cutting tools, there are two other dominant global companies, the 'weden-
based 'andvik and the Inited 'tates 4ennametal. Iscar has overtaken 4ennametal, becoming the
second-largest company in the industry.
This is not enough for Iscars management. AThey lose sleep figuring out how to increase their
market share,B says a source close to the team. ATheir obsession is not to become rich or famous, or
to advance themselves or please shareholders, but to become the worlds @o. /. All their activity is
geared toward this goal.B
This message trickles down from management and motivates the entire workforce, giving all a sense
of purpose.
The management: Modesty in action
Fisiting the factorys dining hall, youd have a hard time pointing out the table management sits at. It
looks like all the other tables. These managers, responsible for billions of dollars at one of the worlds
most successful companies, look and behave like all other workers.
Iscars management is a tight-knit group that has been working together for decades. Different
people have different roles, but they share several core .ualities. They are all modest, hardworking
professionals. They all share a well-developed sense of humor as well as a sense of urgency. They are
here to work, not to waste time.
If you were to spend time with them while they worked, theyd remind you of &resident 'himon
&eres? boundless energy, a long attention span and the desire to set a personal example. This group
was formed through a long process of natural selection. Anyone who couldnt keep up simply
dropped off, leaving a team of managers with similar abilities and goals. Facations are sparingH
responsibility is abundant. They lack the tokens of honor and status symbols that are common in
companies of this si!e. There are no hordes of secretaries or personal assistants fluttering around
these managers. 5hen the "E* prepares his own &ower&oint presentations, it is clear that personal
responsibility is the guiding principle.
This does not imply an egalitarian system. Iscar has a clear managerial pyramid, but it does not have
managers with inflated egos, richly paneled offices and doting secretaries. Apparently one can be
professional and efficient without these trappings.
Focs: !o one thing, bt do it "ell
In a rare interview in 7$$<, 3acob )arpa! explained to 9lobes the principle that has guided him
since he started working at Iscar. Iscars strategy is Anot to sell a supermarkets worth of goods, but to
get clients hooked on exceptional, high-.uality products, and to focus only on those. ,ou have to be
the best in the market with at least one of your products, on which you build your reputation. Anyone
who buys your best product will reali!e its advantages and wont go to other manufacturers. -ut its
essential to keep improving the initial product,B he said.
This re.uires a big investment in research and development, on par with developing the product in
the first place J a process to which Iscar is committed. *lder products are taken off the market once
newer ones are introduced. AIm competing with myself. Each version works better than the previous
one. An improved version brings in more customers,B )arpa! added.
It is not only the pursuit of innovation that drives the Iscar team. Anyone who has dealt with them
knows they can be very tough businessmen. A@one of them are suckers,B says a former employee.
AEven during 'tefs tenure it was evident that these are people who know how to do business.
@egotiating with them is not easy. They come prepared and well-versed in all the details and they
dont yield when they think theyre right. @othing is emotional. @owadays they benefit from being
such a large company, but they always knew how to do business.B
#$pertise: !ecades of e$perience
The emphasis on internal growth and the aversion to hiring managers from the outside has meant
that all of Iscars executives have first-hand knowledge of the companys products and technology.
This cumulative experience is one of the companys strongest assets.
A>y workers cant pull one over on me with partial answers, and I cant do so with any of my
managers, all of whom know the product as well as I do,B says a mid-level manager at Iscar.
This is the reason the company attaches great importance to fostering workers and makes every
effort to retain them. A*ne reason we didnt fire anyone in 7$$0 was the long-term vision,B explains
an employee. A5here else could they find experts like usK &eople with /E years of experience are
considered newcomers here. At least 7E$ of the 7,E$$ employees have been here for more than 7$
years. The principle is to develop expertise by accumulating experience.B
>ind you, in northern Israel in general it is more difficult for people to change 6obs, simply because
there are fewer employment opportunities. This has probably also helped Iscar retain workers. -ut
this is not the main reason most employees say they intend to stay with Iscar for many more years.
AIve been here for 2$ years and have never been bored,B says one employee. AA place with constant
innovation maintains professional interest and you dont feel the need to try something else.B
Another characteristic of Iscar is its thoughtful approach to workers from widely diverse cultures.
Iscar now has subsidiaries in E7 countries, from 8atin America to the (ar East. The workers and
most managers there are locals, and Iscar does its homework when it comes to the local ways of
doing business. @o one at Iscar arrives unprepared for a meeting with a "hinese or 4orean
representative. The typical Israeli arrogance and know-it-all attitude are not in evidence. (ifty years
of focusing on exports, rather than on local markets, have created modesty when dealing with
workers, suppliers and colleagues abroad.
#thos: Like family, really
'alaries at Iscar are not among Israels highest, although workers describe them as fair. -onuses are
given with a well-defined link to achievements. Iscar is a traditional industrial company, without the
perks that characteri!e high-tech such as stock options. Despite this, Iscar workers are deeply
attached to their workplace in a way not usually seen elsewhere. They attribute this to the companys
personal approach to each employee, his problems and his needs.
A5hen an employee runs into health or financial problems, the company helps out,B says a 6unior
worker. AThis is company policy, not the whim of individual managers. ,ou dont need a big bonus to
know the company cares for you. Its enough to have a decent salary, an interesting 6ob and stability.
These are things Iscar excels at.B
The Media: %ho needs it&
*ver the years, the 5ertheimer family and company managers have kept their distance from the
media. 'tef 5ertheimer appears occasionally to talk about technological education and
strengthening the Arab sector. Eitan 5ertheimer had to face the media during the -uffett
ac.uisition, but has since receded from the limelight.
The managerial team also avoids exposure. 3acob )arpa! is the "E* least known to the Israeli
public. )owever, he is well-known in professional circles, attracting attention at professional
gatherings. )e has no interest in the general public reading about him in the press, or in professional
sociali!ing. )e prefers his work. Anything that advances the company is done professionally, and the
rest is of no interest.
The pblic image: American company, 'sraeli pride
The last component in Iscars success is its public image. The public views Iscar as a source of pride,
even after :$; of the company was sold to an American tycoon. The public respects 'tef and Eitan
5ertheimer even after they became the richest citi!ens of Israel.
This is partly due to the fact that Iscar is an exporter, far from public scrutiny. Its products are
traditional industrial ones, unfamiliar to most Israelis. Iscar does not produce high-tech household
gadgets, so it is not susceptible to daily consumer testing.
Israelis love Iscar partly because they dont know it that well. Another important reason is that, as
opposed to other local success stories, Iscar is not a greedy monopoly. It does not rob the public kitty,
with executives paying themselves huge dividends. Its executives made their money honestly, they
dont want hospital wings named after them, and they dont hobnob with models and soccer players.
The public respects this