FELIX BARBER Senior Vice President and Director The Boston Consulting Group

1. "NEW MODELS, MEASUREMENTS AND MAPS"Felix Barber Measuring and managing intangible values in today's economy November 6th 2002, Swiss Re, Rüschlikon

2. CV

3. FELIX BARBERSenior Vice President and DirectorThe Boston Consulting Group • The Boston Consulting Group (BCG) • Worldwide Practice Area Leader of Organisation Practice (Organisation Design, Change Management, Human Resources, Networks) 1999 – • Developed 'Workonomics' approach to Linking Human Resources and Shareholder Value. Currently in regular use by BCG in client work to assess company performance from a people perspective • Founded and lead Zurich office 1989-98 • Previously active in London and Munich offices • Client focus primarily on Consumer and Service industries • Education • MA Philosophy, Politics, Economics Oxford University

4. 'INDUSTRY' AND 'PERSONAL' VIEWS

5. INDUSTRY VIEW • An increasing share of company value is created by 'intangibles', for example by employees and customer relationships • A company's capital is the source of its value, so if 'intangibles' create value we should try to capitalise them in the balance sheet • We should consider and value 'Human Capital' and 'Customer Capital'

6. PERSONAL VIEW • Many things besides capital create value for companies • Companies do not own employees or customers • Instead of seeking to capitalise employees and customers as a way of recognising their value, we should ask and answer the same questions about them as we ask and answer about capital

7. PRESENTATION

8. PEOPLE AND CUSTOMERS STRONGLY IMPACT PERFORMANCE 35% Consumer Serv. Cosmetics Food & Tob. 30% Securities Brokers Advertising Software Airlines 25% Pharma Industrial Services Publishing Hardware Home Technology Services Ind. Equip. Household Food Retail 20% Textiles Ind. Div. ROE Average 1997-2000 Retail Fin. Serv. Chemicals Auto Parts Elec. Comps. Banks Beverage Comm. Tech. Transportation Biotech 15% Med. Prods. Insurance Fixed-line Comm. Leisure Goods Auto Aerospace Semicond. Utilities Building Mats. Packaging Adv. Ind. Equip. Energy 10% Basic Resources Construction Wireless Comm. Real Estate Healthcare Provs. 5% Broadcasting 0% 0 0.5 1 1.5 2 2.5 3 3.5 4 People Costs/Capital Costs Average 1997-2000

9. MEASURE PEOPLES' PERFORMANCE IN PEOPLE-TERMS Capital Driven: Traditional Metrics People Driven: Workonomics Metrics Employee incentives ensure alignment Return on capital Cost of capital Balance sheet/Balance sheet structure Balance sheet changes Plant and equipment utilisation Capital investment plan Capital gearing (debt/equity ratio) Capital gains Long/short term financing Productivity Employee cost Workforce/Workforce structure New hires/attrition Workforce utilisation Workforce development plan Employee gearing (fixed/variable compensation) Long term contingent compensation (e.g. options) Employee contracts (golden handcuffs)

10. ECONOMIC PROFIT LINKS CAPITAL AND PEOPLE PERSPECTIVES Capital perspective: Return on capital abovecost of capital Employee perspective: Workonomics productivity above employee cost (%) $ 000 / employee Return on Capital Economic (1) profit Workonomics productivity Required Return on Capital Economic profit(2) Capital costs Employee cost per employee Employee costs Amount of capital invested (USD) Employees ('000s) • Usually calculated on post tax basis to be comparable with (post-tax) capital costs • Usually calculated on pre-tax basis to be comparable with (pre-tax) employee costs

11. AVAILABLE LEGAL FORMS MAY BE TOO LIMITING Legal form Value creation Ownership Risk Profit/ Residual income Stock corporation Partnership Cooperative society Capital investment Partners skills, capabilities and relationships Customer purchases Equity Partners Customers Equity Partners Customers Equity Partners Customers