Society for Human Resource Management

1. Society for Human Resource Management Nicholas G. Berchtold V.P. & Chief Financial Officer Energy Focus, Inc. January 20, 2010

2. The Greatest Competitive Advantage? • Our associates ARE our most important asset. • They provide the competitive advantage in all areas: • Customer Intimacy. • Technological innovation. • Manufacturing excellence. • Logistics/Supply Chain. • Information reporting. • Those closest to the function have the greatest opportunity to provide sustainable improvements.

3. Human Resources is Strategic!! • “Cash” is the primary driver of all for-profit businesses, whether a public or private. • Strategic Human Resources management is key to ensuring the strategic success of any enterprise!! • All associates must understand how their functions impact the overall “cash” position. • How you are a “User of Cash”? • How you are a “Source of Cash”?

4. Metrics are the Measurement of Success! Number and type of Available metrics can be overwhelming: • Can you define your associates’ contributions to “cash”? • Are the metrics truly measurable? • Are the metrics truly repeatable? • Is the metrics measurement system maintainable? • Liquidity Ratios • Efficiency Ratios • Profitability Ratios • Turnover Ratios • Leverage Ratios • Cash Flow Ratios • Sales Ratios • Income Ratios • Labor Ratios • Discretionary Cost Ratios • Foreign Risk Ratios • Costs Per Employee • Investment Ratios • Dividend Ratios • Other Accounting Ratios

5. How to Define Effective Metrics! Cash Impact?

6. Key Attributes of Successful Metrics • The basic requirements to set up or identify critical metrics include the following; • Keep them as simple as possible. Everyone must understand how the measurement is calculated. The metrics need to be standard, consistent and reliable. • Make sure there is clear accountability in the following three areas; • who is responsible for tracking the metric, • who is responsible for the performance of the metric, • and who is responsible for implementing the call to action if one is necessary to achieve the target metric. • Always compare key metrics with a plan, target, objective and/or prior performance to establish the direction or trend of the metric. Comparisons with industry standards are also helpful. • Focus on the critical areas needing management attention and highlight where problems exist to assist management in making proper decisions. • Make sure the information is timely to allow management more options to respond and to be able to avert major problems. • All metrics must be accurate in order to support good decision making. • Focus on a select number of metrics. Too many metrics will lead to confusion and ultimately “analysis paralysis”.

7. Keeping Metrics Simple! • Revenue $ per Employee - (Sales and Marketing) - A measure of the revenues generated by the team. • Fixed Cost $ per Employee - (Production) This ratio shows the overhead cost factor that each associate carries. • Days Sales Outstanding (DSO)– (Finance) - A measure of the average number of days that a company takes to collect revenue after a sale has been made. • First Pass Yield (FPY)– (Quality) - The proportion of units that, on average, go through a process the first time without defects. • Efficiency Utilization (E/U)– (Production) - The effectiveness of an associate to complete a given task within a specified period of time.

8. Key DRIVERS FOR STRATEGIC HUMAN RESOURCES

9. Key H/R Drivers –Fostering Continuous Teamwork and Communication!!! • Daily “tool box” meetings • Weekly meetings between Mgmt. and associates • Monthly Financial Reviews with all associates • Quarterly financial reviews to shareholders and investors

10. Key H/R Drivers – Knowing “ALL” of Your Customers • Customer Intimacy: • Who are your customers? Not just external customers. • Who are your up-stream internal customers? • Metrics and drivers used by these customers. • Who are your down-stream internal customers? • Metrics and drivers used by these customers. • How do you interact with these customers? • Do you understand how your function impacts these customers? • Feedback mechanisms for your team to ensure success. • Are they formalized? • Are they structured? • Are they repeatable?

11. Concluding Remarks • Human Resources plays a strategic role in ensuring that our associates provide our MOST IMPORTANT competitive advantage: • Tone is “SET FROM THE TOP”. • Realize that EVERY team member impact the “cash” position of the business. • Human Resources plays a strategic role in defining success for ALL segments of the business: Operations AND Administrative. • Communications with associates at all levels is key to ownership and best practices within a business. • Know your internal AND external customer(s). • Current economic/business conditions represent a tremendous opportunity for every team member to challenge “status quo” and to provide the greatest strategic competitive advantage!!!

12. Thank you!!