Nearly two years ago, EMC CFO David Goulden led his company down a transformational path, where there would be no turning back.

The following is an edited abstract of a recent interview with EMC CFO David Goulden

BF: Can you take a look back and recount for us how you initially responded to the downturn?
Goulden: I think that from a timing point of view we recognized in May/June 2008 that we were heading into a period of uncertainty and a slowdown. We took a bit of a step back and we said, "Well, we have to become more efficient and reduce costs, but let's view this as an opportunity and look at our cost structure on an end-to-end basis across the whole company and look at things companywide that maybe were being managed on more of a local basis. We said, "Well, this piece of the cost base represents people costs, and this piece represents indirect cost, and this piece represents our cost of products," and we took each of these and broke them apart into a number of separate cost streams. Then we decided to put companywide task forces upon how we could optimize different aspects of costs. For example, one area where we spent a lot of time was in the area of indirect expense which is roughly every expense in the company that is not people or manufacturing, and that would cover things like travel, real estate, contractors, consultants, and all of the things that don't necessarily directly impact our employment levels. We went after those things first on a company-wide basis, and our approach was not just to reduce cost but to transform the cost base. For example, in the area of travel, we cut out business-class travel and banned nonessential travel and meanwhile made a multimillion-dollar investment in high-quality video conferencing. Our thought was that anywhere we took something away, we would try to give something back.

The key word is "transformation," and not "reduction," because anyone can cut costs for a year and have them grow back out of control again. The challenge was to use the opportunity of the downturn to transform how we manage our cost base and the way that we do business from a cost point of view so that there will be some real leverage coming out of the upturn. We are still focused on the cost transformation because these are multiyear programs and they actually have a 2- or 3-year tail on them.

BF: What part of your approach do you view as most essential to your success in driving such a transformation?
Goulden: Fundamentally, we have 40,000-plus people inside the company, and this was about getting these people to make a difference as far as how we spend money goes. We had to get 40,000-plus people to understand what we're doing, why we're doing it, and what role they can play. Sometimes, it means getting them to buy into difficult situations -- for example, our employees took a 5 percent pay cut in 2009. We explained how by doing that, we were able to make a smaller reduction in jobs when our competitors were making much larger reductions. In many countries around the world, a company can't mandate a pay cut like here in the US. You have to ask employees to volunteer, and well over 80 percent of our employees in those countries did so. We explained to employees that salary levels would be reinstated, provided that the company recovers, and we did so on January 1 of this year. But the sign-up percentage, I think, reflects that the message was communicated correctly.

We really worked at communicating -- my office became a letter-writing machine. We found that often there were simple things that could be done, but communication was always key. For instance, by moving from an approach where employees individually reimburse their cell phone expenses to a plan where the carriers directly bill the company, we're now saving $3 million annually. Not all employees are going to be happy, especially when you're changing their billing approach, but we explained that $3 million in savings can save X many jobs, and then they got behind it. Again, the idea was to communicate. As an IT company, we use a fair amount of social media networking, and while we might not necessarily have thought through all of the expense management avenues here at corporate, we really used social media internally as an idea generation machine.

BF: How did you change employee behavior? Did finance supply business managers with new decision support tools or approaches?
Goulden: I wouldn't say "new" necessarily, but certainly we reinforced the use of the kind of detailed financial reporting tools that we do have. Like most large companies, we have a pretty standard chart of accounts. Our indirect expenses are broken up into 32 main line categories, and underneath them there are subcategories. Under travel, for example, you find air, rail, hotel, entertainment, etc. To start driving a behavior at the corporate level, we had executives come and present. Whether they were a business unit president or a major cost center manager, they would be required to present on how their area was doing from line 1 to line 32 of expenses. We would have them present on a quarterly basis and sometimes on a monthly basis to make certain that we were driving improvement. The fact that we were inspecting the senior managers at this level of detail trickled down the organization, so we found all sorts of people in the company talking about their lines 1 to 32 in indirect expenses. These were employees who in the past probably didn't spend too much time focusing on indirect expenses until they realized that they were going to be inspected by the CEO and CFO of the company. It became a culture of inspection and improvement.

BF: How did you track your progress?
Goulden: For instance, in travel we had 30 different initiatives, from simple things like eliminating business-class travel to more complicated things like renegotiating our preferred hotel policies around the world. For every one of these initiatives, we built a project plan and we tracked the savings. As part of our cost transformation programs, there were a couple of hundred different initiatives that we tracked on a biweekly basis.

A lot of people fail because they have great ideas, but they don't do a great job at follow-through. One of things that we have inside EMC finance is a pretty strong program management group that manages these different initiatives for me. These are not necessarily finance people by background, but they are program managers. They bring discipline, process, and reporting so that we can track, communicate, and drive change.

BF: What's important to understand about EMC's business when assessing its success in navigating the downturn?
Goulden: We are in a business-to-business sector, so most of our products wind up being capital purchases for other businesses. Being a capital purchases--oriented business, we have a very high percentage of business that is product that is sold every single quarter. So we have what I call a very high book, ship, and build percentage each quarter, and not a lot of recurring revenue like a telco would or subscription-based business would have. We go into each quarter with maybe about 25 percent of our revenue guaranteed. The rest of it we have to go and earn in that quarter, which makes it very difficult to succeed in an environment like we saw last year.

Now, despite all of what I just mentioned, our revenue was down only 6 percent. We were able to stay close to our customers and help them to weather the worst of the storm and be with them when their purchases started to stabilize and come back again. Against them, our earnings per share were down only 10 percent. You expect to have a lot of negative leverage on the way down, as you know. If the top line is down 6, you had better really move rapidly to avoid the bottom line being down quite a bit more due to pricing pressure and everything else. The fact that we were able to hold ourselves to that level of performance in 2009, in what is a very capital-intensive industry, I think bodes well for what we did on the top line and on the expenses side.

BF: What can you tell us about EMC's approach to budgeting and how this approach was able to respond to the business climate?
Goulden: We, like a lot of other companies, started the year with three or four different plans because you have to build some scenarios. We've always had a very tight, closed-loop, budgeting process. Every part of the business gets a monthly goal, which in most cases just reflects things that happened to things like transfers, but also can reflect changes to the business climate. We were literally able to re-plan the business on a monthly basis from top to bottom. We had that in place before the downturn, and we leveraged it a lot last year. These re-plans were done on a minor basis each month and on a major basis each quarter. We continue to build on this as we see the top line growing again. We'll have a more flexible budgeting process this year that hopefully catches this improvement in the economy, as it looks like it's getting a bit more stable as it improves during the course of the year.

BF: As more companies take a renewed focus on growth, is finance at risk of playing a lesser role?
Goulden: On the revenue side, I view myself as finance partner of the CEO. All of my senior team view themselves as the finance partners to their respective executives, and they have equal responsibility for the top line, gross margins, and the expense targets. I view and hold finance equally accountable for making sure that we are supporting the quality of the top line, so I view the coordination and management of the investment dollars as important as I do the coordination of the cost reduction programs, because you have to do both. In fact, when I stepped up in front of the leadership in January, it was with the simple message that we cannot allow our focus to stray from being cost-efficient and being cash flow--efficient because we now need to take these efficiencies to create investment dollars for the future as opposed to chasing only the top line.