Annual Report 2011

From the Chief Financial Officer

Fiscal 2012 Outlook

Fiscal 2012 will be a year of bold changes in the MBA curriculum at HBS. In addition to planning the first-year FIELD course, in fiscal 2011 the faculty developed an innovative modular approach to the second-year elective MBA curriculum, which also will launch in fiscal 2012. Splitting the School's two terms into four half-terms will provide faculty and students greater flexibility in molding their courses and creating a tailored MBA experience. Although we have planned as best we could for the initial investments in these new initiatives, the School will carefully monitor what is needed for them to succeed and adjust the budget if necessary as fiscal 2012 unfolds.

Investment in the HBS faculty, their research, and the Dean's priorities in this area also will deepen in fiscal 2012, with a focus on collaborative and global research efforts. Highlighting this activity, in addition to the U.S. Competitiveness Project, will be the opening of a new amphitheater-style classroom at the Taj Lands End in India. Reflecting last year's addition of the Harvard Center Shanghai, operating expenses related to the School's network of global research facilities now exceed $10 million annually.

The School's fiscal 2012 financial plan calls for capital investments to grow 95 percent from last year to $67 million. Groundbreaking for the construction of Tata Hall occurred in fall 2011, and the year's capital budget includes $32 million related to that project. Approximately $9 million has been allocated to the complete renovation and construction of MBA classroom space and the Harvard Innovation Lab at 125 Western Avenue. In addition, fiscal 2012 will be a year of increased investment in facilities renewal and maintenance projects, as well as I.T. infrastructure upgrades, across the campus.

The most important goal for financial planning at HBS is to ensure that the School's economic model remains strong and self-sustaining. Only in this way can we be certain that resources will be available to execute on the School's strategic priorities, regardless of cyclical conditions in the global economy. It is because this model has been successful over the long term that, despite the current economic uncertainties, HBS is well positioned to fund its emerging educational and research priorities for the year ahead. 

HBS returned to prerecession levels of revenue growth in fiscal 2011. The School's forecast anticipates continued growth, but at a more modest pace, in fiscal 2012. Demand for the School's print and eLearning product offerings continues to grow, albeit more slowly than in the second half of fiscal 2011. Although space is tighter than ever, enrollment in fall 2011 Executive Education programs is up from last year. In addition, HBS has been informed by the University that fiscal 2012 endowment distributions will grow 4 percent from fiscal 2011, reflecting the rising value of the endowment over the past two years.

At the same time, HBS will be making large capital investments in publishing, as HBP strives to secure its leadership in a tougher and more volatile competitive environment. In Executive Education, constraints related to facilities and faculty will lead to higher expenses. These dynamics are likely to constrain the ability of both businesses to continue increasing their operating margin contributions.

Nonetheless, HBS is in a strong financial position as we begin fiscal 2012. The School's plan for the year is strategically ambitious but financially prudent. The flexible reserves on our balance sheet are sufficient to fund planned investments in innovation and maintain the integrity of the campus, without taking on debt leverage that could lead to long-term structural financial risks.

We are closely monitoring the economic trends, and our financial plan allows HBS the flexibility necessary to adjust to changing conditions in the higher education marketplace should such adjustments become necessary. We remain committed as always to be responsible stewards of the School's financial resources in the year ahead.

Richard Melnick, MBA '92
Chief Financial Officer