Annual Report 2011

Supplemental Financial Information


Harvard Business School's revenue mix is unique among the Harvard University schools and in higher education. Two of the School's competitive business units—Harvard Business Publishing (HBP) and Executive Education—typically generate more than 50 percent of total annual revenues, making HBS less reliant on its endowment than the other schools at Harvard.

In addition to contributing income for operations, HBP and Executive Education enable the School to spread the faculty's ideas more broadly and influence management practice on a larger scale. Faculty research at HBS is funded primarily by the School—not by outside sponsors such as government agencies, foundations, and corporations. This enables HBS faculty to pursue the research opportunities they believe have the greatest potential to create new knowledge, without the constraints associated with funding from external organizations.

The intellectual capital produced by the faculty is globally disseminated through the School's Executive Education programs and HBP's portfolio of periodicals, eLearning products, books, and HBS cases. Completing the self-sustaining cycle, margin contributions from HBP and Executive Education serve as the primary sources of funding for the faculty's research.

The levels of revenue generated by HBP and Executive Education in any given year are sensitive to trends in the global economy and the capital markets. The same is true for the School's endowment distribution revenue, which has ranged between 20 and 24 percent of total revenue for the past several years. In fiscal 2011, the School's endowment distribution revenue declined to 20 percent of total revenue, from 22 percent a year earlier.

This decline was more than offset, however, by stronger-than-expected results at Executive Education and HBP. Although fiscal 2011 was a year of slow and inconsistent economic recovery in the United States and in many of the world's markets, both of these businesses performed exceptionally well. As a result, on a combined basis, Executive Education and HBP revenue grew by $36 million, or 15 percent, from fiscal 2010. 

The School's total revenue for fiscal 2011 grew by $42 million, or 9 percent, from fiscal 2010. In addition to gains at Executive Education and HBP, this growth reflected a combined $8 million increase in revenue from unrestricted current use gifts and MBA tuition and fees, slightly offset by lower interest income as well as the smaller endowment distribution.

MBA Tuition & Fees

The School's chief objective in setting tuition and fees is to recover a portion of the growth in MBA program delivery costs and investments made to enrich the HBS educational experience. In fiscal 2011, tuition and fee revenue from the School's core academic program grew to $96 million, from $92 million in fiscal 2010. First-year MBA tuition in fiscal 2011 was $48,600—near the midpoint among the seven comparable schools tracked by HBS—compared with $46,150 last year.

Executive Education

Executive Education continued to successfully manage constraints on facilities space and available faculty in fiscal 2011, producing strong revenue growth for the second consecutive year. Total participant enrollment increased by nearly 1,300, or 15 percent, from fiscal 2010, to approximately 9,900. Executive Education tuition revenue grew by 17 percent to $132 million, from $113 million a year earlier. 

Harvard Business Publishing

The School's publishing business leveraged its industry-leading content and digital platform technology to produce strong sales growth in fiscal 2011. HBP's revenue grew by $17 million, or 13 percent, from fiscal 2010, to $152 million. All publishing product lines performed well, highlighted by strong growth in eLearning product sales and advertising revenue at Harvard Business Review. 

Gifts & Endowment

Revenue from gifts to HBS—in the form of endowment distributions and gifts for unrestricted current use—rose to $117 million in fiscal 2011, from $114 million in fiscal 2010.

Like other Harvard schools, HBS raises its own endowment and current use funds. The School's endowment currently consists of more than 1,000 discrete funds established over the years by individual donors, corporations, and reunion classes. HBS budgets the use of endowment distributions to support operations according to the terms of each gift. The School's endowment funds, along with those of the other Harvard schools, are managed by Harvard Management Company, a subsidiary governed and wholly owned by the University. 

The University determines the payout rate—that is, the percentage of the endowment withdrawn in any given year and distributed for operations and for one-time or time-limited strategic purposes. Consistent with the long-term goal of balancing the maintenance of the endowment's purchasing power for future generations and the desire to pursue nearer-term opportunities, the University's targeted annual payout range is between 5.0 and 5.5 percent. 

As part of absorbing the endowment's fiscal 2009 market value decline into operations, the University reduced the fiscal 2011 annual distribution by 10 percent year-over-year, reflecting a payout rate of 5.3 percent. In an effort to offset the impact of this lower rate, HBS worked diligently to maximize the use of distributions available from existing endowment funds. Income from the $50 million transfer to the School's endowment reserve in fiscal 2010 also helped mitigate this year's reduced payout rate. As a result, the School's fiscal 2011 endowment distribution revenue, which totaled $100 million, decreased only 1 percent from the prior year.

The absolute return on the Harvard endowment was +21.4 percent in fiscal 2011, net of all expenses and fees, compared with +11.0 percent in fiscal 2010.  The year-end market value of the HBS endowment, plus the School's current use funds, increased 20 percent to $2.8 billion, from $2.3 billion at June 30, 2010. This growth reflected net appreciation in endowment principal of $440 million, after subtracting the annual distribution and decapitalizations, as well as $28 million in endowment gifts to HBS received by the School during the year.

Driven in part by continued strength in endowment giving, fiscal 2011 was an outstanding year for fundraising at the School. The HBS community once again demonstrated its involvement and generosity by giving $77 million in new gifts and pledges. Total cash received from gifts grew by 51 percent to $89 million, from $59 million in fiscal 2010. This $89 million included new endowment gifts and gifts for capital projects, payments on prior years' pledges, and restricted and unrestricted current use giving.

Strong growth in unrestricted current use giving was key to the School's fundraising success in fiscal 2011. These gifts provide crucial support for new initiatives and remain an important financial priority for the School. Growing for the second consecutive year, revenue from unrestricted current use gifts increased by 31 percent in fiscal 2011 to $17 million, from $13 million in fiscal 2010. HBS received gifts of all types from nearly 13,800 donors during the year, including MBA, Doctoral, and Executive Education program alumni, as well as other friends of HBS. As in the prior year, 27 percent of the School's MBA alumni gave to HBS in fiscal 2011.  

Other Revenues

Revenue in the Housing, Rents, and Other category was flat in fiscal 2011 at $11 million. The School's interest income declined from the prior year by $1 million, or 50 percent, due to lower interest rates.