Fiscal 2012 was the year in which HBS began executing on the five strategic priorities articulated early in Dean Nohria's tenure. We introduced bold changes in the MBA curriculum and opened Batten Hall, with its classroom hives for field-based MBA classes on the two upper floors and the new, University-wide Harvard Innovation Lab (i-lab) on the first. We also welcomed the largest cohort of new faculty in many years, broke ground on new Executive Education space at Tata Hall, and rolled out a broad interdisciplinary research project focused on U.S. competitiveness.
These initiatives were well-supported by another year of impressive top-line growth. Sales at Harvard Business Publishing (HBP) and tuition revenue from Executive Education programs both exceeded expectations. In addition, the School continued to benefit from the remarkable generosity of HBS alumni and friends, as unprecedented current use giving and a larger endowment distribution provided crucial support for new teaching and research initiatives.
In developing HBS's financial plan for the year, we strived to balance strategic investment and fiscal discipline in a period of continued instability in the global economy with innovation across the School. This environment created more than the usual amount of uncertainty in forecasting the operating budget—particularly expenses, as it was unclear what level of investment would be needed to support our ambitious agenda as it unfolded. Nonetheless, total operating expenses for fiscal 2012 came in within 1 percent of budget, rising 11 percent from fiscal 2011.
This increase was largely in the School's core academic and research programs, driven by higher fixed costs for MBA innovation, educational technology, additional faculty and staff, and new faculty research initiatives. Although HBP and Executive Education incurred higher operating costs as well, revenue growth and careful resource management enabled the groups to deliver a third consecutive year of combined margin improvement, which was instrumental in fueling strong cash from operations. As in the prior fiscal year, this cash flow enabled the School to execute on its academic mission and increase capital spending without taking on new debt, while still ending the year with a larger unrestricted reserves balance.
HBS continues to enhance and refine its enterprise risk management program through an ongoing process of risk assessment, mitigation, and monitoring. Harvard University has a Risk Management Council, with HBS representation, that is responsible for managing key risks across the University. Through collaboration with the university, we work to address critical issues facing the School.
As detailed earlier in this report, fiscal 2012 marked the School's launch of FIELD, a new yearlong course in the MBA required curriculum. Supporting the FIELD modules on campus and globally added $8 million to the cost of delivering MBA education at HBS during the year. These incremental expenses included, among others, international travel costs for students and seed funding for student-launched businesses, as well as the cost of expanding the I.T. platform to support FIELD exercises. In addition, HBS invested $9 million to complete the renovation of Batten Hall.
The faculty expects to drive similar kinds of innovations in the MBA elective curriculum. The first phase—splitting the traditional two-term elective program into four half-terms—took place in fiscal 2012. Shifting to this modular approach provided faculty and students with greater flexibility, and led to an increase in the number of field-based learning courses for second-year students. We expect field-based coursework to become a more significant part of the elective curriculum in the years ahead.
The School's commitment to innovation in MBA education is accompanied by its longstanding goal of welcoming the most talented MBA students, regardless of their country of origin or financial resources. HBS also endeavors to attract strong MBA candidates who, because of financial constraints, might not otherwise consider a degree in business. We worked closely with the University to ensure continued access to the loans that many students need to finance their MBA education.
Most importantly, HBS further increased its commitment to MBA financial aid. Average fellowship support per student increased 12 percent to $29,843 in fiscal 2012, from $26,745 in the prior year. Over the past five fiscal years, the School's average two-year MBA fellowship award has grown from $36,908 for the HBS Class of 2008 to $59,000 for the Class of 2013.
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|Total (includes Doctoral & Executive Education)||$ 37||36||35|
HBS faculty members are distinguished by their commitment to creating knowledge with power in practice. Translating this intellectual ambition into intellectual capital for the School is a resource-intensive process that typically consumes more than 20 percent of the HBS operating budget. Fiscal 2012 was no exception, as total spending for faculty research support grew by $12 million, or 12 percent, year-over-year, to a record $109 million.
This growth in part reflected the larger size of the faculty, which stood at 232 full-time equivalents (FTEs) as the year began. It was also driven by strategic change. Although the pursuit of opportunities to create new knowledge through individual projects continues to be the School's typical model, our research agenda includes a growing number of large-scale projects that are multidisciplinary and often global in scope—and therefore increasingly resource-intensive. The School's flagship research initiative in fiscal 2012—the U.S. Competitiveness Project, covered previously in this report—exemplified this emerging model.
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Developing content for the MBA FIELD course was another major focus for the faculty's research in fiscal 2012. In addition, reflecting the School's priorities, HBS faculty members continued to extend their research presence in critical regions around the world. To support the faculty's expanding global immersion activity, as well as international case development, expenses related to the School's network of global research centers grew 14 percent from fiscal 2011.
Building the faculty required to execute on the School's educational and research mission continues to be a key strategic priority for HBS. As a result of recruiting fewer faculty than in fiscal 2011, coupled with normal retirements and planned and unplanned departures, the total size of the faculty has declined to 228 FTEs as we begin the new fiscal year. Consequently, although overall faculty research activity will continue to be ambitious, the School's total research investment for fiscal 2013 is budgeted to rise a modest 3 percent from fiscal 2012.
HBS regularly makes capital investments in construction, renewal, and maintenance of facilities, as well as infrastructure and I.T. systems upgrades, based on a comprehensive long-term campus development strategy. Now that Batten Hall's MBA innovation space has been added and capital investments in that facility have been completed, the School's top near-term capital budget priority is to resolve space constraints in Executive Education.
Executing on this priority in fiscal 2012, HBS broke ground on a new building for the first time in more than a decade. Scheduled to open in early 2014, the seven-story, 161,000-square-foot Tata Hall will include two state-of-the-art classrooms, comfortable common spaces, and housing for 180 Executive Education program participants.
Construction of Tata Hall was the School's largest single capital investment in fiscal 2012, totaling $25 million. The building is funded in part by a $50 million gift from Tata Trusts and Companies, a philanthropic arm of India's Tata Group, headed by Ratan Tata, an AMP 71 (1975) graduate. The balance of the project will be funded by cash from the School's operations.
In addition to this major project, HBS continued to make capital investments aimed at maintaining the integrity and enhancing the quality of the campus. The School addressed ongoing maintenance needs, made sustainability and energy efficiency improvements, and completed a number of I.T. infrastructure upgrades during the year. Including ongoing initiatives and major projects, total capital spending for fiscal 2012 increased 50 percent to $51 million, from $34 million last year.
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