Harvard Business School achieved strong financial results in fiscal 2013. Revenues, operating margins, and gift income all came in higher than expected. As a result, the School was able to fully support its teaching and research activities, as well as ongoing operations, with internally generated cash.

This cash from operations was instrumental in other ways. It enabled HBS to invest in growth in Harvard Business Publishing (HBP) and Executive Education, as well as campus renewal and expansion, while still concluding the year with a strong balance of unrestricted reserves held outside the endowment. These reserves are crucial in providing the School with sufficient liquidity to execute on its mission through economic cycles over the long term.

The School’s fiscal 2013 results are detailed in the Supplemental Financial Information section that begins on page 22. The balance of this letter will focus on the financial implications of executing on the School’s strategic priorities, including a look ahead at the investment needed to continue to advance the School’s mission in a challenging environment.

Fiscal 2013 in Review

MBA Program Innovation

Fiscal 2013 was the second academic year for FIELD—the School’s innovative course in the MBA Required Curriculum. FIELD is characterized by its focus on team-based learning outside the classroom in a variety of settings. During FIELD 2, all 900-plus students spend 10 days working in an emerging market on a new project or service project with a global partner organization. Providing faculty, travel, and administrative support for the FIELD teams both on campus and internationally has added approximately $10 million to the School’s annualized baseline MBA program delivery costs. MBA tuition and fee revenues cover only a minor portion of these costs. As a result, FIELD has become a major operating expense driver for the School, and has placed a new strain on the operating budget.

Fellowships further reduce the MBA tuition and fee income available to support the educational experience. The School’s fellowship spending has increased in recent years. Welcoming the most talented applicants, regardless of their country of origin or their financial resources, is a long-standing goal of the School. HBS also endeavors to attract strong MBA candidates who, because of financial constraints, might not otherwise consider a degree in business.

Over the past five fiscal years, the School’s average two-year MBA fellowship award has grown from $44,482 for the Class of 2009 to $59,000 for the Class of 2014. About half of the School’s MBA students currently receive fellowships, which cover an average of more than 50 percent of a student’s total tuition. Average fellowship support per student increased 3 percent to $30,725 in fiscal 2013, from $29,843 in the prior year.

Fellowship Spending

IN MILLIONSFY 13FY 12 FY11FY 10 FY 09
MBA $ 29272625 25
Total (includes Doctoral Programs & Executive Education) $ 40373635 33

Faculty Research

Faculty research is the engine that drives the MBA, Doctoral, and Executive Education curricula at HBS. Sustaining the School’s ambitious approach to knowledge creation typically requires more than 20 percent of the operating budget. The focus for the faculty’s research is increasingly extending beyond the management of firms to the large-scale, cross- disciplinary issues that challenge society and the global economy. Although these issues are often addressed through individual faculty projects, the School is pursuing a range of research models.

One such model is the portfolio of HBS-wide initiatives built on multifaculty research agendas that generate publications, host conferences that broaden the impact of the findings, develop Executive Education programs and new MBA courses, and enhance student and alumni engagement. Another is the intensive focus of a research project, typically carried out over two to three years that may include an alumni survey, cross-disciplinary faculty research, and outreach to alumni, other business leaders, and policymakers with the hope of influencing practice. A notable effort in fiscal 2013 was the U.S. Competitiveness Project. In its second year, the project continued to leverage the research of a diverse group of HBS faculty and other scholars, as well as the experience of faculty and alumni, to generate ideas and actions that will improve the nation’s competitiveness.

The growth in research spending has been driven by both the broader scope of the School’s agenda and the increasingly global and I.T.-intensive character of the faculty’s work in the field. The School’s total spending for faculty research support in fiscal 2013 grew by $1 million, or 1 percent, from the prior year to $110 million.

Investment in Research

IN MILLIONS
FY 13 FY 12 FY11FY 10 FY09
$ 1101099792 97

Harvard Business Publishing

As we prepared the School’s fiscal 2013 financial plan, it was clear that flexible, innovation-focused funding would be crucial. We were less certain, however, as to whether growth in the School’s income would be sufficient to meet our needs. HBS depends on competitive business units—HBP and Executive Education—for nearly 56 percent of its revenue and an even larger percentage of its operating income. As we approached the new fiscal year, sales at HBP were slowing, particularly in Europe, amid mixed economic conditions globally. And although application rates for the School’s Executive Education offerings remained strong, we knew that near-term growth in Executive Education revenues would be limited by the School’s campus housing constraints.

Our fiscal 2013 planning assumptions were too cautious, in retrospect, as the School’s total revenues grew more than 7 percent from the prior year. Total expenses, which came in $2 million under budget, also were up 7 percent. Income from HBP and Executive Education, as well as current use giving and the endowment distribution, all exceeded our forecast.

The School’s publishing business continued to successfully navigate volatile and challenging business conditions while keeping a tight rein on expenses. Each of HBP’s market groups continued to deliver top-line growth in fiscal 2013. Sales in the corporate learning market were exceptionally strong, driven by growing demand for its flagship eLearning product, Harvard ManageMentor. Additionally, circulation revenue from Harvard Business Review reached an all-time high, as did HBP’s overall international sales.

As a result, HBP outperformed our expectations for revenue and margin contribution for the fourth consecutive year. The School’s publishing revenue for fiscal 2013 increased by $15 million, or 9 percent, from fiscal 2012, exceeding our forecast by 3 percent. Reflecting HBP’s efficiency-focused culture and strict attention to expense control, the group’s fiscal 2013 margin contribution also exceeded our initial expectations.

Publishing Revenue

IN MILLIONS
FY 13 FY 12 FY11FY 10 FY 09
$ 180165152135 137

Executive Education

Executive Education entered fiscal 2013 facing constraints of both campus space and faculty availability. Participation in open enrollment and custom programs was essentially flat with the prior year, as a result. Driven primarily by tuition increases, Executive Education revenue grew by $4 million, or 3 percent, from fiscal 2012, exceeding the School’s fiscal 2013 budget by 4 percent.

The Executive Education group continued to be effective in managing expenses and utilizing available capacity, however. Despite delivering a larger number of programs off-campus in India, China, Europe, and the Middle East and making a major investment in an enhanced CRM platform, the group’s margin contribution in fiscal 2013 came in higher than our forecast.

Executive Education has been the School’s top capital investment priority for the past two years. The School is expanding residence capacity and enhancing the educational and living spaces in the Executive Education buildings at the northeast corner of the campus. The focus for these initiatives in fiscal 2013 was Tata Hall, which will provide additional classroom and common spaces plus new housing capacity for 179 program participants. Construction of Tata Hall proceeded on schedule toward an opening planned for the second quarter of fiscal 2014.

Executive Education Revenue

IN MILLIONS
FY 13 FY 12 FY11FY 10 FY09
$ 146142132113 107
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