HBS’s 2015 Annual Report in 14 Bullets

On the premise that the more you know about your dream business school, the better your chances of admission, here is Harvard Business School’s 2015 Annual Report in crystallized form (with commentary):

• Dean Nitin Nohria’s preface notes proudly that “We broadened the reach of CORe [Credential of Readiness], HBX’s on-line primer on the fundamentals of business, to a more truly international audience of learners.” Indeed, CORe participants grew almost 600% from 622 in 2014 to 3,511 in 2015—proof of the CORe product’s popularity (and a significant percentage of HBS MBA admittees last year were CORe veterans).
• The selectivity of Harvard’s doctoral program continues to put HBS’s full-time MBA program to shame, with only 4% (749 applications for 147 places) winning acceptance. Of course, the full-time MBA remained by far the most desirable of the two programs, not merely in applications received (9,686 to 749) but in yield (91% to 53% for the doctoral program).
• As a highly visible and therefore reputation-sensitive organization, HBS is trying to be a good, even green stakeholder: “the School’s fiscal 2015 energy consumption and green-house gas emissions were the lowest ever recorded, despite extremely cold weather this past winter.”
• HBS’s financial modeling, like everyone else’s, adheres to the rear-view mirror methodology: “For planning purposes, we have assumed that global economic conditions—and therefore academic and higher education market trends—will generally mirror those experienced in fiscal 2015.”
• HBS is a healthy economic engine. Since 2011 its revenues have been growing faster than the hot economies of China and India: “The School’s revenues have grown at a compound annual rate of 8 percent over the past five years.”
• But running the world’s most famous business school is expensive, or as CFO Richard Melnick coyly puts it, “activities that enrich the HBS student experience typically lead to incremental expenses that do not have an associated revenue stream.” He then cites HBS’s FIELD immersion experiences as examples: they add “about $10 million of incremental annual expenses—only a small portion of which is recovered by MBA tuition and fees.”
• Despite its costs, as an institution whose mission is to train great leaders for great organizations, HBS must show that it’s a well-run business: “One of our financial planning goals is for HBS to serve as a living model of a well-run organization—consistent with the skills, tools, and frameworks taught across the School’s educational programs each year.”
• In contrast to its revenue-chewing faculty and MBA programs, HBS is hoping its new HBX digital learning initiative will actually evolve into a profit center and cash cow: “unlike the MBA program, HBX is envisioned by the School as an initiative that will evolve into a self-sustaining and surplus-generating activity.”
• Toward that end, HBS is investing a ton of money to feed the technology infrastructure that HBX requires: “the School’s I.T. investments, including both operating and capital expenses, have grown at a compound annual rate of nearly 15 percent over the past five years.”
• HBS alumni are generous but given the school’s expenses they *have* to be: “the School’s economic model relies on two philanthropic revenue streams: distribution from the endowment and current use gifts. The endowment distribution and current use gifts represented 18 percent and 9 percent, respectively, of the School’s total revenue in fiscal 2015.” And alumni generosity will likely have to grow: “funding for … new MBA program expenses will have to come primarily from gifts to the School.”
• Fortunately, HBS alumni generosity is actually exploding: “recent restricted and unrestricted current use giving to HBS has been nothing short of extraordinary—growing from a total of $26 million five years ago to $63 million in fiscal 2015.”
• HBS’s 2016 revenues will mirror its tuition in growing at a 4% clip, but—good news for MBA students—“This will be partially offset by a 9 percent increase in financial aid, primarily earmarked for MBA fellowships.”
• With U.S. inflation growing at a meager 0.7% in 2015, HBS’s 4% annual tuition hikes may seem excessive, but rising faculty compensation is far outstripping tuition and revenue increases: “Reflecting salary increases and benefits costs, the School’s fiscal 2016 financial plan assumes a 7 percent increase year-over-year in total compensation expense.” And faculty compensation is an enormous cost. As Melnick ruefully notes, “Nearly 50 percent of the School’s expense base relates to compensation for faculty and administrative staff.”
• Faculty costs are among the “nuances” of HBS’s peculiar mission: “The concept of productivity,” Melnick delicately notes, “does not strictly apply to an enterprise like HBS that strives to provide faculty members with robust support for their research.” Translation: Don’t expect us to make our faculty justify themselves in practical terms. In other words, HBS alumni better keep on giving.