HBS - Financials | From the Chief Financial Officer (2024)

HBS - Financials | From the Chief Financial Officer (1)

For Harvard Business School, fiscal 2023 marked a year of innovation and strong financial performance. As part of Dean Datar’s ambitious agenda, HBS launched the Digital, Data, and Design Institute (D^3), which is reinventing how organizations compete in the digital world. The School welcomed the first cohort of fellows at the Institute for the Study of Business in Global Society (BiGS), bringing together researchers and practitioners to address critical issues facing business and society. Through these, a focus on educational program innovations, and other initiatives, in fiscal 2023, the School continued to execute its pedagogical mission: to educate the next generation of global leaders who make a difference in the world.

For the first time in HBS’s history, total revenues surpassed $1 billion, as did total operating expenses. This landmark reflected the expansion of core programs and higher MBA enrollment. The growth also reflected the rising costs required to maintain those revenue sources while continuing to invest in the School's future. Cash from operations—our operational surplus—increased more than 10% year over year to $64 million, allowing HBS to end the year with a larger-than-expected balance of unrestricted reserves.

Nearly three years after the height of the COVID pandemic, HBS has become an even more dynamic institution, both financially and operationally. The School has embraced digitalization, sought to broaden the reach and impact of its research activities, and begun to adapt its physical space to evolving needs and the new realities of hybrid work. As evidenced by our fiscal 2023 results, one thing that hasn't changed—in fact, has become stronger—is the immeasurable value of the in-person, on-campus learning experience.

The HBS Economic Model

The self-sustaining nature of the HBS economic model is unique among Harvard University’s 12 graduate and professional schools. Research, the lifeblood of the model, is largely internally funded. This gives the School’s faculty the autonomy to pursue answers to the business research questions that interest them most. Faculty members stay close to practice, interacting with business leaders and managers in the field to research the world’s most significant opportunities and pressing challenges.

The product of the faculty’s research is intellectual capital, including journal articles, working papers, field cases, books, and book chapters. These materials, together with the School’s revenue-generating programs, enable HBS to build and disseminate knowledge, educating the next generation of entrepreneurs and executives and influencing the practice of management on a global scale. Income earned through Executive Education, Harvard Business Publishing (HBP), and Harvard Business School Online (HBS Online), augmented by revenues from MBA tuition and alumni gifts, completes a virtuous circle of research funding.

One of the School’s enduring financial goals has been to embody a well-run organization, exemplifying the same skills, tools, and frameworks taught across the School’s educational programs. Because transparency is integral to this goal, our fiscal 2023 financial results are reported in detail in the Supplemental Financial Section, beginning on page XX.

The balance of my letter discusses our fiscal 2023 financial results at a strategic level, concluding with our financial expectations for the year ahead.

Fiscal 2023 Review

Fellowships (in millions)

  • MBATotal*
  • FY 23 $51$66
  • FY 22 4457
  • FY 21 4053
  • FY 20 4557
  • FY 19 4251

* Includes Doctoral Programs, Executive Education, and HBS Online.

Investment in Research (in millions)

  • FY 23 $153
  • FY 22 140
  • FY 21 126
  • FY 20 131
  • FY 19 152

Publishing Revenue (in millions)

  • FY 23 $310
  • FY 22 302
  • FY 21 274
  • FY 20 262
  • FY 19 262

Executive Education Tuition (in millions)

  • FY 23 $224
  • FY 22 174
  • FY 21 81
  • FY 20 146
  • FY 19 222

Total revenues for fiscal 2023 increased 11 percent year over year to more than $1 billion. This growth exceeded our forecast by 2 percent, primarily driven by Executive Education, the endowment distribution, MBA tuition and fees, and Publishing. The revenue mix within the income statement was relatively consistent with the prior year.

Another constant in fiscal 2023 was the outstanding performance of Executive Education, which continued to expand its international reach with a range of both enduring and timely programs for individuals and organizations. The group’s tuition revenue increased 29 percent to $224 million, significantly above our forecast and just shy of the group’s pre-pandemic high, set four years ago. In fiscal 2023, Executive Education participation increased 20 percent to more than 12,700, while its on-campus residential programs grew by 14 percent. For HBS, Executive Education is an important contributor to faculty development. Teaching in these programs gives HBS professors an opportunity to engage directly with participants on their operational strategies and business challenges. This learning is brought back into the MBA classroom to provide students with timely, real-world insights.

Driven in part by the increasing circulation of its flagship publication, Harvard Business Review, HBP delivered revenue of $310 million. Fundamental to this growth has been the Corporate Learning group, which provides leadership and management training through digital solutions based on an organization’s goals. International revenue has increased each year since fiscal 2018. It now represents more than 40 percent of the group’s total, highlighted by growing demand for cases and blended programming.

At HBS Online, enrollment increased for the ninth consecutive year in fiscal 2023, approaching 42,000 participants. In recent years, however, the growth rate has decreased and the revenue mix has shifted. Consequently, revenues decreased 3 percent from the prior year to $68 million. As in fiscal 2022, the group’s margins were pressured by higher student acquisition costs amid heightened competition from other online offerings.

The School’s annual endowment distribution revenue for fiscal 2023 increased 9 percent year over year to $208 million, or 20 percent of the School’s total revenues. The increase is a function of the University’s distribution rate and the size of the endowment, which includes gifts from alumni and transfers from the School to the endowment reserve. In fiscal 2023, the distribution rate set by the University was 4.5 percent. The distribution from the endowment and the endowment’s investment performance in fiscal 2023 are discussed later in this report.

Through the generosity of the School’s alumni, families, and friends in fiscal 2023, HBS received $74 million in restricted and unrestricted current use giving, amounting to 47 percent of the total cash received from gifts. Unrestricted current use gifts totaled $44 million in fiscal 2023, down 2 percent year over year. The flexible nature of these gifts provides the bedrock that allows the School to advance new initiatives and expand the faculty’s research agenda.

Revenue from MBA tuition and fees increased to $152 million in fiscal 2023, up 11 percent from the prior year, reflecting a bump as both first- and second-year students who had chosen to defer their enrollment during the pandemic returned to campus to resume their education. HBS welcomed 2,024 MBA students in fiscal 2023, an 8 percent increase from fiscal 2022.

Need-based tuition assistance, long a hallmark of HBS, remains a strategic priority for the School. This support, made possible through the generosity of donors, underscores the School’s commitment to invest in the future of students for whom business school would otherwise be too high a financial burden. In fiscal 2023, 47 percent of MBA students received a need-based scholarship from the School with awards ranging from $2,500 to $76,000 per year for full tuition and course fees. The average annual award was nearly $45,000. Last summer, HBS announced that it would begin providing aid to cover the total cost of tuition and course fees for the 10 percent of students with the greatest financial need.

Capital Investment (in millions)

  • FY 23 $31
  • FY 22 $43
  • FY 21 22
  • FY 20 43
  • FY 19 38

IT Investment (in millions, excludes capital expenses)

  • FY 23 112
  • FY 22 98
  • FY 21 90
  • FY 20 96
  • FY 19 87

Building Debt Outstanding (in millions)

  • FY 23 $22
  • FY 22 28
  • FY 21 33
  • FY 20 40
  • FY 19 46
  • FY 18 55

Harvard Endowment Returns

  • FY 23 2.9%
  • FY 22 -1.8%
  • FY 21 33.6%
  • FY 20 7.3%
  • FY 19 6.5%
  • FY 18 10.0%
  • FY 17 8.1%
  • FY 16 -2.0%
  • FY 15 5.8%
  • FY 14 15.4%

A campus framework plan was completed in fiscal 2023 that envisions the School’s programmatic and space requirements for faculty, students, and staff over the next decade. The plan is designed to ensure that future capital needs are consistent with the HBS mission, emphasizing academic programs, planned faculty growth and sustaining an outstanding faculty, the residential campus experience, and the School’s ongoing digital transformation. With the focus on longer-term planning, capital spending remained modest in fiscal 2023, declining 28 percent to $31 million. Dollars were allocated to a range of smaller projects, most prominently completing the fit out of leased co-working office space at 114 Western Avenue and creating co-working space at 25 Travis Street housing both HBS Online and the HBS Information Technology group.

IT security, digital infrastructure, data, and analytics play an increasingly vital role in the School’s operational performance and, consequently, in our operating budgets. In fiscal 2022, Dean Datar launched digital transformation (DTx) as a strategic priority for HBS to accelerate the ways data and technology can be leveraged to enhance the research and teaching experience and forge stronger bonds across the HBS community. Through the new Digital, Data, and Design Institute at Harvard (D^3), the School is researching how technological advances such as machine learning and artificial intelligence will be crucial for business success in the 21st century.

With the ramp-up of DTx and other initiatives, IT operating expenses increased 14 percent in fiscal 2023 to $112 million, representing 11 percent of the School’s total operating expenses. Since 2014, IT operating expenses have grown at a compound annual rate of 6 percent and are projected to grow further in fiscal 2024.

Turning to expenses, we continued to monitor and carefully manage spending in fiscal 2023 while planning for a year of moderated growth and higher costs in the current fiscal year. The operating expense growth rate matched revenue in fiscal 2023, rising 11 percent year over year to $1 billion, in line with our forecast.

As with any year, the largest share of the School’s budget in fiscal 2023 centered on our most important asset—our people. Salaries and benefits totaled $457 million, or 46 percent of total operating expenses, an increase of $29 million, or 7 percent year over year. The change was driven primarily by personnel growth in strategic areas such as D^3, the MBA program, Executive Education, and IT. There were 271 full-time equivalent (FTE) faculty members in fiscal 2023, compared with 272 a year earlier.

Strategic investments in core programs such as Executive Education and Publishing, combined with the ramp of DTx, drove a 45 percent increase in professional services, which grew by $24 million to $77 million in fiscal 2023. Professional services accounted for 8 percent of total operating expenses for the year, 2 percent higher than fiscal 2022.

Fiscal 2024 Outlook

Much of the groundwork for Dean Datar’s strategic initiatives was laid in fiscal 2023, with the startup of D^3 and BiGS, innovation in the School’s educational programs, and investments in DTx. As we begin a new fiscal year, it’s exciting to see these efforts beginning to scale.

Fiscal 2024 will be another year of significant investment in digital transformation as the team heading the DTx initiative leans into its mission to position HBS as the lifelong learning partner for future generations of business leaders. The DTx team expects to build its organizational expertise in data science, machine learning, and data platforms. A portion of the investment will be directed toward transitioning HBS Online to a University-wide Learning Experience Platform, incorporating user-generated content to create a more personalized, engaging, and collaborative learning experience.

The School’s fiscal 2024 investments in D^3 and BiGS will build on the foundational work begun in fiscal 2023 to expand the reach and impact of the faculty’s research. For D^3, that included the launch of 12 labs that represent an exciting new model of leveraged research for the faculty— labs that aim to create strong partnerships between the faculty and leading organizations globally so as to develop new insights that can guide the decision-making of organizations and leaders facing digital transformation. For BiGS, that will include additional cohorts of BiGS Fellows—leading scholars who deepen our faculty’s understanding of issues like climate and race—as well as convenings and MBA modules that examine the role of business in society.

With that backdrop, let me share with you our near-term financial expectations. On the top line, we forecast total revenue growth of 3 percent in fiscal 2024. Combined revenue from HBP, Executive Education, and HBS Online is expected to increase by about 4 percent from the prior year. The groups plan to drive revenue through new products, market expansion, and technology innovation.

The HBS endowment distribution is budgeted to increase 6 percent in fiscal 2024, representing the 4.5 percent approved increase, plus distributions on new gifts.

Ongoing alumni support is integral to the School’s ability to invest in those areas that enable HBS to deliver on its mission. Restricted and unrestricted current use gifts are the fuel that advances the School’s strategic priorities, supports the School’s world-class business research, and helps ensure that talented students with need are able to receive financial aid. In fiscal 2024, the School’s financial aid budget is $70 million.

On the expense line, our fiscal 2024 operating plan assumes total operating expenses will increase 11 percent year over year. Salaries and benefits for faculty and staff comprise 46 percent of the anticipated total expenditures. On a percentage basis, total compensation expense is expected to increase from fiscal 2023, factoring in salary increases, benefit costs, anticipated vacancies, and new positions. Collectively, the other operating expense line items are expected to increase 6 percent year over year in fiscal 2024, primarily attributable to investments in core programs and other growth initiatives.

As I reflect on the macroeconomic outlook for fiscal 2024, while inflation has improved, the School nevertheless faces a range of external cost and margin pressures as the result of a more competitive labor market, higher interest rates, and persistent economic uncertainty. As an institution with academic programs around the world, we also must navigate an increasingly complex—and expensive—array of taxation, regulatory, and compliance issues that are significantly raising the cost of doing business. In addition, we are mindful of the potential impact of growing geopolitical tensions on the economic landscape.

The School’s capital budget for fiscal 2024 is $32 million, 3 percent higher than the prior year. This budget includes renovation of the Spangler Center auditorium and McCulloch Hall, improvements at Connell House, and the conversion of the chilled water plant.

In closing, we begin fiscal 2024 with a robust balance sheet and substantial reserves, positioning us to effectively deliver on the School’s strategic priorities in the coming year. The goal is to sustain and expand these financial resources over the long term, furthering the School’s core programs and supporting the faculty's mission-driven research agenda. As always, we remain committed to acting as responsible and disciplined stewards of the School’s resources.

HBS - Financials | From the Chief Financial Officer (2)

Richard P. Melnick, MBA 1992
Chief Financial Officer
November 27, 2023

As an expert in business administration and financial management, with a particular focus on educational institutions and organizational economics, I can confidently dissect the intricacies of the Harvard Business School (HBS) fiscal report for the year 2023. My expertise in analyzing financial data, understanding strategic initiatives, and interpreting economic trends allows me to provide insights into the performance, challenges, and future outlook of HBS.

Let's break down the key concepts and elements mentioned in the article:

  1. Harvard Business School (HBS):

    • HBS is one of the leading graduate business schools globally, known for its MBA program, executive education, and research output.
    • It operates under a unique economic model, largely sustaining itself through internally funded research and revenue-generating programs.
  2. Financial Performance:

    • Fiscal 2023 witnessed significant financial achievements for HBS, including total revenues surpassing $1 billion for the first time.
    • Operating expenses also reached a record high, reflecting investments in core programs, research, and infrastructure.
  3. Revenue Streams:

    • HBS's revenue sources include Executive Education, Harvard Business Publishing (HBP), Harvard Business School Online (HBS Online), MBA tuition, alumni gifts, and endowment distributions.
    • Executive Education and Publishing are notable revenue drivers, with Executive Education experiencing a substantial increase in revenue and participation.
  4. Research and Intellectual Capital:

    • Research is a cornerstone of HBS's economic model, with faculty members producing intellectual capital in the form of publications, cases, and books.
    • This intellectual capital, along with revenue-generating programs, contributes to knowledge dissemination and influences management practices globally.
  5. Strategic Initiatives:

    • Dean Datar's agenda emphasizes innovation and digitalization, as evidenced by the launch of the Digital, Data, and Design Institute (D^3).
    • The Institute for the Study of Business in Global Society (BiGS) aims to address critical societal issues through collaboration between researchers and practitioners.
  6. Expense Management:

    • HBS prioritizes prudent expense management while investing in strategic priorities such as digital transformation (DTx), faculty development, and program enhancements.
  7. Alumni Support and Financial Aid:

    • Alumni contributions play a crucial role in funding HBS's strategic initiatives and supporting financial aid programs for students.
  8. Capital Investments:

    • Fiscal 2023 saw modest capital spending, primarily directed towards infrastructure projects and IT investments to support digital transformation efforts.
  9. Financial Outlook:

    • The outlook for fiscal 2024 includes continued investment in digital transformation, research expansion, and educational innovation.
    • However, the school faces challenges such as rising expenses, competitive labor markets, and economic uncertainties.

In conclusion, HBS's fiscal report for 2023 reflects its commitment to academic excellence, financial sustainability, and strategic growth. As an expert in business education and financial management, I offer comprehensive insights into the institution's performance and outlook, highlighting key trends and challenges shaping its future trajectory.

HBS - Financials | From the Chief Financial Officer (2024)
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