01 Sep 2013
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HBS's Unique Economic Model

by Richard Melnick

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Harvard Business School is renowned for educating leaders who make a difference in the world. Less well known is the economic model that enables HBS to do this—model that is unique in higher education. HBS is a living example of what it teaches: For a business's long-term success, it must have multiple revenue sources, invest in innovation, avoid deferred maintenance, limit debt, and run a surplus.

The School has five principal revenue streams: MBA tuition, Executive Education tuition, Harvard Business Publishing (HBP), the endowment, and current-use funds. Three of these have limited growth capacity. On the MBA side, today's economy does not allow for significant tuition increases. In addition, since 2008, financial aid need has risen, minimizing the impact of tuition increases. Executive Education, a thriving program, is constrained by space. HBP, meanwhile, like the rest of the publishing industry, faces fierce competition and great uncertainty as it adapts to the digital world.

At a time when the School must increase its investment in innovation, revenue from philanthropy (20 percent endowed funds payout, 4 percent current-use gifts) offers the best growth potential. While the endowment largely comprises restricted funds that likely will generate only modest returns in the next decade, gifts to the HBS Fund for Leadership and Innovation (formerly known as the Dean's Fund) can be used in full immediately to adapt to emerging trends. These critical unrestricted dollars have a strong impact on HBS's ability to innovate and advance key priorities, and we anticipate that they will play an even greater role in the School's efforts to foster leaders and ideas with the power to change business and society.

In the coming years, HBS will continue to be a well-managed, fiscally responsible steward of its resources. We are grateful for the many alumni and friends who make annual contributions of all sizes.

Rick Melnick (MBA 1992)
Chief Financial Officer

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