ANNUAL 2010

08 14 18 Social Responsibility Entrepreneurship Sustainability 04 07 10 12 16 20 MBA Program Doctoral Programs Executive Education Faculty & Research Alumni Publishing

Harvard Business School Soldiers Field Boston, Massachusetts 02163 21 26 27 28 Five-Year Summary Statement of Activity & Consolidated Balance Supplemental Information www.hbs.edu Cash Flows Sheet Poised to enter a second century of innovation.

{ page 1 of 36 } fro m the de an

Friends, I am pleased to share with you the 2010 Annual Report for Harvard Business School. As you will see in the pages that follow, it was a better than anticipated year for the School. This resulted partly from belt-tightening efforts that trimmed our expenses substantially from the previous fiscal year, and partly from outstanding results in our Executive Education and Publishing groups, which managed strong contributions even in the face of significant industry-wide challenges. More than anything, though, this was the result of incredible foresight and leadership by the School’s ninth dean, Jay Light, who completed his tenure on June 30th.

We all owe Jay a tremendous debt of stability, but its overall strength. Jay and the work of the faculty, as well as gratitude for his stewardship of the was a remarkable leader during diffi - important ongoing work in the areas School. He navigated a path for HBS cult times. of sustainability, community engage - ment, and entrepreneurship, among that protected key priorities, from stu - This year’s report has taken on a others. dent fellowships to faculty research, slightly different format. The School’s while investing strategically in areas financials remain comprehensive In each of these areas, 2 010 brought such as MBA Career & Professional and our Chief Financial Officer, Rick with it new developments both large Development. He rallied everyone in Melnick, provides insight into our eco - and small. In the MBA Program, for the community—staff, faculty, stu - nomic model at a high level and example, in addition to the January dents, and alumni—to think and work expenses and revenues at a more de - Term offerings you'll read about in creatively. And he pushed forward tailed level. In the section in between, the pages that follow, we welcomed on important efforts such as our you’ll find an effort to bring meaning - our first cohort of 2+2 students to global initiative. As a result, I was ful data to life about our key activi - campus over the summer for an in - able to step into the deanship confi - ties, including our educational pro - troduction to HBS and to each other. dent not just in the School’s financial grams, Harvard Business Publishing, This is a remarkable group of individ -

{ page 2 of 36 } uals who were admitted to the MBA grams are offered in strategic regions This is but a small flavor of the entre - Program while finishing their under - around the world. We will, of course, preneurial activity you'll encounter graduate degrees; they will work for maintain our commitment to our on- on the HBS campus on any given day two years and then join us full-time. campus portfolio, and next year you’ll or week. As I begin my tenure as We also launched a new loan pro - hear more about plans for Tata Hall, Dean, I am excited by the work we gram for our international students— a new state-of-the-art facility encom - are doing and the opportunities a crucial component of ensuring that passing participant living space, ahead of us, and eager to move we always are able to attract the best classrooms, and administrative of - forward on the priorities—innovation students to our campus, regardless fices that we anticipate will be com - in our educational programs, intel - of their need or country of origin— pleted in 2013. lectual ambition, international en - replacing a comparable program gagement, inclusion, and integration 3 that was withdrawn during the eco - Harvard Business Publishing has held with Harvard—we have identified. nomic crisis. steady in a landscape where its peers We truly stand poised to enter a glo - are struggling. Following significant rious second century of innovation In our Doctoral Programs, we contin - upgrades to its technology platform, for the School. ued to increase the number of stu - work to expand its global reach, and dents we admit, as well as the sup - Regards, investments in its core products— port we provide to them, thanks to including Harvard Business Review , the generous gift of Hansjoerg Wyss. the case collection, and Harvard Even in a difficult job market the ManageMentor—it is solidly posi - placements of our graduates remain tioned to meet future challenges. strong, and in 2 010 six went on to Nitin Nohria teaching positions at top-tier schools. Perhaps less visible, but still exciting, Dean of the Faculty have been advancements in our Executive Education demonstrated that its post-recession trajectory is efforts around sustainability. We firmly positive, with growth in both launched an initiative on business applications and enrollments and a and the environment to bring to - rise in the number of program weeks. gether faculty, students, staff, and An important area of focus during alumni doing work in this increasingly 2010 was global programs—specifi - important arena. And as part of the cally, programs in China and Europe, University’s efforts to reduce green - with the former capitalizing on the house gas emissions 30 percent from new classroom space in the Harvard 2006 levels by 2 016, we installed a Center Shanghai. During the coming 5,200-square-foot “green roof” on year we will add programs in India Shad Hall, and introduced a “Green and Latin America to the portfolio, Corps” of MBA students who pro - and our hope is to reach a steady mote sustainable living through peer- state where at least a few dozen pro - to-peer education.

{ page 3 of 36 } MBA

EDUCATING FUTURE LEADERS for a diverse world begins with recruiting MBA students who bring different experiences, interests, and ambitions to HBS.

APPLICATION S, F Y10 (CLASS OF 2 012)

9,524 CITIZENSHIP 10000 70% North America 8000 11% Asia/South Pacific 6000 11% Europe 4000 3% Central/South America 2000 903 4% Africa/Middle East 0 11% ACCEPTANCE RATE Applicants Admitted 1% Oceania

STUDENT DEMOGRAPHICS

CASE FOCUS, FIRST-YEAR GLOBAL CASES

24% Multi-Regional

36 34 23 33% Asia/South Pacific

31% Europe

7% Africa/Middle East

% Women % International % U.S. Ethnic Minority

TEST SCORES UNDERGRADUATE INSTITUTIONS PRE-MBA INDUSTRIES REPRESENTED REPRESENTED 550-7 90 S N O I G S

GMAT Score Range T T N A I C C R H U I U C G D N T E N O U T T C I

243 R N M A O K I P F E N 710-7 50 M B U A R M O / N E B E C A G E M / T A M R U N H N A S E C A C N M E H O M T T Y

Middle 50% GMAT Score Range T S C T R L H E A N A V G T E E I I N L H I H M I T M S

MOST FREQUENTLY AVERAGE GPA E V G N N I

REPORTED YEARS I T L

OF WORK EXPERIENCE U S N O 4 3.67 C

{ page 4 of 36 } 80% 25% 50% 33% 75%

Students who Students who participated MBA graduates who become International cases Students who receive some live on campus in an immersion program entrepreneurs by 15th reunion discussed form of financial assistance

UNDERGRADUATE MAJORS

40

30 S

20 E S C E N C / E N G / I E S N R C I I E E S I C R S H T S 10 L E S I T A E E L N O R A N N A I I I U M S C G T A U U O N N S 0% E H B 5

JOB OFFERS IMMERSION EXPERIENCES, 2010 CLASS OF 2009 CLASS OF 2010

Received Offer (3 months after graduation) 91 % 95%

Accepted Offer (3 months after graduation) 87 % 90 %

HBS PARTNERS JOB POSTINGS 1,02 9 1000 88 0 856 S 460 E 836 C I V R Y E T S I T 750 I U L S F Q A E I O E C C R I E N P V T A A N R

N www.hbs.ed u/mba V SCAN CODE TO VISIT O E I I S N F R P R R 500 E / E H H L T T A O O T I D P E I A F C I 0 0 9 9 C 1 1 0 0 E 250 E R – – – – P 9 9 8 8 U T S 0 0 0 0 N N 0 0 0 0 E U 2 2 2 2 V

0 Summer Positions Career Positions

{ page 5 of 36 } In FY10, HBS identified new opportunities for learning experiences that complement and enhance the MBA curriculum.

HBS INAUGURATES JANUARY TERM EVOLVING IXP s

MBA Program faculty and students In 2 010, Immersion Experience Pro - Millennium Promise took advantage of the new January grams (IXPs) took place for the first Worked on a Millennium-funded cassava Term to experiment and innovate, time in South America and sub- processing plant for a farmers’ cooper - pursuing options made possible by Saharan Africa. ative; implemented feed-mix trials to the longer break between the fall help chicken farmers apply the most and winter terms resulting from the Peru IXP cost-effective approaches to raising University’s move to a common aca - Is the natural resource curse in - marketable poultry. demic calendar in the 2009 –2010 evitable in developing nations? This academic year. was the central question professor Diego Comin posed to the 49 MBA During the first January Term, the students on the Peru IXP. The stu - School piloted or expanded a variety dents met with local entrepreneurs, of programs, each designed to en - created a business plan for tourism hance the learning that takes place in at an historic site, explored develop - HBS classrooms. The “J-Term” is ex - ing a world market for undervalued pected to grow and evolve over time, agricultural products, and pondered offering students opportunities for the sustainability of a resort hotel’s small-group, in-depth, and cross- business model. They also conducted School activities. a field study, surveying small busi - ness owners with local students in Intensive faculty-led seminars the city of Cuzco. More than 300 MBA students enrolled in 11 faculty-led seminars in areas such as Rwanda IXP leadership, global trends, and health - Led by professor Louis Wells, 35 stu - care. One seminar, Integrating Business dents devoted one of their two weeks and Design for Sustainable Develop - in Rwanda to consulting projects with ment, was a joint effort of HBS and the local organizations, with the goal Harvard Graduate School of Design and of providing concrete solutions was taught by HBS faculty members Amy to management problems. Small Edmondson and Robert Eccles. teams worked with a variety of Expanded IXPs NGOs, small businesses, and a gov - The Immersion Experience Program, ernment agency with common inter - a staple of winter break since 2007, ests in social enterprise and business expanded in 2010 to encompass more development. A high point of the pro - than 400 MBA students participating in gram was a wide-ranging two-hour eight faculty-led IXPs in Asia, the Middle discussion with Rwandan President East, Central America, South America, Paul Kagame. and Africa, together with U.S.-based programs in Boston, New Orleans, and SAMPLE RWANDAN CLIENTS & PROJECTS: Silicon Valley. Indego Africa Independent studies Developed marketing plans for this coop - Students were free to choose from less erative, which empowers women to rise structured options, including field stud - out of poverty by selling their own crafts. ies, career coaching, and student-led Career Treks in North America, Europe, Karisimbi Business Partners and Asia. Helped the organization’s client Manu - metal, a local furniture manufacturer, align its operations with its new business strategy.

{ page 6 of 36 } The Doctoral Programs at HBS train students who will be responsible for the next generation of business knowledg e.

DO CTO RAL P ROGRA MS

2010 WYSS AWARDS for Excellence in George Serafeim Doctoral Research, named in honor DBA, Accounting and Management Total enrollment, FY10 130 of Hansjoerg Wyss (MBA ’65) Dissertation: “Essays on Fair Value Reporting 1) Conse - Prithwiraj Choudhury quences and Institutional Determinants of DBA, Strategy Unregulated Corporate Financial State - ments: Evidence from Embedded Value Dissertation: “Innovation in Emerging Markets” Reporting, 2) Information Risk and Fair 33 29 Values: An Examination of Equity Betas Now on the faculty of the Wharton and Bid-Ask Spreads, 3) Did Fair Valua - School, University of Pennsylvania tion Depress Equity Values During the 2008 Financial Crisis?” Emilie Feldman Now on the faculty of Harvard Business DBA, Strategy School % Women % International Dissertation: “Essays on Corporate Strategy 1) Selling 7 your Heritage: Legacy Divestitures and the Hidden Costs of Corporate Renewal, for Excellence in 2) The Talent at the Table: Business Ex - 2010 MARTIN AWARDS DOCTORAL STUDENTS COMMEND pertise and Share Ownership in Fortune Business Economics, established by FACULTY MENTORS Roger Martin (MBA ’81) in memory 500 Boardrooms, 3) When Do Analysts For the third year DBA and Ph.D. Add Value: Evidence from Corporate of his mentor, HBS professor John candidates recognized one senior Spinoffs” Lintner Now on the faculty of the Wharton and one junior faculty member who School, University of Pennsylvania Sergey Chernenko fostered their professional and per - Ph.D., Business Economics sonal development with the Doctoral Colin Fisher Dissertation: Awards for Excellence in Mentoring. Ph.D., Organizational Behavior “Capital Market Imperfections and Cor - The senior faculty award went to Dissertation: porate Finance” “The Timing and Type of Team Coaching Now on the faculty of Fisher College of Amy Edmondson and the junior fac - Interventions” Business, The Ohio State University ulty award to Belén Villalonga . Now on the faculty of the School of Man - agement, Boston University Itay Fainmesser Ph.D., Business Economics Dissertation: “Essays on Networks and Markets 1) Community Structure and Market Out - comes: Towards a Theory of Repeated Games in Networks, 2) Effective Word- Of-Mouth: Reputation Networks and Market Structure, 3) Social Networks and Unraveling in Labor Markets” Now on the faculty of Brown University

scan this code to visit www.hbs.edu/doctoral

{ page 7 of 36 } soci al responsi bili ty B A A L A A F c C I P J T S O N M V W V t t i m v A s 8 w p u I S u n n h o e o r u y it i er a oc o h c o Y l l c n ati h 8 ew ak s S n e c it s e l l s e AT n se fl e ld t s t s t s bsi cal ati a 10 t ak fi i er on aci h a ag wo l o s le r en ie s l o o t ph on on on be CH sc s on AN S tio of C - E n E i se qu on s r d diz yt a c ng t t a s e s - - n (p O al y it tan impor n ati i Br i Br ld r i F M. n o h d t Bos Ri C F a o p r u o h r al efi la re a , B gan i i in a t r a p t re IN program o t har n H ecia el 20 ghto ghto p v ho Sc rtia wi he . S nd d n a fight n Ad er t o g d S mi loc p YM p us mi h Sc ST of 10 de iz on Pk ar rogr o C e C va th s er l) su th n n os ly l e a th e AC ar al t nc to a eir Y i L o nt IT . ns tio s’ r P ead L o C B h po a as ou s ub M tl t itive oys t s t e S e Ch n er hip am lo e v l UTI n s men mu Bur pr th va r onpro Proj ult t e i r a s e s m i lic uf rong e p n s a f ild a t r o L & t see n Fun e Ho Se i- ll Rec lar o eag r is n h Sc n w i k a re , ec t ship r ti - G o a l i O yc Ho nit Fo t t s e C hol c t d n’s { f y ir d r he t ie me he N key o ue rep p e ic v fit ng eiv u ls lo y aff s mele iffe ec o g a f o nt yl r , s nda , e, H e C l . C a c S HBS er e b ing se H Fe ea Se inc lu ne g in ho c me o n Se 8 oar nt t l t ren b he o sent vi r i lth s l B o ni publ er h t i f t s t Dona ow Vet n s mber f - 3 S ol Le or a ds c e C 6 ho Sc ro - gm e e i se e c t er mmedi s ati r a } e C pr . he ic n e d S have o r p an tu s te t of nt o ers o ions co UPORT and r w t n e ol pro v s n er f re i r t fi de hip ithin n e d gni i om devo n , c , s at kwor ed gr no e r o t n e he r p F a t 1 z z i n a g t npr e m’s h nei t ts e se o MBA llo e s C th s , F b ofi ghbo C ws, y it hol c t o n o OR i f i i e i e nc i n a t c a y t me, c M t f E s gra t u l r o o Bo o wh x B Sc i s n o u c e f ar b o r A T hoo r pt rse l u c o l c g f Bo to s t c a HE dua ich un f s t l u s n o s ho aniz i Bo t t a yt , on hi v i u . l s i t n e d v po e n-ba r p n o n BS H to p d d to s i g NEIGHBOR ol e i t tse a c u d E i s s, a ives n o n a s s nsib t o f f ni g, n i 2 and d n a M s a p f o Al o , or f r ed 02 nd f n c a t i t Bos t orga ayo t r o i tls Execut s .s a p i c i a a n l u op ta s ilit i on d n , i n-k s y ’r s ar f y t c on 25 e n erat e t a l o h ar y and izat ff p d nd eve ot d Offi ive Publi o r a to n i wh r be i h s f o ons ion v s ic ti OD the th E n e.c l o p i er- i t d l yo t n u s e e he c s , - - e h t e e nd. l r arger BS H c c s mu a p ommuniti e e s se k of which Maya Babu Sean Cameron A graduate of the joint M D/ MBA Cameron was elected Education Representative, or Ed Rep, for his first-year section, and during ways to program, Babu plans to practice neuro - his second year, he chaired the Education Committee, helping the new first-year Ed Reps surgery while working to shape govern - succeed in their roles. Cameron served as copresident of the HBS Investment Club and as a ment health policy. She participated finance and economics tutor to first-year MBA students. He spent the 2010 January Term in in research at Massachusetts General the Philippines on a research project directed at enhancing rural electrification. Hospital, working with a team of neuro - surgeons exploring whether socioeco - nomic status has an impact on the nature Richard Chung & Philip Wong of trauma patient care. At HBS, Babu In 2009, Chung piloted a version of the Global Impact Experience program, or GIX, in which created a business plan for a social ven - three teams of students consulted for the U.S. Agency for International Development on projects ture devoted to connecting mentors with relating to business development in the Philippines, Morocco, and Jordan. Wong joined Chung at-risk high-school students. in leading the planning and management of the GIX program during its second year, when it was integrated into the School’s 2010 January Term offerings.

EIGHT MBA STUDENTS RECEIVED THE SCHOOL’S PRESTIGIOUS DEAN’S AWARD. This annual award, established in 1997, celebrates a specific kind of achievement—contributing to the well-being 8 of HBS and the larger community through exceptional leadership and service.

John Coleman Robert Daly Jr. 9 Coleman took on leadership roles while a joint degree candidate at HBS and Harvard Kennedy While at HBS, Daly, a graduate of the School. In the HBS Senate, he led the Community Impact Fund, which provides financial support joint MD/MBA program, put his educa - for student-led initiatives that have direct and tangible impact outside the School, and he also tion and talents to use helping disen - served as the HBS representative to the Harvard Graduate Council. As an HBS Social Enterprise franchised communities gain quality Summer Fellow, Coleman worked at a Boston-based housing nonprofit. medical care. He worked extensively with the Humsafar Trust, a nonprofit in Mumbai, India, dedicated to the needs of sexual minorities. Daly developed a Andrew Klaber Whitney Petersmeyer five-year strategic plan that resulted in a While earning degrees in Harvard’s joint Petersmeyer was elected to the Leader - dramatic increase in the trust’s effi - JD/MBA program, Klaber was copresi - ship and Values Committee during her ciency and effectiveness and created dent of the Harvard JD/MBA Associa - first year at HBS and chaired it during tools to track the results. tion. He was a guiding force in creating her second. She twice participated in the the School’s MBA Oath, a voluntary service-based New Orleans IXP. During pledge created by students with the the summer after her first year, she ultimate goal of improving leadership worked as a research analyst at Teach throughout the business community. For America. Petersmeyer was subse - Klaber continued to serve as president quently named an HBS Leadership of Orphans Against AIDS, an all-volun - Fellow, a position that has enabled her teer organization he founded while an to return to this organization for a year undergraduate. after graduation.

{ page 9 of 36 } EXE CUTI VE ED UC

PREPARING EXECUTIVES FROM ALL OVER THE WORLD for new levels of leadership in their careers and within their organizations.

OPEN ENROLLMENT PROGRAMS PARTICIPANT DEMOGRAPHICS

10000 9,0 10 8000 5,9 15 20 63 6000

4000

2000

0 Applications Participants % Women % International

DAILY TIME ALLOCATION SOCIAL MEDIA FANS & FOLLOWERS 30,000 +

HBS MOBILE NEXUS The Educational Technology Group (ETG) partners with Executive Education to in - 6 hours in class On average, 2 hours’ preparation for each case study novate in the delivery of program content and related information. Building on the HBS Learning Nexus, a portal developed for the comprehensive leadership pro -

COURSES TAUGHT BY FULL-TIME FACULTY SCAN CODE TO VISIT www.exed.hbs.ed u grams, ETG created the HBS Mobile Nexus to bring the same material to par - ticipants’ smartphones and tablet de - vices. The application is designed to help participants get the most from their HBS experience and to deliver content in the 100% way they want to receive it.

{ page 10 of 36 } UCAT IO N

MANAGING HEALTHCARE DELIVERY (MHCD) was developed for teams of senior PROGRAM LENGTHS managers—clinicians and administrators—who are on the front lines of decision-making. Inaugurated in 2009–2010, MHCD focuses on issues of strategy, leadership, finance, and operations to help these individuals 2days to 9 weeks develop the skills they will need to drive change in their organizations. MHCD is offered in three one-week modules over nine months, reflecting CLASS SIZE the professional demands of participants. The schedule allows them to use the time between sessions to engage in activities and projects in their own environments—one reason that teams of managers from individual insti - tutions are encouraged to apply. 40- 80

PARTICIPANTS SPONSORED BY EMPLOYERS “We want to equip up-and-coming clinicians and ad - ministrators from around the world with the knowledge, tools, and scenarios they’ll need to design and improve healthcare delivery systems within their institutions.” 11 Professor Richard Bohmer, MD, faculty chair, MHCD 88%

OPEN ENROLLMENT PROGRAMS CUSTOM PROGRAM PARTICIPANTS 2,755 75 REVENUE $11 3 120 million 106

100 81 80

CUSTOM PROGRAMS 60

40

20 2 2 2 0 0 0 1 0 0 6 8 20 0 0

{ page 11 of 36 } published in FY10

1 2 FACUL TY & RES EARCH The breadth and impact of research is evident in the awards won

AWARDS FOR leadership, publications, tion, agglomeration and entrepreneur - EIGHT NEW MEMBERS were named teaching, contributions to academic ship, and entrepreneurial finance and to the tenure-track faculty in FY10: fields and society at large—and even angel investments. for a TV documentary—are among the Nanda’s research investigates the effect 1 Douglas Fearing accomplishments of faculty members of the financial sector on innovation and Assistant Professor Technology & Operations Management in 2009 –2010. entrepreneurship in the economy. He Fearing studies techniques for evaluating studies the role of financial intermedi - Awards received include: and improving the performance of com - aries in the founding and growth of new plex systems. Working primarily in the ventures in a region, and how govern - Global Award for Entrepreneurship airline industry, Fearing has developed ment policy toward the financial sector models and metrics to mitigate airport Josh Lerner received the 2010 Global influences innovation, entrepreneurship, and airspace congestion. He earned his Award for Entrepreneurship Research, and productivity growth. widely regarded as the world’s most Ph.D. from the Massachusetts Institute of Technology. prestigious prize in the field. In naming McKinsey Awards for Best Articles in Lerner, the award committee cited him Harvard Business Review 2 Francesca Gino for synthesizing the fields of finance and Gary Pisano , Willy Shih , and Clayton Associate Professor entrepreneurship, and for his research Christensen were honored with 2009 Negotiation, Organizations & Markets in the areas of venture capital, venture McKinsey Awards for the best articles Gino’s research focuses on judgment and capital-backed entrepreneurship, and en - published in Harvard Business Review . decision-making, ethics, social influence, trepreneurial innovation. The committee The annual awards are made by HBR and creativity; and on the consequences also noted the impact of Lerner’s insights and the consulting firm McKinsey & of lapses in these areas for individual, on public-policy measures that benefit Company. group, and organizational outcomes. She society by creating new jobs, products, Pisano and Shih took first-place honors holds a Ph.D. from the Sant’Anna School and services. for “Restoring American Competitive - of Advanced Studies in Pisa, Italy, and ness,” in which they argue that U.S. was a postdoctoral fellow at HBS. Before Kauffman Junior Faculty Fellowships companies were mistaken to outsource returning to join the faculty, she taught in Entrepreneurship Research manufacturing based on the belief that at the University of North Carolina at William Kerr and Ramana Nanda each it holds no competitive advantage. Chapel Hill’s Kenan-Flagler Business won a Kauffman Junior Faculty Fellow - School and at the Tepper School of Busi - Christensen and his coauthors, Jeffrey ship. The Ewing Marion Kauffman Foun - ness, Carnegie Mellon University. Dyer of Brigham Young University and dation, which supports entrepreneurship, Hal Gregersen of INSEAD, won the sec - 3 presents the awards annually to tenured Shon Hiatt ond-place award for “The Innovator’s Assistant Professor or tenure-track junior faculty members DNA.” Organizational Behavior whose research is recognized for its po - In his research, Hiatt investigates how tential to make significant contributions social structure influences the adoption to the field. of novel techniques and organizational Kerr, whose research focuses on entre - processes—and ultimately the development preneurship and innovation, works in of new ventures—in contexts ranging from areas including the role of immigrant the U.S. biodiesel industry to entrepreneur - scientists and entrepreneurs in U.S. tech - ship in developing economies. He received nology development and commercializa - his Ph.D. from Cornell University.

{ page 12 of 36 } 3 4 5 6 7 8

...and the interests of newly appointed tenure-track faculty.

4 Vineet Kumar 7 Magnus Thor Torfason video elements themselves. Faculty Assistant Professor Assistant Professor report that multimedia cases provide Marketing Entrepreneurial Management students with deeper insights so that Kumar focuses on the interface of mar - Torfason’s research interests center on they more quickly reach a high level of keting and technology, particularly on how behavior is influenced by the social analysis and dialogue in the classroom. social network media. He analyzes con - structures of individuals and organiza - sumers’ interpersonal behavior in the tions. In one of his primary research Paperless cases social network environment and its impli - areas, he uses data from a large online Some of the newest multimedia cases cations for developing new marketing video game to explore how social net - are not accompanied by a paper case, strategies. Kumar earned his Ph.D. from works and group identities jointly affect although they do have a printable sec - the Tepper School of Business, Carnegie adherence to informal societal rules and tion containing exhibits and on-screen Mellon University. norms of behavior. Torfason received his text. According to professor Michael doctorate from Columbia Business School. Tushman, author of the paperless case 13 5 Lakshmi Ramarajan on the athletic apparel company lulu- Assistant Professor 8 Gwen Yu lemon, “Students actually see the cul - Organizational Behavior Assistant Professor Ramarajan’s research examines the man - Accounting & Management ture, see the energy, see the personality agement and consequences of identi - In her research, Yu examines the ways through the multimedia technology. For ties—such as those of race, nationality, in which accounting information affects that kind of case, ‘lululemon’ is a real gender, or religion—in organizations, with various real economic outcomes—in par - breakthrough.” particular attention to ways people can ticular, how accounting standards and A SAMPLER work productively across social divides. corporate disclosures influence the capi - She received her Ph.D. from the Wharton tal allocation decisions of both managers Leadership, Culture, and Transition at lululemon School of the University of Pennsylvania and external investors. She earned her Michael Tushman and was a postdoctoral fellow at HBS Ph.D. from the University of Michigan. from 2008 to 2 010. Enterprise Risk Management at Hydro One 6 George Serafeim Anette Mikes Assistant Professor An Entrepreneur’s Journey: Accounting & Management MULTIMEDIA BRINGS CASES TO LIFE Simi Nwogugu Serafeim studies international capital John Davis MBA students and Executive Education markets with a focus on valuation, the in - (with Research Associate Shirley Spence) participants are accustomed to consum - formation environment, and intermedi - Burt’s Bees: Balancing Growth and ing information in multimedia formats, aries while also pursuing a more recent Sustainability interest in the social, environmental, and which can be the best way to teach and Christopher Marquis governance performance of firms. He learn certain kinds of material. HBS fac - earned his DBA from HBS. ulty members have been collaborating with the School’s Educational Technol - ogy Group to develop multimedia case studies. This latest innovation in the case method is far more than a video supple - ment or an online tool—rather, the pri - scan this code mary learning is contained within the to visit www.hbs.edu/research

{ page 13 of 36 } entrepreneurship Ve t o f T A w I C A r s T t n e T c A S wh n m p g n r h eg i

FACUL TY & RESEARCH ont h h h c eu oal re on k ac it or un n e p h is r e fi t n h R e e io neu t ane ool al sc r 14 i e s in w s e r p e r de s e r u h c year E S O in th ns a C d an t n b te wit HBS t ’s .t th - ur r an l rac usi r i k e s s a p e re S 2 d of sp g nd or in e t n o C h ro s ite 0 sai HBS r raduats e ne t s k: n e on alu H T n e in p 1 a g a f und awns u rati ou of c 0, lu r u e v ser s d alu i s i l b e th 1 n cu mn E s se s r u e mn 5 t or f a e e h s th h on t s d e h m y lt t C S xtend s year re he at fin ic i i . p e , i ni n 1 as Ac the s, e e ord c 5 of f de m y b . H d al als, l u c a their wo i h not nt A s e ordi c O O emb a um A the { pp repn to social ,2 p a p r u h t r l r t of i whole y hel e n g by number . d g , L roxim ni i e en n r cur on e gr o c r o F ng s ac d h t 14 s r t R e ontc R T N E d N I tr h adu t nts e e l c o o ly h eu ventur te ec e o epr . en to mento l n f t s a o t at D I S k 31 o 6 3 Sc r M R P E e amc pus in e t n e C t f a s ely o enur t s 1 t , d ho pos } u s t i f and 0 re A B he o E w E N E t sev e i y n, ha p eams o ov s red ent c hic sr a e r A it l’ t p o f R U w a ra and s lf i en ventur N o i on r ative s al h iner S r t r gr .k c of D t i d u t efl I - n he H awar finalis o c and - N re adu te B a O tandem h o r p BS ti ec k o o E R ll a mpet teams s pre U s, e , s t n e l a S f D I S T v sur s i m MBA ds p api c o D I o l of f t um p u c a n n lan s E ented s i l b u i s it e . s $25, C N from t of ey, n i he n y t l tal a wi on o f E E Seven g 1 tudent s i d e h s n t e h t n i ha se r he th t is d mo E H T 0 o y wi but t t mor t e h ve he l heir y b t s have ed are c n u t he 0 re h jud s a l a c o f R HBS b in bus e ,M O O R S S A L C g k c o the a educ s po ec tudent s s t u ged than par 0 1 uc ac s l r o om t s t 2 ted tar s ine e C i Al Al ma pat y sh i n a g - l c a e MBA ti n the e umni umni ti t p s e 7 ci , e r s te en s onal hs r 0 to i o pa o c ve t a z f s alumni tea tre get wo t ar c o t n ent t nts e c i t r A ntur ed ul C Ne f i p se n o .ms her the er l ub re re or i l in w ente s e .t s e s s - - - ther f u p e h t a u c b s i l y t l pr r 384 e e h n i l a u n n a d is h t ise b e y g a l R . s r t s o e k c 0 1 at e C i s u B y a e n in t e r s r te e n r s e s s t in STUDENT BUSINESS PLAN CONTEST 185 180 Plan Contest, 156 160 + 137 70 110 140 Teams entered in Alumni New 120 Venture Contest 93 100 75 80 62 80

60

40 8 9 0 8 9 0 7 7 7 0 0 1 0 0 1 0 20 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 Alumni clubs sponsoring teams 2 in Alumni New Venture Contest 0 Teams participating Students participating

contest winners 26 ELECTIVE COURSES taught by over 30 different professors The MBA Elective Curriculum includes a wide Alumni New Venture Contest range of entrepreneurially oriented courses. In Krishna Mahesh (MBA ’05) took top honors and the $25,000 cash prize at the inaugural 2009 –10, the most subscribed included: Alumni New Venture Contest. Mahesh, representing the HBS Club of India, is the founder Building & Sustaining a Successful Enterprise 15 and CEO of Sundaram Medical Devices. Based in the southern city of Chennai, the com - The Coming of Managerial Capitalism: The pany aims to apply the high engineering, quality, and cost-control standards of the Indian United States automotive industry to the development and manufacture of a low-cost but high-tech medical bed that benefits both patients and caregivers. With an estimated shortage of Entrepreneurial Finance more than 3 million medical beds in India, Sundaram will address the needs of an Entrepreneurial Management in a Turnaround extremely underserved market. Environment Founders’ Dilemmas Real Property Venture Capital and Private Equity MBA business venture track MBA social venture track OsComp Systems, which is commercializ - Urban Water Partners, which will lease fil - ing a revolutionary gas-compressor tech - ters to water vendors in Dar es Salaam, nology developed in conjunction with Tanzania, to markedly improve access to MBA CURRICULUM MIT that drives natural gas into pipelines clean drinking water for the city’s 3 million

at a lower cost with greater efficiency. residents. AVERAGE NUMBER OF ENTREPRENEURSHIP ELECTIVES Team: Team: TAKEN (PER MBA STUDENT) Shantanu Agarwal (MBA ’10) Porter Jones, MD (MBA ’11) and MIT Sloan School students Pedro Ajay Kori (MBA ’11) Tomas Santos and Emmanuel Magani Aaron Matto (MBA ’11) and University of Utah medical students 5 Jason Young and Justin Iwasaki 2.5

{ page 15 of 36 } ALUMNI . THE MBA FELLOWSHIP PROGRAM is supported entirely by gifts from ALUMN I ATTENDING REUNIONS .

alumni, corporations, and friends of the School. Today, the fellowship program . comprises more than 400 individual funds that enable HBS to maintain its . need-blind admission policy and admit the best and brightest students . regardless of financial need. Thanks to the generosity of these donors, . .

together with those who contributed to the Dean’s Fund, growth in the . fellowship program has outpaced annual tuition increases and has helped . reduce the debt of graduating MBAs. . . 3,095 . . . TOTAL FY 10 MBA NEED-BASED FELLOWSHIPS SOURCES OF SUPPORT ALUMN I VOLUNTEERS . . . . .

$ . m . + 21 . 4, 000 . .

STUDENTS RECEIVING FELLOWSHIPS .

(CLASSES OF 2010 & 2011) .

. +

. 1,000

. Fundraisers

73% Endowed Funds . . 16% Current Use Funds 889 . out of a total enrollment of 1,864 11% Dean’s Fund . + .

. 500 Advisory board members .

AVERAGE FELLOWSHIP NUMBER OF FELLOWSHIP FUNDS . . .

417 . +

. 1,000

400 380 . Class & section secretaries

$ .

24,000 . 300 321 . . + . AVERAGE TUITION

. 1,000 200 Club volunteers . . .

100 .

$ . 0 8 + 6 1 0 0 . 0 0 0 2 2 45 ,000 2 500 0 . Reunion volunteers

{ page 16 of 36 } THE 201 0 ALUMNI ACHIEVEMENT AWARDS represent the School’s high - ALUMNI est honor, recognizing individuals who, throughout their careers, have con - tributed significantly to their companies and communities while upholding the highest standards and values in everything they do.

Susan Decker (MBA ’86) James Lovell (AMP 62, 1971) Former President, Yahoo! Inc. President, Lovell Communications Former Astronaut, Apollo 13 Becoming a dedicated entrepreneur after 71,000 a career as a financial analyst, Decker As commander of Apollo 13, Lovell over - in 161 countries led Yahoo!’s global business operations saw the mission’s safe return to Earth. and spent the 2009 –2010 year as an After retiring from NASA, Lovell entered ALUMN I CLUBS HBS Entrepreneur-in-Residence. business in the telecommunications and transportation industries. He now serves “When it comes to technology, we all on several space-related boards, advo - have the same core desires to do things cates for the U.S. space program, and is smarter, faster, and simpler, and to stay a sought-after speaker. connected to each other. Entrepreneurs who find better ways to address these “If you aren’t motivated by the business needs will add value through new com - you’re in, you’re in the wrong business.” 17 panies and services.” 9966 Marvin Traub (MBA ’49) clubs and associations in 42 countries James Dimon (MBA ’82) President, Marvin Traub Associates, Inc. Former CEO & President, Bloomingdale’s Chairman & CEO, JPMorgan Chase & Co. Geographically based alumni clubs During his 41-year career at Blooming - Earlier in his career, Dimon was a top ex - Affinity-based alumni clubs and associations dale’s, more than half at its helm, Traub ecutive at Salomon Smith Barney and the expanded the legendary store nationally Affiliated Harvard Alumni clubs Travelers Group, helped create Citigroup, and then globally, launched some of the and rescued Bank One. world’s most popular designers, and “There were many fundamental causes mentored new generations of leaders of and contributors to the recent financial stores and brands. crisis. Some practices will be different for - “Brands and stores are now global. While ever, and that’s a good thing.” the Internet has changed everything, good stores remain distinguished by cre - Allan Gray (MBA ’65) ativity and a willingness to change.” Chairman, Orbis Investment Management, Ltd. Before launching the international invest - ment firm Orbis—now with about $20 bil - lion in assets under management—with his son William (MBA ’93), Gray built a highly successful asset management firm in his native South Africa. “We’ve put more and more emphasis on companies’ intrinsic value—including intellectual capital and brilliant manage - ment—not just price-to-book and price-to- earnings ratios.” scan this code to visit www.alumni.hbs.edu

{ page 17 of 36 } sustaina bili ty i H a a r t s r o f B e r H ex HBS M T va t A h e m L gi 20 t N T Ca Un s t si e he o ivin s d n as i u R H B BS s e an A E n eed c 1 p ota “a c S m i iv b m d l o 0 t o hile den a h t h Sc i set c O dard n g n h pu v ers tr n, U O r R Cit S i i t n o a g n pe e i t ou u e P a e ec R U in e l b o o i t s w s d e.c l u c r it y 60 s r y s k c f n o c r ol’s e ogr tan s t O H G or r d g eiv u n at ats w o o C ec a . s n -w w N I f f o a ep a the io t e t B es it it ter yclin am Oper r t s e on n i v Sh he id n u ns o G t s h ding t u D g i h o m ts o % T U u r th e h e ad Ci t amb p plan . l i c D , l P en O R P ow r g a go rogs re i t c w g n at epa r g i l h ati na y Hall. m o c of n i exa ti S T I hi Gr al r io H of n o ’t s a re iti a g g n ch tmen r n t ee f S B G mp t h e, em um o t ous i t s or Bos g t { yt i n u m M U his r u f o E R n e h s O en a p ren Dep , s n o met ni le o f ayo 20 Bu f en towar P g o e e r g t c co ons c h t ve t, e S S on of r e y s ow l l er R E sin t, tmen ar 12 h c 18 r w e mpa fi s r o th ing a M t om g Gr hi s es . n us i o n i t n o c H r, O I AT I a fic yit a a c e v er f d en T c N s c e en ining 6 3 e a h lead r h t t t su . s L A ino l e h he m r ga m o n o 2 se al t a E ti } ward, o v 2 was ti E 01 0 o so d r a gu h s Bus SN 0 it s ship er cit c S D on n ainb LEED 0 1 reduc s m rec ed u o u o f o o h y.” u g , honred in es pr go s C e t r wa tainabi H eived HB s i h imar e i s i h T n s u s s e nec t als tion. e d l G t n he S B l s .t y it S s c e r o r p i l r e A an L t ily ld mi s e n w a r war hat D E E acr o enova d e v i e s i by d s a l Har a h S y ar in cer e c i -o y t th p d o r B H d e s u c o f e h t f s s eco e or v e r o tifica s s va os to i t r e c g n var ar u Ad A o ir , ti ton rd t i t se adv f gnitio ented s t l l a her on p a h our e h s c e v ilot Univ an tio of fi r fi m Ma d n o anc , i ew n d r of i t a c c S ced e b n t s b n n a Pr n e cipie p ro s er yor be ot e o o h McC for o r a s e oject o n o f n o B d t ad c c M o c havi y it , t t led s - ff t os he T nt id facilities, t i s l an a l o homas n ul are n a s Gren ent s i e t i on’ mu f t s w u s agemen t w by or m o r e h e d t o at t e e m r as s r d ltiple al c u o G Drew s er e s s a p s s h f o alut t c t us —e initiat M chan ne r C h t Hal d l i i c e e h t n ar n o and . ng i ai gre i ner e Meni n n o r i v t pet e c G nabi g h P i n g o l, d U g n a e y en ed e r i thei g d n a a c fi i t r the es lpi a ogr . e h t . S Awa r a y E no d te l tudents to y it xec n onserc among r am ch r G r o f Green o j a m st effor e m t wi tFaus o e rd d l o G goa n o i no ut f liminate n o i t n e e th n te h t orf iv lo t n ls a e r e - - f Educ m o r d n a t he a t b i s on eyn o i a t s u d an bility. SHAD’S GREEN ROOF the School testify + When Shad Hall, the School’s fitness and recreation facility, 100 needed a new roof, HBS made the decision to go green by in - Energy conservation projects stalling its first living rooftop. In the fall of 2009, a garden of in place more than 9,000 hardy perennials was planted atop Shad, covering 5,200 square feet. The green roof has four layers: an impermeable membrane, insulation, a water retention and drainage system, and a shale-based planting medium that will not blow away or compact over time. The new 34 % plantings will spread to cover the entire garden area by the Reduction in greenhouse gas emissions summer of 2 01 1. against the 2006 baseline, exceeding the University-wide goal of a 30% reduction by 2016 Long-term environmental benefits A living roof like Shad’s has long-term benefits that counter - balance its high construction costs. A green roof can reduce a building’s average daily energy demand by about 15 per - 21 % cent; it absorbs and retains an estimated 75 percent of Reduction in energy consumption against annual rainfall, reducing storm-water runoff; and it can last the 2006 baseline, bringing usage down to 2000 levels despite an increase twice as long as a conventional roof surface. Shad’s green of more than 200,000 square feet of roof covers about a quarter of the building’s total flat roof new space and more than 6 renovations between 2000 and 2005 surface. The remainder, which is not suitable for planting, is topped by sheets of white polyvinyl chloride to reflect sunlight 19 and reduce cooling costs. Additionally, photovoltaic panels are installed on a portion of the roof.

Inside Shad The green roof crowns a series of other conservation mea- sures inside Shad, including a cogeneration plant in the basement whose waste heat is used to supply hot water for after-workout showers. Based on all these measures, HBS is applying for LEED certification for Shad.

The HBS community is now creating renewable energy dur - ing indoor cycling classes at Shad. The stationary bikes were recently fitted with special equipment that sends the energy 1 5 1 created through exercise to the electrical power grid and motivates pedalers by displaying the wattage they have Platinum Gold Silver created. A typical group-cycling class with about 20 bikes has the potential to produce up to 3.6 megawatts a year— LEED Certification Totals enough to light 72 homes for a month while also reducing Certification pending for the Class of 1959 Chapel and in process for Shad Hall carbon emissions by more than 5,000 pounds.

{ page 19 of 36 } Harvard Business Publishing has made strategic investments to extend the School’s reach to business leaders, companies, and educators. HBP UBLISHING

Publishing has aligned its flagship Harvard Business Review and its Higher Education and Corporate Learning groups to provide customers with a broad platform for learning.

HARVARD BUSINESS REVIEW REDESIGNED GREATER CUSTOMIZATION FOR EDUCATORS, In July 2009, the HBR Group was formed from three teams working on the LOWER COST FOR STUDENTS magazine in its print and online versions, on other interactive content for sub - While business educators worldwide scribers at hbr.org, and on Harvard Business Press. Within six months, the have long used cases and other intel - lectual content from HBS, their ability revamped print magazine was on the newsstands, and the Web site was to design courses increased greatly launched. These changes were led by publisher Joshua Macht and editor-in- with the launch of the new Educators chief Adi Ignatius, both veterans of TIME magazine. Web site by the Higher Education Group. Once educators select their The Review maintains the quality and rigor of the articles while adding more course materials, the group aggre - timely content and providing improved navigation through the magazine. Now gates them, offering the resulting the Review offers readers short articles, columns, and recurring features “coursepacks” to students at a signifi - together with its traditional long-form pieces. On hbr.org, new interactive cant reduction from standard pricing. features enable subscribers to comment on articles and engage with others at The selection is both broad and deep, the HBR Answer Exchange. In addition, the site gives HBS faculty a prominent including HBS cases, Review articles, venue for sharing their thought leadership in their own dedicated blog. and Harvard Business Press books, together with group-generated prod - ucts: online simulations and courses, NEW HARVARD MANAGEMENTOR LAUNCHED Brief Cases, and e-products of vari - ous kinds. Version 11 of Harvard ManageMentor, the Corporate Learning Group’s online learning and support reference, has expanded its core topics and features a media-rich online environment and robust analytics. The new Harvard Manage - Mentor, launched at the end of the fiscal year, not only delivers instant advice to individual managers, but is designed to support learning across an enterprise. The product can be configured to focus on an organization’s key priorities, and it enables companies to integrate it into collaborative learning experiences. These changes were informed by the market and by the way work is done today.

scan this code to visit hbr.org

{ page 20 of 36 } 5-YEAR SUMMARY

FOR THE FISCAL YEAR ENDED JUNE 30,

Financial Data (in millions) 2010 2009 2008 2007 2006

Revenues $ 467 $ 472 $ 451 $ 405 $ 368 Expenses 415 438 423 375 345 Cash from Operations 52 34 28 30 23 Capital Investments 14 19 40 20 49 Building Debt Outstanding 112 119 121 108 108 Unrestricted Reserves 99 96 79 65 60 Endowment 2,311 2,117 2,971 2,821 2,340 Total Assets $ 3,087 $ 2,826 $ 3,684 $ 3,500 $ 3,018

MBA Program

Applications 9,524 9,093 8,661 7,438 6,716 Percent Admitted 11% 12% 12% 14% 15% Yield 89% 89% 91% 89% 91% Enrollment 1,864 1,809 1,796 1,806 1,822 Tuition $ 46,150 $ 43,800 $ 41,900 $ 39,600 $ 37,500 Average Fellowship Aid per Student $ 23,989 $ 24,393 $ 21,591 $ 17,605 $ 15,647

21 Doctoral Programs

Applications 931 798 595 694 611 Percent Admitted 4% 4% 6% 5% 5% Yield 69% 69% 81% 57% 64% Enrollment 130 120 105 103 101

Executive Education

Enrollment 8,670 8,291 9,345 9,281 8,239

Faculty

Faculty Positions (full-time equivalents) 218 228 219 206 215 Teaching Materials 538 608 647 602 606 Research Articles 155 146 152 145 130 Books 29 20 24 24 31

Staff

Staff Positions (full-time equivalents) 1,087 1,187 1,146 1,109 1,077

Publishing

Cases Sold 9,668,000 8,334,000 8,240,000 7,785,000 7,428,000 Harvard Business Press Books Sold 1,692,000 1,478,000 2,025,000 1,882,000 1,409,000 HBR Circulation 236,000 237,000 246,000 248,000 243,000 HBR Reprints Sold 2,946,000 2,863,000 3,123,000 3,061,000 3,112,000

{ page 21 of 36 } fro m the chief financial officer

The Dow Jones Industrial Average returned to prerecession levels, and on long-planned strategic innovations had fallen to the mid-6000s in the endowment income came in 3 percent in the MBA curriculum, coinciding spring of 2009 when we were prepar - higher than anticipated. Consequently, with the launch of the University- ing the School’s financial plan for fis - total revenues for fiscal 2010 exceeded wide academic calendar and the cal 2010. We had implemented two the budget by nearly 8 percent, de - School’s first official January Term. rounds of budget cuts after the 2008 creasing only 1 percent from actual The School’s Immersion Experience market collapse, but in parts of the revenues for the prior fiscal year. Program added faculty-led student School’s Publishing and Executive trips to several new locations. HBS Education businesses, revenues were Meanwhile, HBS faculty and staff also introduced Intensive Seminars still declining faster than expenses. reined in spending even more ag - with 11 on-campus offerings, as well The Harvard endowment was head - gressively than planned, and total as a range of independent opportu - ing toward a year of negative returns, expenses for fiscal 2 010 came in nities in the field. and the outlook for alumni giving was 1 percent under budget, 4 percent be - becoming increasingly uncertain. low fiscal 2009 actual expenses, and Helping current MBA students and Anticipating an extended period of as planned, $40 million, or 9 percent, recent graduates navigate the chal - revenue constraints, we launched an aggressive effort to reduce the School’s cost structure even further. Fellowship Spending (in millions) MBA Total* The HBS community responded well to the challenge. Reflecting three FY10 $ 25 $ 35 rounds of restructuring and our fore - FY09 25 33 cast for subdued top-line results, our FY08 21 26 budget for fiscal 2 010 projected rev - FY07 17 22 enue and expense levels 10 percent FY06 15 19 and 9 percent lower, respectively, than we had budgeted for fiscal 2009. * includes Doctoral Programs and Executive Education Although the nation’s recovery from the recession proved to be slow and lower than initially budgeted for fiscal lenging employment market was a uneven, the School’s fiscal 2010 finan - 2009. As a result, HBS continued to key priority for fiscal 2 010. HBS cial performance was stronger than generate positive cash from opera - added resources for individual career we had expected—particularly in the tions in fiscal 2010. This cash flow coaching and exploration, and in - second half of the year. Executive enabled the School to add modestly creased spending for corporate out - Education and Harvard Business Pub - to unrestricted reserves by year-end. reach and student travel fellowships lishing (HBP) produced solid top-line to facilitate off-site interviewing and results and stronger margin contribu - Investing in MBA Education research. In addition, the School tions to operating income. Unre - Budget constraints did not deter HBS expanded MBA student loan repay - stricted current use giving to HBS from moving forward in fiscal 2 010 ment programs designed to ease the

{ page 22 of 36 } debt burdens that would otherwise trends in faculty recruiting and de - The downturn necessitated that HBP prevent graduates from embarking partures. Fiscal 2010 was no excep - undertake comprehensive restructur - on careers in social enterprise and tion, as the total number of faculty ing and expense reduction initiatives other lower-paying fields. Aided by full-time equivalent (FTE) positions in fiscal 2009. HBP entered fiscal these career services initiatives and declined to 218, from 228 in fiscal 2010 with a cost structure appropri - increased corporate hiring activity in 2009, reflecting planned and un - ate for a lower revenue base than the second half of fiscal 2010, the planned departures, mainly among actually materialized. A smaller pub - percentage of HBS students receiving visiting faculty and senior lecturers. lishing organization pulled together and accepting job offers three months HBS remains committed to attracting and produced outstanding results after graduation increased from the and nurturing world-class faculty while spending fewer dollars. Buoyed prior fiscal year. talent. Recruiting new tenure-track by a rebound in demand in the sec - faculty will be one of the School’s top ond half of the year, sales of HBP’s The School is committed to making strategic priorities for fiscal 2 01 1. eLearning products and Harvard MBA education at HBS affordable for Business School cases were up from Embracing the School’s cost-reduc - the broadest possible range of ap - fiscal 2009, nearly offsetting declines tion goal, HBS faculty intensified their plicants by consistently increasing fi - in circulation and advertising rev - focus on efficiency and scaled back nancial aid for students. This has the enues at Harvard Business Review , their use of research resources for effect of reducing the level of net while Harvard Business Press and the second consecutive year in fiscal MBA student income—defined as tu - reprint sales were essentially flat. Cu - 2010. Investing in the faculty’s re - ition and fees minus the School’s mulatively, fiscal 2 010 publishing rev - search and knowledge creation has MBA fellowship expense—available long been a strategic goal for the enue totaled $135 million, coming to support MBA program delivery School, and remains so today. Conse - in $7 million above budget and only and innovation. quently, returning to a prerecession 1 percent lower than in fiscal 2009. Although total fellowship expense, level of spending in this area is a key In Executive Education, our revenue which rose by $2 million, or 6 percent, budget priority for fiscal 2 01 1. forecast for fiscal 2 010 was conser - from the prior year, was the only line vative in light of uncertainties about item in the budget protected from Generating Income for Operations the recession and the potential im - cuts in fiscal 2010, net student in - Although HBP’s fiscal 2 010 contribu - pact of the H1N1 virus on corporate come increased by $7 million, or 12 tion margin was stronger than antic - travel. These concerns proved to be percent. The rise in net student ipated, cyclical and secular trends unfounded, as total Executive Educa - 23 income was primarily driven by a combined to make the School’s 2009 tion revenue for the year grew by long-planned increase in MBA stu - and 2 010 fiscal years profoundly $5.6 million, or nearly 6 percent, dent enrollment. MBA enrollments difficult for the global publishing in - from fiscal 2009—exceeding the and fellowship expenses are expected dustry. Like all its industry peers, for School’s budget by 14 percent.

Investment in Research (in millions) Publishing Revenue (in millions) Executive Education Revenue (in millions)

FY10 $ 92 FY10 $ 135 FY10 $ 113 FY09 97 FY09 137 FY09 107 FY08 102 FY08 139 FY08 106 FY07 92 FY07 128 FY07 91 FY06 84 FY06 119 FY06 81 to return to normal in fiscal 2011, some time HBP has been striving to Executive Education launched an in - which should restore the School’s make an evolutionary leap to the Inter - tensive effort in fiscal 2010 to grow long-term trend toward diminishing net by refining its business model. With enrollment and tuition revenue in reliance on net student income as a its customers and content continuing short, focused programs, introducing source of operational funding. their migration to digital platforms, several courses stemming from the HBP had to make a significant, multi - faculty’s current research, running Supporting Faculty Research year investment in its web-based tech - extra sessions of high-demand pro - The size and composition of the HBS nology. And as the competitive land - grams, and scheduling programs to faculty changes from year to year as scape in general strengthened, HBP maximize capacity utilization. Conse - the School’s teaching and research over the past two years looked for ways quently, revenue from open enroll - strategies evolve, and in line with to enhance its leadership and staff. ment programs maintained its record

{ page 23 of 36 } of consistent growth, rising 5 percent funds. Overall, income derived from of buildings and infrastructure on from fiscal 2009. As in the prior year, gifts to HBS, including distribution campus. The capital budgeting the economy had more of an impact from the endowment and unrestricted process at HBS is highly disciplined on custom programs. After peaking current use gifts, declined 9 percent in and focused well into the future. In and then declining in the two prior fiscal 2 010, but exceeded the School’s line with the School’s long-term plan, fiscal years, custom program revenue forecast by 3 percent. capital spending was modest in fiscal recovered modestly in fiscal 2 010, 2010—as in the prior fiscal year and, After nearly a year of belt-tightening, driven by rebounding enrollments in at $14 million, lower than in any year HBS entered fiscal 2 010 with a total the second half. since fiscal 1987. expense budget $40 million lower While total enrollment grew 5 per - than initially planned for fiscal 2009. The most significant project in fiscal cent, Executive Education expenses Approximately one-third of these sav - 2010 was construction of the Har - for fiscal 2 010 were up by a modest ings related to administrative staff vard Center Shanghai. Most of the 2 percent from the prior fiscal year. reductions, as the School’s admin - additional capital spending focused The bulk of the revenue increase istrative workforce decreased by on campus renewal and environmen - therefore fell to the bottom line, and approximately 100 full-time positions, tal sustainability projects. The impor - Executive Education’s margin contri - or 8 percent. A large number of bution returned to a level reached contract staff positions were also prior to the recession. eliminated. Given the scope of these Capital Investment (in millions) reductions, adjusting the School’s or - In addition to making direct expendi - FY10 $ 14 tures related to the growth in enroll - ganization and operations to a leaner environment remained a key man - FY09 19 ment, the School continued to invest FY08 40 agement priority throughout the year. in off-campus Executive Education FY07 20 Efficiency improvements were also programs and facilities—particularly FY06 49 in India and China. These efforts were implemented in areas ranging from highlighted by the opening of the food service to building maintenance to environmental sustainability. School’s Harvard Center Shanghai tance of continual investment in the through a partnership with the Har - Midway through 2 010, business ac - integrity of the campus was under - vard China Fund. Despite the chal - tivity at HBP and Executive Education lined during the year when a fire oc - lenges associated with building in had increased to the point where it curred at the McCulloch Hall student downtown Shanghai, our facilities was clearly time to reassess the residence. Fortunately, the School group did an excellent job creating a School’s staffing. Several positions in had invested $4 million in life safety presentation space equipped with sales and marketing, corporate rela - improvements at McCulloch in fiscal case-method teaching technology tions, and operations at HBP and Ex - 2009. Although the building was that is essentially identical to the ecutive Education were restored as a heavily damaged by the fire, there ones in Boston. result of this review. The opening of were no personal injuries. Despite the economic uncertainty, the Harvard facility in China also the community of HBS alumni and required some hiring for Executive Planning for Future Innovation friends continued their tradition of Education programs. Looking forward, The School’s financial plan for fiscal generosity in fiscal 2 010. The dollar the bar for approval of additional 201 1 reflects uncertainty in the econ - value of new gifts and pledges re - staff positions at HBS will remain omy, as well as headwinds specific to ceived during the year increased to both extremely high and focused on three of our four largest sources of in - the second-highest annual total in areas related to revenue growth and come. HBP outperformed our expec - the School’s history. Revenue from strategic support for the School’s tations overall in fiscal 2 010, but it is unrestricted current use gifts—a crit - academic mission. unclear how the publishing revenue ical source of innovation funding for HBS began fiscal 2 010 with an mix will evolve over the next year or the School—grew by $1 million, or 8 unrestricted reserves balance of $96 two, given the challenging market percent, from fiscal 2009. million, remained solidly cash flow environment and forecasts for a slow Based on the University’s projections, positive and, after transferring $50 economic recovery. While HBP’s top the HBS budget for fiscal 2 010 as - million to reserves held in the endow - line is budgeted to stay essentially sumed a year-over-year decline in the ment, concluded the year with an ad - level in fiscal 2 01 1, we expect that endowment distribution of $15 million, ditional $3 million in unrestricted re - publishing expenses will grow as or 13 percent. The actual decline was serves. The School uses its reserves to fixed and variable costs catch up to lower at $12 million, mainly reflecting fund strategic education and re - the revenue level achieved in fiscal the School’s efforts to maximize the search initiatives and, when needed, 2010. As a result, HBP’s operating availability of restricted en dowment to finance construction and renewal margin contribution is likely to be

{ page 24 of 36 } somewhat constrained in the year Under Dean Nohria’s leadership, HBS HBS begins fiscal 2 01 1 well-prepared ahead. Executive Education produced is developing a bold set of strategic to take on big challenges. The School’s solid results this year, but constraints plans for the next few years, and initial reserves balance provides the funds related to facilities and the faculty funding for these initiatives is planned necessary to support ambitious could negatively affect the School’s for fiscal 2011 as well. The innova - campus renewal and construction competitive position in the near term. tions that emerge may lead over time initiatives. Our revenue forecast and expense budget are, we believe, Income from gifts and the endow - to greater emphasis on field-based appropriately conservative for an ment cannot be counted on to fill the and collaborative learning in the uncertain economy. We remain void. Although unrestricted current MBA program. This could signifi - committed to thoughtful stewardship use giving increased in fiscal 2010, cantly affect both the MBA program of the School’s resources in the year the future growth trajectory is operating model and, over a period ahead. clouded by the uncertain state of the of time, our long-term capital plan. economy. We have greater visibility The School’s budget for fiscal 2 01 1 into future endowment income, and also provides HBP and Executive Ed - the picture is not positive. HBS was ucation with the additional resources informed by the University more than they need to continue navigating Richard P. Melnick, MBA 1992 Chief Financial Officer a year ago that the School’s fiscal their dynamic, highly competitive 201 1 endowment distribution will markets while fulfilling their core 01 OCT 2010 decline 4 percent year-over-year, re - roles at HBS. These roles are twofold: flecting the drop in the value of the first, to leverage the faculty’s re - endowment in fiscal 2009. search to influence the practice of In light of these challenges, our fiscal management on a larger scale; and 201 1 financial plan forecasts that to - second, to contribute margins that tal revenues will be flat year-over- provide the School with revenue for year. Nonetheless, the School’s pur - operations. HBP will continue to in - suit of strategic initiatives will remain vest in new eLearning products and as energetic as ever. Total expenses in platform technology that better for fiscal 2 01 1 are budgeted to rise positions the School to serve cus - by $39 million, or 9 percent, from fis - tomers online. Direct and indirect 25 cal 2 010. A key priority for this addi - expenses for Executive Education are tional spending is to support signifi - also expected to rise in line with the cant growth in the faculty’s research growing importance of global pro - activity around the world. Next year’s grams and higher enrollment. budget also anticipates initial spend - ing for long-term I.T. projects aimed The School’s capital investments for at upgrading the School’s MBA fiscal 2 01 1 are budgeted to grow 57 course delivery and student informa - percent year-over-year to $22 million. tion systems, as well as rising em - Executive Education’s need for up - ployee benefits expense. In addition, dated space will drive a significant we are planning to further increase share of this spending. The University the School’s investments in MBA cur - has approved the School’s plan to in - riculum innovation and fellowship vest $100 million to construct Tata support for students. Hall, a new Executive Education aca - demic and residence hall, for which philanthropic entities of India’s Tata Group have pledged $50 million—the largest gift from an international donor in the history of the School. As well, HBS will make a $15 million investment in the new Harvard Inno - vation Lab to nurture game-changing ideas from across the Harvard com - munity. The lab is scheduled to open in fall 2 01 1 in a building adjacent to the HBS campus that formerly housed public broadcasting’s WGBH.

{ page 25 of 36 } STATEMENT OF ACTIVITY & CASH FLOWS *

FOR THE FISCAL YEAR ENDED JUNE 30,

Revenues (in millions) 201 0 2009 2008

MBA Tuition & Fees $ 92 $ 84 $ 82 Executive Education Tuition 113 107 106 Publishing 135 137 139 Endowment Distribution 101 113 94 Unrestricted Current Use Gifts 13 12 14 Housing, Rents, & Other 11 13 9 Interest Income 2 67

Total Revenues $ 467 $ 472 $ 451

Expenses

Salaries & Benefits $ 203 $ 212 $ 206 Publishing & Printing 51 52 53 Space & Occupancy 41 42 42 Supplies & Equipment 9 12 11 Professional Services 22 31 29 Fellowships 35 33 26 University Assessments 15 13 12 Debt Service 7 67 Other Expenses 32 37 37

Total Expenses $ 415 $ 438 $ 423

Cash from Operations $ 52 $ 34 $ 28 Use of Endowment Gifts or Appreciation 13 11 41

Cash Before Capital Activities $ 65 $ 45 $ 69

Capital Expenses $ (14) $ (19) $ (40) Use of Gifts for Capital Projects 3 05

Net Capital Expenses $ (11) $ (19) $ (35)

New Borrowings $ 0 $ 3 $ 22 Debt Principal Payments (7) (5) (9) Other Activity (44) (7) (33)

Net Debt & Other $ (51) $ (9) $ (20)

Change in Unrestricted Reserves $ 3 $ 17 $ 14 Beginning Balance, Unrestricted Reserves $ 96 $ 79 $ 65 Ending Balance, Unrestricted Reserves $ 99 $ 96 $ 79

{ page 26 of 36 } CONSOLIDATED BALANCE SHEET

FOR THE FISCAL YEAR ENDED JUNE 30,

Assets (in millions) 201 0 2009 2008

Cash $ 10 $ 8 $ 14 Unrestricted Reserves 99 96 79 Receivables, Loans, & Other Assets 235 161 176 Invested Funds: Endowment Investments 2,154 1,971 2,804 Current Fund Investments 35 33 27 Interest in Trusts Held by Others 122 113 140 Facilities, Net of Accumulated Depreciation 432 444 444

Total Assets $ 3,087 $ 2,826 $ 3,684

Liabilities

Deposits, Advances, & Other $ 45 $ 37 $ 38 Deferred Revenue 59 52 63 Other Debt Owed to University 26 26 29 Building Debt 112 119 121

Total Liabilities $ 242 $ 234 $ 251 27

Composition of Net Assets

Unrestricted Reserves $ 99 $ 96 $ 79 Undistributed Income & Other 8 5 18 Pledge Balances 97 39 33 Student Loan Funds 10 10 10 Investment in Facilities 320 325 322 Endowment & Other Invested Funds 2,311 2,117 2,971

Total Assets Net of Liabilities $ 2,845 $ 2,592 $ 3,433

* The Statement of Activity & Cash Flows presents a managerial view of Harvard Business School operations focused primarily on cash available for use. It is not intended to present the financial results in accordance with generally accepted accounting principles (GAAP). A presentation in accordance with GAAP would report higher operating revenues for gifts and endowment distribution and would include depreciation expense, yielding income from operations of $46 million in fiscal 2010. Cash flows, however, would be equivalent under GAAP.

{ page 27 of 36 } suppl emental fi nan cial inf ormat io n

$ 472 467 million 451 PUBLISHING 29 %

405

368 ENDOWMENT DISTRIBUTION & CURRENT USE GIFTS 25 %

EXECUTIVE EDUCATION TUITION 24 %

MBA TUITION & FEES % 6 7 8 9 0 20 0 0 0 0 1 Y Y Y Y Y F F F F F HOUSING, RENTS, & OTHER 2% REVE NUES

Harvard Business School funds its larger scale. Faculty research at HBS eLearning products. Completing the operations with a mix of revenue is funded primarily by the School, not self-sustaining cycle, margin contri - sources that is unique among Har - by outside sponsors such as govern - butions from HBP and Executive vard University schools and in higher ment agencies, foundations, and Education serve as the primary education. Two of the School’s busi - corporations. Unimpeded by the con - sources of funding for the faculty’s ness units—Harvard Business Publish - straints associated with external fund - research. ing (HBP) and Executive Education— ing, HBS faculty are free to pursue the Revenues generated by HBP and typically generate more than 50 research opportunities they believe Executive Education are sensitive to percent of total annual revenues, have the greatest potential to create long-term trends in the economy and making HBS less reliant on its en - new knowledge. the capital markets. The School’s en - dowment than other schools. The School globally disseminates dowment distribution revenues follow HBP and Executive Education not only the intellectual capital produced by a similar pattern. In fiscal years such contribute income for operations but the faculty through Executive Educa - as 2 010, however, short-term dynam - also enable the School to influence tion programs and HBP’s portfolio ics can affect each of these sources the practice of management on a of magazines, books, cases, and of income in different ways.

{ page 28 of 36 } Reflecting investment losses in the This represented 24 percent of the and represented 25 percent of total prior year, the School’s fiscal 2 010 School’s total revenue, compared revenue—a smaller percentage than endowment distribution revenue fell with 23 percent last year. Total appli - at most other Harvard schools. The by $12 million from fiscal 2009. The cations to open enrollment and cus - University’s Faculty of Arts and Sci - recessionary slowdown in customer tom programs were roughly flat from ences, for example, relied on endow - demand for some publishing products the prior year at nearly 11,800. But ment distributions and current-use reduced HBP’s revenue by $2 million. total Executive Education enrollment gifts to support 58 percent of its op - Interest income and revenue in the increased by nearly 400, or 5 percent, erating budget for fiscal 2 010. Housing, Rents, & Other category to approximately 8,700, after falling Nonetheless, income from gifts is also fell, decreasing by approximately by more than 1,100 in fiscal 2009. crucial to the School’s business $6 million on a combined basis. model, and fiscal 2 010 was a strong These declines, however, were nearly Harvard Business Publishing year for fundraising at HBS. Gener - offset by better-than-expected per - Total HBP revenue decreased by $2 ous supporters gave $130 million in formance in other areas. Executive million, or 1 percent, in fiscal 2010 to new gifts and pledges—the second Education and MBA tuition and fees $135 million, from $137 million last highest annual total in the history of revenues rose by a combined $14 year. The publishing operation gener - the School. Total cash received from million, reflecting higher enrollments ated 29 percent of the School’s total gifts grew 60 percent to $59 million, and increases in tuition and fees. In revenue, the same percentage as in from $37 million in fiscal 2009. This addition, revenue from unrestricted fiscal 2009. Growth in sales of included new endowment gifts and current use gifts grew by $1 million. eLearning products nearly offset de - gifts for capital projects, and pay - As a result, total revenues declined clines in advertising and circulation ments on prior years’ pledges, as by only $5 million to $467 million, or revenue at Harvard Business Review well as restricted and unrestricted 1 percent, in a challenging year, (HBR ). Reflecting continued stability current use giving. demonstrating how diversity at the in the academic market, sales of Har - Although unrestricted current use top line adds strength, consistency, vard Business Press books and HBS gifts have represented only about 3 and predictability to the School’s cases and teaching materials were percent of total revenue for the past business model. flat with the prior year. two years, they provide crucial fund - ing for new initiatives and remain MBA Tuition and Fees Gifts and Endowment a key fundraising priority for the 29 Tuition and fees revenue from the Revenue from gifts to HBS—in the School. Revenue from unrestricted School’s core academic program form of endowment distributions current use gifts rebounded in fiscal grew to $92 million in fiscal 2010, and unrestricted current use giving— 2010, rising 8 percent to $13 million from $84 million in fiscal 2009. This totaled $114 million in fiscal 2 010, after falling 14 percent to $12 million increase reflected a rise in total MBA enrollment of 55 students, or 3 per - cent, from the prior year. The School continues to set tuition at levels that Gifts Received (in millions) FY 10 FY 09 recover rising program delivery costs Endowment $ 33 $ 18 and investments designed to enrich Restricted Current Use 13 7 the HBS educational experience. Unrestricted Current Use 13 12

First-year MBA tuition in fiscal 2 010 Total 59 37 was $46,150—near the midpoint among the seven comparable schools tracked by the School—compared with $43,800 last year. MBA tuition and fees amounted to 20 percent of $59 55 56 the School’s total revenues in fiscal 51 2010, compared with 18 percent a year earlier. 37

Executive Education Fiscal 2 010 was a strong year for Ex - 0 7 8 9 6 1 0 0 0 0 Y Y Y Y Y F ecutive Education as tuition revenue F F F F grew nearly 6 percent to $113 mil - lion, from $107 million in fiscal 2009. CASH RECEIVED FROM GIFTS (in millions)

{ page 29 of 36 } during the market collapse in fiscal from $2.1 billion at June 30, 2009. access to principal to provide the 2009. The increase in the market value of School flexibility in achieving the the endowment for fiscal 2 010 re - purposes for which they were desig - HBS received gifts and pledges of flects $33 million in endowment gifts nated. In addition, the School occa - all types from more than 12,900 received by HBS during the year— sionally draws on capital appreciation donors during the year, including up from $18 million in fiscal 2009— associated with prior-year gifts. Funds MBA, Doctoral, and Executive Edu - as well as net appreciation in endow - from these decapitalizations are used cation alumni, as well as other friends ment principal of $161 million after to support key initiatives in keeping of the School. More than 27 percent subtracting the annual distribution with donor intentions. of the School’s MBA alumni gave to and decapitalizations. HBS in fiscal 2 010, compared with 24 Harvard determines the amount that percent in fiscal 2009. Like other Harvard University can be prudently be drawn from the schools, HBS raises its own endow - endowment to spend in any given The School’s endowment distribution ment and current use funds. The year. The payout rate reflects past revenue fell by $12 million, or 11 per - School independently budgets the endowment performance and HMC’s cent, from last year to $101 million. use of endowment distributions to projections of future investment re - This decline reflected the University’s support operations according to the turn, consistent with the goal of pro - decision to reduce the percentage of terms of each gift. The HBS endow - viding the Harvard schools with a re - investment returns made available ment, along with those of the other liable stream of operating income for operations in light of the drop in Harvard schools, is managed by Har - over the long term. In the years be - the endowment’s market value in vard Management Company (HMC), fore the 2008 financial crisis, the Uni - fiscal 2009. The actual decline in a subsidiary governed and wholly versity’s long-term target was to dis - the School’s fiscal 2 010 endowment owned by the University. The ab - tribute between 5 and 5.5 percent distribution was $3 million less than solute return on the University’s of the endowment’s year-end market initially budgeted, however, due to pooled investments, including the en - value annually. This distribution in - diligent efforts to minimize unspent dowment, was +11.0 percent in fiscal cluded an assessment of 0.5 percent fund balances during the year. En - 2010, net of all expenses and fees, of the market value to cover a portion dowment distribution represented compared with –27.3 percent for fis - of University central administration approximately 22 percent of the cal 2009. costs. School’s total revenue in fiscal 2 010, The HBS endowment comprises more Given the unprecedented drop in the compared with 24 percent in fiscal than 1,000 discrete funds established value of the endowment in fiscal 2009. over the years by individual donors, 2009, the University decided to tem - After the fiscal 2 010 distribution, the corporations, and reunion classes. porarily exceed the range of 5 –5.5 School’s endowment and current use Although most endowment gifts are percent in order to continue provid - funds totaled $2.3 billion at year-end, made in perpetuity, allowing little or ing the Harvard schools with suffi - up by $194 million, or 9 percent, no access to principal, some allow cient income for operations. This in -

$99 96

79

65 $52 60

34 30 28 23 6 7 8 9 0 6 7 8 9 0 0 0 0 0 1 0 0 0 0 1 Y Y Y Y Y Y Y Y Y Y F F F F F F F F F F

CASH FROM OPERATIONS (in millions) UNRESTRICTED RESERVES (in millions)

{ page 30 of 36 } creased the spending percentage for Other Revenues fiscal 2010 to 6.1 percent. In an ef - Revenue in the Housing, Rents, & fort to return closer to the long-term Other category declined by $2 mil - target, midway through fiscal 2 010 lion, or 15 percent, in fiscal 2 010 to the University decided to reduce the $11 million. This marked a return to endowment distribution for the up - normal revenue levels following a coming 2 01 1 fiscal year. As a result, strong fiscal 2009 driven by fees although the endowment’s fiscal related to the Global Business Sum - 2010 return totaled +11.0 percent, mit hosted by HBS in fall 2008. The the School’s endowment distribution School’s interest income also fell in for fiscal 2 01 1 is budgeted to decline fiscal 2 010, dropping by $4 million, from the prior year by $4 million, or or 67 percent, to $2 million due to 4 percent. lower interest rates.

Endowment Returns Harvard Endowment TUCS*

FY10 11.0 % 13 .3 % FY09 – 27.3 –18.2 FY08 8.6 – 4.4 FY07 23.0 17.7 FY06 16.7 10.8 FY05 19.2 10.5 FY04 21.1 16.2 FY03 12.5 4.0 FY02 – 0.5 – 5.9 FY01 – 2.7 – 5.7 31

5-Year Growth 4.7 % 3.1 % 10-Year Growth 7.0 % 3.4 %

* Trust Universe Comparison Service

113 $10 1 PROFESSORSHIPS 94 39%

78 71

FINANCIAL AID 24 %

UNRESTRICTED 11 %

RESEARCH 8%

6 7 8 9 0 SPECIAL INITIATIVES %

0 0 0 0 1 6

Y Y Y Y Y BUILDING OPERATIONS F F F F F 6% OTHER 6%

ENDOWMENT DISTRIBUTION (in millions)

{ page 31 of 36 } $ 438 415 million 423 375 SALARIES & BENEFITS 49 % 345

PUBLISHING & PRINTING 12%

SPACE & OCCUPANCY 10%

FELLOWSHIPS 8% OTHER 8% 6 7 8 9 0 PROFESSIONAL SERVICES 5% 0 0 0 0 1 Y Y Y Y Y UNIVERSITY ASSESSMENTS F F F F F 4% SUPPLIES & EQUIPMENT 2% DEBT SERVICE 2% EX PENSES

In anticipation of declining revenues, pense budget to align the School’s for research support staff and travel. the School’s expense budget for fiscal cost structure with an environment of Also included in the cost of faculty 2010 was $18 million lower than revenue constraints, while protecting research are allocated expenses for actual spending for fiscal 2009, and key priorities—academic programs, the School’s network of global $40 million lower than initially bud - faculty research, and strategic initia - research centers, as well as library geted for that year. Driven by the ag - tives—to the greatest extent possible. resources, campus facilities, tech - gressive efforts of HBS faculty and For the purpose of managing the nology, and administration. When staff to cut costs wherever possible, School’s expenses, the functional viewed in this way, the School’s total the School’s actual spending came in areas that support these priorities investment in faculty research for fis - $5 million under budget in fiscal cut across several line items in the cal 2 010 was $92 million, compared 2010. Total operating expenses for School’s Statement of Activity & Cash with $97 million in fiscal 2009, fiscal 2 010 decreased by $23 million, Flows. driven in part by the 4 percent reduc - or 5 percent, to $415 million, from tion in the size of the faculty. Faculty research expense includes a $438 million in fiscal 2009. significant portion of faculty salaries As another example, expenses HBS designed the fiscal 2 010 ex - and benefits, as well as direct costs charged to HBP and Executive Edu-

{ page 32 of 36 } cation include direct costs for staff sequently, one of the School’s key compensation, specialized outside strategic priorities is to assist stu - I.T. Investment (in millions) professional services in areas such as dents in reducing their debt at grad - FY10 $ 40 I.T. and marketing, and residence ex - uation by ensuring that fellowship FY09 55 penses for executive program partic - support, or financial aid, keeps pace FY 08 46 ipants. The School’s calculation of with MBA tuition and fees. Over the FY 07 37 margin contributions to operations past five fiscal years, the average FY06 28 from these revenue-generating busi - two-year MBA fellowship award has ness units reflects these expenses. grown from $27,700 for the HBS Class of 2006 to $45,700 for the Publishing & Printing Salaries & Benefits Class of 2 01 1. Publishing and printing expense in - The largest item in the School’s ex - cludes HBP production costs as well Funding for fellowships comes pri- pense budget, salaries and benefits as a small amount of spending to marily from restricted endowment expense, fell by $9 million in fiscal produce the School’s other printed giving by HBS alumni and friends. 2010, or 4 percent, to $203 million, materials and publications. Although Although endowment distribution from $212 million in fiscal 2009. The HBP continued its program of strate - revenue declined from the prior year key reason for the decline was a year- gic investment in digital infrastruc - in fiscal 2 010, the School identified over-year reduction in the number of ture and content in fiscal 2 010, the MBA and doctoral financial aid as faculty and staff positions across the unit’s cost-cutting initiatives drove the only expense item that would not School, which offset growth in bene - overall spending down for the second be affected by budget cuts. The fits expense and costs related to consecutive fiscal year. As a result, School relied on other sources of faculty retirements. The total number the School’s total publishing and funding to offset the decline in re - of faculty, as measured in full-time printing expenses declined by $1 mil - stricted endowment funding and sup - equivalents (FTEs), can rise or fall in lion from fiscal 2009 to $51 million. port continued growth in fellowship any given year as a result of retire - spending during the year. ments, departures, and fluctuations Space & Occupancy in recruiting activity. As one of the The School is also committed to ex - The HBS campus includes 33 build - cost-reduction measures initiated panding its investment in doctoral ings encompassing more than 1.5 mil - in fiscal 2009, the School cut back education. The number of doctoral lion square feet of occupied space. on the number of one-year appoint - candidates grew to 130 in fiscal Space and occupancy expense in - 33 ments for fiscal 2 010. Recruiting 2010, from 120 in the prior fiscal cludes costs related to maintaining fewer visiting faculty and senior lec - year. Spending for doctoral fellow - and operating the School’s buildings turers, combined with normal faculty ships, stipends, and research support and associated campus infrastruc - retirements and departures, reduced increased commensurately. HBS also ture. In addition, facilities improve - the size of the faculty by 10 FTEs from provides financial aid to a limited ment and renovation costs that do fiscal 2009 to 218. number of Executive Education par - not qualify as capital expenses are ticipants to support the School’s generally categorized as space and The School’s restructuring initiatives social mission. Funds for these fel - occupancy. also resulted in a significant year- lowships are drawn from Executive over-year decline in total administra - Also included in space and occu - Education operating revenues as well tive FTEs. In addition to eliminating a pancy are expenses related to dining as gifts for this purpose. Financial large number of contract staff posi - facilities and other campus services, aid for participants in the new fo - tions, through a combination of nor - as well as costs associated with cused program, Managing Health - mal attrition, voluntary early retire - leased space that houses HBP’s oper - care Delivery, resulted in a year-over- ments, and layoffs effective at the ations. In addition, residence ex - year increase in Executive Education beginning of fiscal 2 010, HBS re - penses for executive program partic - fellowship spending in fiscal 2 010. duced the size of its administrative ipants—equivalent to cost of goods FTE budget by 100 positions, or 8 HBS treats spending for fellowships sold in Executive Education—are percent, to 1,087, from 1,187 in fiscal as an expense line item on the reported under this category. The 2009. School’s Statement of Activity and School’s fiscal 2 010 expense reduc - Cash Flows. The School’s total finan - tion initiatives included cuts in Fellowships cial aid spending for fiscal 2 010, campus-wide dining costs and the The prospect of entering the work - including fellowships for doctoral postponement of numerous small force with high levels of debt can candidates and Executive Education facilities projects. As a result, the deter strong MBA candidates from participants, as well as MBA students, School’s total space and occupancy applying to HBS and restrict their increased by $2 million, or 6 percent, expenses decreased by $1 million career choices upon graduation. Con - from fiscal 2009, to $35 million. from fiscal 2009 to $41 million.

{ page 33 of 36 } Professional Services & Debt Service Cash Before Capital Expenses Other Expenses HBS has long been cautious in using HBS invests in capital projects and The School’s fiscal 2 010 restructur - debt, and with a building debt- covers the related debt service pri - ing and cost-cutting initiatives sig - to-asset ratio of 4.0 percent, the marily by using cash from operations. nificantly reduced spending from School’s balance sheet remained Cash from operations is largely a fiscal 2009 in several other areas of modestly leveraged at year-end fiscal function of the margins generated by the budget. Driven primarily by the 2010. The University functions as a HBP and Executive Education and re - elimination of contractor positions, banker for HBS, as well as the other turns on the HBS endowment, offset professional services expenses de - Harvard schools, allowing the School by total expense levels reflecting the clined by $9 million, or 29 percent, to to borrow on a triple-A-rated tax- School’s operational priorities. HBS $22 million. Expenses related to exempt basis. The School’s building also uses prior years’ endowment supplies and equipment fell by $3 debt decreased by $7 million to gifts or appreciation, available to be million, or 25 percent, and spending $112 million in fiscal 2010, as there spent pursuant to donor specifica - in the Other Expenses category de - were no new borrowings and $7 tions, to fund capital investments creased by $5 million, or 14 percent, million of principal repayments. Other and related debt service. to $32 million. university debt—mainly consisting of Although these sources of funding repayment obligations to the Univer - are sensitive to short-term economic University Assessments sity for mortgage loans made by the and market trends, the School devel - University assessments cover essen - School as a faculty recruiting incen - ops academic programs, adds fac - tial services provided to HBS by the tive—was flat with fiscal 2009 at $26 ulty, manages its research activity, University, including payroll and ben - million. and invests in its revenue-generating efits administration, processing of businesses and campus infrastruc - accounts receivable and payable, The School’s debt service expense, ture on a long-term basis. HBS also and legal services. In fiscal 2 010, which consists of interest payments invests in unforeseen strategic oppor - the School’s expenses in this area to the University on this debt, in - tunities as they arise. As a result, the rose by $2 million, or 15 percent, creased in fiscal 2 010 by $1 million, School’s cash from operations can from the prior fiscal year to $15 mil - or 17 percent, to $7 million. As in fluctuate widely from year to year. lion. This marked the second consec - fiscal 2009, debt service expenses utive year of increased University as - were mainly associated with borrow - HBS began fiscal 2 010 braced for a sessments, reflecting the decline in ings to finance campus expansion year of declining revenues with an endowment income available to earlier in this decade. The interest expense budget substantially lower support the University’s central ad - portion of the School’s debt service than initially planned for fiscal 2009. ministrative functions. Because Uni - amounted to less than 2 percent of Driven by strong Executive Education versity assessments are primarily total operating expenses in fiscal and HBP results in the second half of calculated as a percent of the 2010. the year, as well as actual expenses School’s total expenses on a two- that came in under budget, actual year lagged basis and total spending revenues for fiscal 2 010 exceeded the has declined during this period, ex - School’s forecast by $33 million. pense for these assessments is bud - Consequently, cash from operations geted to remain flat in fiscal 2 01 1. increased from fiscal 2009 by $18 million, or 53 percent, to $52 million. In addition, use of cash from prior years’ endowment gifts or apprecia - tion contributed $13 million to the School’s cash flow in fiscal 2 010, compared with $11 million in fiscal 2009. As a result, cash before capital activities grew in fiscal 2 010 by $20 million, or 44 percent, to $65 million, from $45 million in fiscal 2009.

{ page 34 of 36 } Net Capital Expenses Net Debt & Other Expenses Ending Balance/ Consistent with the School’s campus In addition to gifts and internally gen - Unrestricted Reserves planning processes, the last phase of erated cash, as well as unrestricted HBS relies on unrestricted reserves to significant campus investment at HBS reserves, the School finances major finance major campus expansion concluded several years ago. Capital capital projects with debt financed projects and capitalize on unfore - spending has generally declined since through the University, using leverage seen strategic opportunities, along then. The School’s total capital ex - strategically as a means of optimizing with a mix of internally generated penses of $11 million for fiscal 2 010, its capital structure. HBS borrows cash, gifts, and debt. Because more net of gifts used for capital projects, only on qualified capital projects, than 50 percent of revenues come compared with $19 million for the carefully considering the interest rate from business units that are highly prior year, and marked the probable environment, expectations for the sensitive to the economy, maintain - low point for the foreseeable future. performance of the Harvard endow - ing a strong unrestricted reserves In the absence of any large capital ment, and the availability of Univer - balance is integral to financial plan - construction or expansion projects in sity debt. ning at HBS and to the School’s abil - fiscal 2 010, the School’s capital in - ity to execute its mission over the The School’s new borrowings, which vestments continued to focus on long term. Fueled primarily by strong have generally declined for the past protecting the long-term value of the cash from operations in fiscal 2 010, several years as capital spending has physical plant through the renewal which more than offset funds trans - decreased, dropped to zero in fiscal and maintenance of buildings, cam - ferred to the endowment reserve, the 2010. At the same time, debt princi - pus infrastructure, and I.T. systems. School’s year-end reserves balance pal payments increased to $7 million, grew by $3 million to $99 million. from $5 million in fiscal 2009. Other non-reserve activity increased signifi - Building Debt Outstanding (in millions) cantly in fiscal 2 010, primarily due to FY10 $ 112 the transfer of $50 million to the FY09 119 School’s endowment reserve in the FY08 121 summer of 2009. FY07 108 This reserve was established several FY06 108 years ago with the goal of realizing long-term investment returns. As a 35 result of this transfer, plus investment returns for the year, HBS concluded fiscal 2 010 with an endowment reserve balance of $149 million, up from $85 million a year earlier. To - gether with the School’s debt princi - pal payments in fiscal 2010, the transfer to the endowment reserve resulted in a $51 million decline in the Net Debt & Other category for the year.

{ page 35 of 36 } This document is intended to provide insight into the way Harvard Business School manages its resources and plans strategically for its future. Further information about the School can be found at www.hbs.edu.

This report can be viewed or downloaded at www.hbs.edu/annualreport.

Harvard Business School is led by the Dean of the Faculty in conjunction with various advisory and oversight groups comprising faculty, staff, alumni, academics, and business practitioners. Harvard University appoints a Visiting Committee to review Harvard Business School’s strategic goals and objectives and to provide advice and input to the Dean. The group meets biannually and reports to Harvard University’s Board of Overseers.

We welcome questions and comments from our readers. Please direct correspondence to Richard Melnick, Chief Financial Officer: [email protected] or to the Office of the Dean: offi[email protected].

Copyright ©2011 President & Fellows of Harvard College.

{ page 36 of 36 } ANNUAL 2010

08 14 18 Social Responsibility Entrepreneurship Sustainability 04 07 10 12 16 20 MBA Program Doctoral Programs Executive Education Faculty & Research Alumni Publishing

Harvard Business School Soldiers Field Boston, Massachusetts 02163 21 26 27 28 Five-Year Summary Statement of Activity & Consolidated Balance Supplemental Information www.hbs.edu Cash Flows Sheet 100%

Printed on 100% post-consumer waste recycled FSC-certified paper, processed chlorine-free with 100% renewable energy.

SAVING: 32,452 pounds of wood (104 trees) Enough energy to power the average American home for 132 days 47,389 gallons of water 2,877 pounds of solid waste not landfilled

This document is intended to provide insight into the way Harvard Business School manages its resources and plans strategically for its future. Further information about the School can be found at www.hbs.edu.

This report can be viewed or downloaded at www.hbs.edu/annualreport.

Harvard Business School is led by the Dean of the Faculty in conjunction with various advisory and oversight groups comprising faculty, staff, alumni, academics, and business practitioners. Harvard University appoints a Visiting Committee to review Harvard Business School’s strategic goals and objectives and to provide advice and input to the Dean. The group meets biannually and reports to Harvard University’s Board of Overseers.

We welcome questions and comments from our readers. Please direct correspondence to Richard Melnick, Chief Financial Officer: [email protected] or to the Office of the Dean: offi[email protected].

Copyright ©2011 President & Fellows of Harvard College.

{ page 36 of 36 }