08

ANNUAL2010

14 18

28

10Executive Education

04MBA Program

07Doctoral Programs

20Publishing

12Faculty & Research

16Alumni

Social Responsibility Entrepreneurship Sustainability

21 26 27Five-Year Summary Statement of Activity &

Cash FlowsConsolidated BalanceSheet

Supplemental Information

Harvard Business SchoolSoldiers FieldBoston, Massachusetts 02163

www.hbs.edu

Poised to enter a second century of innovation.

{ page 1 of 36 }

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.

from the dean

We all owe Jay a tremendous debt ofgratitude for his stewardship of theSchool. He navigated a path for HBSthat protected key priorities, from stu-dent fellowships to faculty research,while investing strategically in areassuch as MBA Career & ProfessionalDevelopment. He rallied everyone inthe community—staff, faculty, stu-dents, and alumni—to think and workcreatively. And he pushed forwardon important efforts such as ourglobal initiative. As a result, I wasable to step into the deanship confi-dent not just in the School’s financial

stability, but its overall strength. Jaywas a remarkable leader during diffi-cult times.

This year’s report has taken on aslightly different format. The School’sfinancials remain comprehensiveand our Chief Financial Officer, RickMelnick, provides insight into our eco-nomic model at a high level andexpenses and revenues at a more de-tailed level. In the section in between,you’ll find an effort to bring meaning-ful data to life about our key activi-ties, including our educational pro-grams, Harvard Business Publishing,

and the work of the faculty, as well asimportant ongoing work in the areasof sustainability, community engage-ment, and entrepreneurship, amongothers.

In each of these areas, 2010 broughtwith it new developments both largeand small. In the MBA Program, forexample, in addition to the JanuaryTerm offerings you'll read about inthe pages that follow, we welcomedour first cohort of 2+2 students tocampus over the summer for an in-troduction to HBS and to each other.This is a remarkable group of individ-

{ page 2 of 36 }

3

uals who were admitted to the MBAProgram while finishing their under-graduate degrees; they will work fortwo years and then join us full-time.We also launched a new loan pro-gram for our international students—a crucial component of ensuring thatwe always are able to attract the beststudents to our campus, regardlessof their need or country of origin—replacing a comparable programthat was withdrawn during the eco-nomic crisis.

In our Doctoral Programs, we contin-ued to increase the number of stu-dents we admit, as well as the sup-port we provide to them, thanks tothe generous gift of Hansjoerg Wyss.Even in a difficult job market theplacements of our graduates remainstrong, and in 2010 six went on toteaching positions at top-tier schools.

Executive Education demonstratedthat its post-recession trajectory isfirmly positive, with growth in bothapplications and enrollments and arise in the number of program weeks.An important area of focus during2010 was global programs—specifi-cally, programs in China and Europe,with the former capitalizing on thenew classroom space in the HarvardCenter Shanghai. During the comingyear we will add programs in Indiaand Latin America to the portfolio,and our hope is to reach a steadystate where at least a few dozen pro-

grams are offered in strategic regionsaround the world. We will, of course,maintain our commitment to our on-campus portfolio, and next year you’llhear more about plans for Tata Hall,a new state-of-the-art facility encom-passing participant living space,classrooms, and administrative of-fices that we anticipate will be com-pleted in 2013.

Harvard Business Publishing has heldsteady in a landscape where its peersare struggling. Following significantupgrades to its technology platform,work to expand its global reach, andinvestments in its core products—including Harvard Business Review,the case collection, and HarvardManageMentor—it is solidly posi-tioned to meet future challenges.

Perhaps less visible, but still exciting,have been advancements in ourefforts around sustainability. Welaunched an initiative on businessand the environment to bring to-gether faculty, students, staff, andalumni doing work in this increasinglyimportant arena. And as part of theUniversity’s efforts to reduce green-house gas emissions 30 percent from2006 levels by 2016, we installed a5,200-square-foot “green roof” onShad Hall, and introduced a “GreenCorps” of MBA students who pro-mote sustainable living through peer-to-peer education.

This is but a small flavor of the entre-preneurial activity you'll encounteron the HBS campus on any given dayor week. As I begin my tenure asDean, I am excited by the work weare doing and the opportunitiesahead of us, and eager to moveforward on the priorities—innovationin our educational programs, intel-lectual ambition, international en-gagement, inclusion, and integrationwith Harvard—we have identified.We truly stand poised to enter a glo-rious second century of innovationfor the School.

Regards,

Nitin NohriaDean of the Faculty

{ page 3 of 36 }

MBA

TEST SCORES

AVERAGE GPAMOST FREQUENTLYREPORTED YEARSOF WORK EXPERIENCE

UNDERGRADUATE INSTITUTIONSREPRESENTED

STUDENT DEMOGRAPHICS

APPLICATIONS, FY10 (CLASS OF 2012)

PRE-MBA INDUSTRIES REPRESENTED

Applicants

% Women % International % U.S. Ethnic Minority

Admitted

0

2000

Middle 50% GMAT Score Range

4000

6000

8000

10000

34

9,524

903

36

710-750

23

3.674

CITIZENSHIP

70% North America

11% Asia/South Pacific

11% Europe

3% Central/South America

1% Oceania

4% Africa/Middle East11% ACCEPTANCE RATE

243GMAT Score Range

550-790

CASE FOCUS, FIRST-YEAR GLOBAL CASES

24% Multi-Regional

33% Asia/South Pacific

31% Europe

7% Africa/Middle East

EDUCATING FUTURE LEADERS for a diverse world begins with recruiting MBA students

who bring different experiences, interests, and ambitions to HBS.

MAN

UFAC

TURI

NG

MILI

TARYCO

NSUM

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ODUC

TS

HEAL

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CH

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/COM

MUN

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IONS

INVE

STM

ENT

BANK

ING

CONS

ULTI

NG INVE

STM

ENT

MAN

AGEM

ENT

{ page 4 of 36 }

Students wholive on campus

80%

Students who receive someform of financial assistance

75%

International casesdiscussed

33%

MBA graduates who becomeentrepreneurs by 15th reunion

50%

IMMERSION EXPERIENCES, 2010

HBS PARTNERS

460

Students who participatedin an immersion program

25%

0

250

500

1000

750

2008

–09

2009

–10

880836856

2008

–09

2009

–10

1,029

Summer Positions Career Positions

JOB POSTINGS

JOB OFFERS

95%Received Offer(3 months after graduation)

CLASS OF 2009 CLASS OF 2010

91%

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

SCAN CODE TO VISIT www.hbs.edu/mba

UNDERGRADUATE MAJORS

0%

10

20

30

40

ENGI

NEER

ING/

NATU

RAL

SCIE

NCES

HUM

ANIT

IES/

SOCI

ALSC

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BUSI

NESS

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CAPI

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5

{ page 5 of 36 }

MBA Program faculty and studentstook advantage of the new JanuaryTerm to experiment and innovate,pursuing options made possible bythe longer break between the falland winter terms resulting from theUniversity’s move to a common aca-demic calendar in the 2009–2010academic year.

During the first January Term, theSchool piloted or expanded a varietyof programs, each designed to en-hance the learning that takes place inHBS classrooms. The “J-Term” is ex-pected to grow and evolve over time,offering students opportunities forsmall-group, in-depth, and cross-School activities.

Intensive faculty-led seminars

More than 300 MBA students enrolled in11 faculty-led seminars in areas such asleadership, global trends, and health-care. One seminar, Integrating Businessand Design for Sustainable Develop-ment, was a joint effort of HBS and theHarvard Graduate School of Design andwas taught by HBS faculty members AmyEdmondson and Robert Eccles.

Expanded IXPs

The Immersion Experience Program,a staple of winter break since 2007,expanded in 2010 to encompass morethan 400 MBA students participating ineight faculty-led IXPs in Asia, the MiddleEast, Central America, South America,and Africa, together with U.S.-basedprograms in Boston, New Orleans, andSilicon Valley.

Independent studies

Students were free to choose from lessstructured options, including field stud-ies, career coaching, and student-ledCareer Treks in North America, Europe,and Asia.

HBS INAUGURATES JANUARY TERM

In 2010, Immersion Experience Pro-grams (IXPs) took place for the firsttime in South America and sub-Saharan Africa.

Peru IXP

Is the natural resource curse in-evitable in developing nations? Thiswas the central question professorDiego Comin posed to the 49 MBAstudents on the Peru IXP. The stu-dents met with local entrepreneurs,created a business plan for tourismat an historic site, explored develop-ing a world market for undervaluedagricultural products, and ponderedthe sustainability of a resort hotel’sbusiness model. They also conducteda field study, surveying small busi-ness owners with local students inthe city of Cuzco.

Rwanda IXP

Led by professor Louis Wells, 35 stu-dents devoted one of their two weeksin Rwanda to consulting projects withlocal organizations, with the goalof providing concrete solutionsto management problems. Smallteams worked with a variety ofNGOs, small businesses, and a gov-ernment agency with common inter-ests in social enterprise and businessdevelopment. A high point of the pro-gram was a wide-ranging two-hourdiscussion with Rwandan PresidentPaul Kagame.

SAMPLE RWANDAN CLIENTS & PROJECTS:

Indego Africa

Developed marketing plans for this coop-erative, which empowers women to riseout of poverty by selling their own crafts.

Karisimbi Business Partners

Helped the organization’s client Manu-metal, a local furniture manufacturer,align its operations with its new businessstrategy.

EVOLVING IXPs

Millennium Promise

Worked on a Millennium-funded cassavaprocessing plant for a farmers’ cooper-ative; implemented feed-mix trials tohelp chicken farmers apply the mostcost-effective approaches to raisingmarketable poultry.

In FY10, HBS identified new opportunities for learning experiencesthat complement and enhance the MBA curriculum.

{ page 6 of 36 }

7

2010 WYSS AWARDS for Excellence inDoctoral Research, named in honorof Hansjoerg Wyss (MBA ’65)

Prithwiraj ChoudhuryDBA, Strategy

Dissertation:“Innovation in Emerging Markets”

Now on the faculty of the WhartonSchool, University of Pennsylvania

Emilie FeldmanDBA, Strategy

Dissertation:“Essays on Corporate Strategy 1) Sellingyour Heritage: Legacy Divestitures andthe Hidden Costs of Corporate Renewal,2) The Talent at the Table: Business Ex-pertise and Share Ownership in Fortune500 Boardrooms, 3) When Do AnalystsAdd Value: Evidence from CorporateSpinoffs”Now on the faculty of the WhartonSchool, University of Pennsylvania

Colin FisherPh.D., Organizational Behavior

Dissertation:“The Timing and Type of Team CoachingInterventions”

Now on the faculty of the School of Man-agement, Boston University

George SerafeimDBA, Accounting and Management

Dissertation:“Essays on Fair Value Reporting 1) Conse-quences and Institutional Determinants ofUnregulated Corporate Financial State-ments: Evidence from Embedded ValueReporting, 2) Information Risk and FairValues: An Examination of Equity Betasand Bid-Ask Spreads, 3) Did Fair Valua-tion Depress Equity Values During the2008 Financial Crisis?”

Now on the faculty of Harvard BusinessSchool

The Doctoral Programs at HBS train students who will beresponsible for the next generation of business knowledge.

% Women % International

2933

Total enrollment, FY10130DOCTORAL PROGRAMS

2010 MARTIN AWARDS for Excellence inBusiness Economics, established byRoger Martin (MBA ’81) in memoryof his mentor, HBS professor JohnLintner

Sergey ChernenkoPh.D., Business Economics

Dissertation:“Capital Market Imperfections and Cor-porate Finance”

Now on the faculty of Fisher College ofBusiness, The Ohio State University

Itay FainmesserPh.D., Business Economics

Dissertation:“Essays on Networks and Markets1) Community Structure and Market Out-comes: Towards a Theory of RepeatedGames in Networks, 2) Effective Word-Of-Mouth: Reputation Networks andMarket Structure, 3) Social Networks andUnraveling in Labor Markets”

Now on the faculty of Brown University

DOCTORAL STUDENTS COMMENDFACULTY MENTORS

For the third year DBA and Ph.D.candidates recognized one seniorand one junior faculty member whofostered their professional and per-sonal development with the DoctoralAwards for Excellence in Mentoring.

The senior faculty award went toAmy Edmondson and the junior fac-ulty award to Belén Villalonga.

scan this codeto visit www.hbs.edu/doctoral

{ page 7 of 36 }

soci

alre

spon

sibi

lity AS AN INSTITUTION, HBS recognizes its responsibility to the larger communities

it is a part. Similarly, the students, faculty, and staff on the HBS campus seek

make a positive difference within the School and far beyond.

SUPPORT FOR THE NEIGHBORHOODAs an important presence in its immediate neighborhood of Allston and thecity of Boston as a whole, the School devotes time, funds, and in-kind ser-vices to the support of local public and nonprofit organizations.

A flagship program is the HBS Leadership Fellows, which gives organizationsthe benefit of the full-time services of recent MBA graduates for a year whilesubsidizing their salaries. Since the program’s inception in 2002, 25 of the88 worldwide Leadership Fellows have worked in Boston-based operations,with especially strong representation in the City of Boston Mayor’s Office.In fiscal 2010 alone, the School provided 11 scholarships for Executive Ed-ucation programs to staff members from the City of Boston, Boston PublicSchools, and a variety of not-for-profit organizations. HBS faculty devoteuntold hours to speaking engagements, pro bono consulting, and partici-pation on local nonprofit boards.

Local Organizations Receiving Donations,FY10 (partial)

Allston-Brighton Little LeagueAllston-Brighton Youth HockeyBoston Firefighters’ Burn FoundationCharles River ConservancyInner-City Scholarship FundJoseph M. Smith Community Health CenterMATCH Charter Public SchoolNew England Center for Homeless VeteransOak Square YMCAPresentation School ProjectSoldiers Field Park Children’s CenterTenacityVeronica B. Smith Multi-Service Senior CenterVocational Advancement CenterWest End House Boys & Girls Club

MBA students participated in volunteerclub activities

Executive Education scholarshipsfor local nonprofits

{ page 8 of 36 }

9

of which

ways to

Sean CameronCameron was elected Education Representative, or Ed Rep, for his first-year section, and duringhis second year, he chaired the Education Committee, helping the new first-year Ed Repssucceed in their roles. Cameron served as copresident of the HBS Investment Club and as afinance and economics tutor to first-year MBA students. He spent the 2010 January Term inthe Philippines on a research project directed at enhancing rural electrification.

Andrew KlaberWhile earning degrees in Harvard’s jointJD/MBA program, Klaber was copresi-dent of the Harvard JD/MBA Associa-tion. He was a guiding force in creatingthe School’s MBA Oath, a voluntarypledge created by students with theultimate goal of improving leadershipthroughout the business community.Klaber continued to serve as presidentof Orphans Against AIDS, an all-volun-teer organization he founded while anundergraduate.

John ColemanColeman took on leadership roles while a joint degree candidate at HBS and Harvard KennedySchool. In the HBS Senate, he led the Community Impact Fund, which provides financial supportfor student-led initiatives that have direct and tangible impact outside the School, and he alsoserved as the HBS representative to the Harvard Graduate Council. As an HBS Social EnterpriseSummer Fellow, Coleman worked at a Boston-based housing nonprofit.

Whitney PetersmeyerPetersmeyer was elected to the Leader-ship and Values Committee during herfirst year at HBS and chaired it duringher second. She twice participated in theservice-based New Orleans IXP. Duringthe summer after her first year, sheworked as a research analyst at TeachFor America. Petersmeyer was subse-quently named an HBS LeadershipFellow, a position that has enabled herto return to this organization for a yearafter graduation.

Maya BabuA graduate of the joint MD/MBAprogram, Babu plans to practice neuro-surgery while working to shape govern-ment health policy. She participatedin research at Massachusetts GeneralHospital, working with a team of neuro-surgeons exploring whether socioeco-nomic status has an impact on the natureof trauma patient care. At HBS, Babucreated a business plan for a social ven-ture devoted to connecting mentors withat-risk high-school students.

Richard Chung & Philip WongIn 2009, Chung piloted a version of the Global Impact Experience program, or GIX, in whichthree teams of students consulted for the U.S. Agency for International Development on projectsrelating to business development in the Philippines, Morocco, and Jordan. Wong joined Chungin leading the planning and management of the GIX program during its second year, when itwas integrated into the School’s 2010 January Term offerings.

Robert Daly Jr.While at HBS, Daly, a graduate of thejoint MD/MBA program, put his educa-tion and talents to use helping disen-franchised communities gain qualitymedical care. He worked extensivelywith the Humsafar Trust, a nonprofit inMumbai, India, dedicated to the needsof sexual minorities. Daly developed afive-year strategic plan that resulted in adramatic increase in the trust’s effi-ciency and effectiveness and createdtools to track the results.

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

of HBS and the larger community through exceptional leadership and service.8

{ page 9 of 36 }

EXECUTIVE ED UC

OPEN ENROLLMENT PROGRAMS

9,010

Applications

0

2000

4000

6000

8000

10000

Participants

5,915

PREPARING EXECUTIVES FROM ALL OVER THE WORLD for new levels

of leadership in their careers and within their organizations.

PARTICIPANT DEMOGRAPHICS

% Women % International

63

SOCIAL MEDIA FANS & FOLLOWERS

30,000+

SCAN CODE TO VISIT www.exed.hbs.edu

DAILY TIME ALLOCATION

COURSES TAUGHT BY FULL-TIME FACULTY

100%

6 hours in class On average, 2 hours’ preparation for each case study

20

HBS MOBILE NEXUS

The Educational Technology Group (ETG)

partners with Executive Education to in-

novate in the delivery of program content

and related information. Building on the

HBS Learning Nexus, a portal developed

for the comprehensive leadership pro-

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

way they want to receive it.

{ page 10 of 36 }

UCATION

OPEN ENROLLMENT PROGRAMS

CUSTOM PROGRAMS

20

75

CLASS SIZE

40-80

REVENUE

2008

2006

2010

113$

0

20

40

60

80

100

120 million

106

81

CUSTOM PROGRAM PARTICIPANTS

PARTICIPANTS SPONSORED BY EMPLOYERS

88%

2,755

PROGRAM LENGTHS

2days to 9weeks

11

MANAGING HEALTHCARE DELIVERY (MHCD) was developed for teams of senior

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

develop the skills they will need to drive change in their organizations.

MHCD is offered in three one-week modules over nine months, reflecting

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.

“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 improvehealthcare delivery systems within their institutions.”

Professor Richard Bohmer, MD, faculty chair, MHCD

{ page 11 of 36 }

The breadth and impact of research is evident in the awards won

AWARDS FOR leadership, publications,teaching, contributions to academicfields and society at large—and evenfor a TV documentary—are among theaccomplishments of faculty membersin 2009–2010.

Awards received include:

Global Award for Entrepreneurship

Josh Lerner received the 2010 GlobalAward for Entrepreneurship Research,widely regarded as the world’s mostprestigious prize in the field. In namingLerner, the award committee cited himfor synthesizing the fields of finance andentrepreneurship, and for his researchin the areas of venture capital, venturecapital-backed entrepreneurship, and en-trepreneurial innovation. The committeealso noted the impact of Lerner’s insightson public-policy measures that benefitsociety by creating new jobs, products,and services.

Kauffman Junior Faculty Fellowshipsin Entrepreneurship Research

William Kerr and Ramana Nanda eachwon a Kauffman Junior Faculty Fellow-ship. The Ewing Marion Kauffman Foun-dation, which supports entrepreneurship,presents the awards annually to tenuredor tenure-track junior faculty memberswhose research is recognized for its po-tential to make significant contributionsto the field.

Kerr, whose research focuses on entre-preneurship and innovation, works inareas including the role of immigrantscientists and entrepreneurs in U.S. tech-nology development and commercializa-

EIGHT NEW MEMBERS were namedto the tenure-track faculty in FY10:

Douglas FearingAssistant ProfessorTechnology & Operations Management

Fearing studies techniques for evaluatingand improving the performance of com-plex systems. Working primarily in theairline industry, Fearing has developedmodels and metrics to mitigate airportand airspace congestion. He earned hisPh.D. from the Massachusetts Instituteof Technology.

Francesca GinoAssociate ProfessorNegotiation, Organizations & Markets

Gino’s research focuses on judgment anddecision-making, ethics, social influence,and creativity; and on the consequencesof lapses in these areas for individual,group, and organizational outcomes. Sheholds a Ph.D. from the Sant’Anna Schoolof Advanced Studies in Pisa, Italy, andwas a postdoctoral fellow at HBS. Beforereturning to join the faculty, she taughtat the University of North Carolina atChapel Hill’s Kenan-Flagler BusinessSchool and at the Tepper School of Busi-ness, Carnegie Mellon University.

Shon HiattAssistant ProfessorOrganizational Behavior

In his research, Hiatt investigates howsocial structure influences the adoptionof novel techniques and organizationalprocesses—and ultimately the developmentof new ventures—in contexts ranging fromthe U.S. biodiesel industry to entrepreneur-ship in developing economies. He receivedhis Ph.D. from Cornell University.

tion, agglomeration and entrepreneur-ship, and entrepreneurial finance andangel investments.

Nanda’s research investigates the effectof the financial sector on innovation andentrepreneurship in the economy. Hestudies the role of financial intermedi-aries in the founding and growth of newventures in a region, and how govern-ment policy toward the financial sectorinfluences innovation, entrepreneurship,and productivity growth.

McKinsey Awards for Best Articles inHarvard Business Review

Gary Pisano, Willy Shih, and ClaytonChristensen were honored with 2009McKinsey Awards for the best articlespublished in Harvard Business Review.The annual awards are made by HBRand the consulting firm McKinsey &Company.

Pisano and Shih took first-place honorsfor “Restoring American Competitive-ness,” in which they argue that U.S.companies were mistaken to outsourcemanufacturing based on the belief thatit holds no competitive advantage.

Christensen and his coauthors, JeffreyDyer of Brigham Young University andHal Gregersen of INSEAD, won the sec-ond-place award for “The Innovator’sDNA.”

FACULTY & RESEARCHpublished in FY10

1

2

3

1 2

{ page 12 of 36 }

13

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

scan this codeto visit www.hbs.edu/research

Vineet KumarAssistant ProfessorMarketing

Kumar focuses on the interface of mar-keting and technology, particularly onsocial network media. He analyzes con-sumers’ interpersonal behavior in thesocial network environment and its impli-cations for developing new marketingstrategies. Kumar earned his Ph.D. fromthe Tepper School of Business, CarnegieMellon University.

Lakshmi RamarajanAssistant ProfessorOrganizational Behavior

Ramarajan’s research examines the man-agement and consequences of identi-ties—such as those of race, nationality,gender, or religion—in organizations, withparticular attention to ways people canwork productively across social divides.She received her Ph.D. from the WhartonSchool of the University of Pennsylvaniaand was a postdoctoral fellow at HBSfrom 2008 to 2010.

George SerafeimAssistant ProfessorAccounting & Management

Serafeim studies international capitalmarkets with a focus on valuation, the in-formation environment, and intermedi-aries while also pursuing a more recentinterest in the social, environmental, andgovernance performance of firms. Heearned his DBA from HBS.

Magnus Thor TorfasonAssistant ProfessorEntrepreneurial Management

Torfason’s research interests center onhow behavior is influenced by the socialstructures of individuals and organiza-tions. In one of his primary researchareas, he uses data from a large onlinevideo game to explore how social net-works and group identities jointly affectadherence to informal societal rules andnorms of behavior. Torfason received hisdoctorate from Columbia Business School.

Gwen YuAssistant ProfessorAccounting & Management

In her research, Yu examines the waysin which accounting information affectsvarious real economic outcomes—in par-ticular, how accounting standards andcorporate disclosures influence the capi-tal allocation decisions of both managersand external investors. She earned herPh.D. from the University of Michigan.

video elements themselves. Facultyreport that multimedia cases providestudents with deeper insights so thatthey more quickly reach a high level ofanalysis and dialogue in the classroom.

Paperless cases

Some of the newest multimedia casesare not accompanied by a paper case,although they do have a printable sec-tion containing exhibits and on-screentext. According to professor MichaelTushman, author of the paperless caseon the athletic apparel company lulu-lemon, “Students actually see the cul-ture, see the energy, see the personalitythrough the multimedia technology. Forthat kind of case, ‘lululemon’ is a realbreakthrough.”

A SAMPLER

Leadership, Culture, and Transitionat lululemonMichael Tushman

Enterprise Risk Management atHydro OneAnette Mikes

An Entrepreneur’s Journey:Simi NwoguguJohn Davis(with Research Associate Shirley Spence)

Burt’s Bees: Balancing Growth andSustainabilityChristopher Marquis

MULTIMEDIA BRINGS CASES TO LIFE

MBA students and Executive Educationparticipants are accustomed to consum-ing information in multimedia formats,which can be the best way to teach andlearn certain kinds of material. HBS fac-ulty members have been collaboratingwith the School’s Educational Technol-ogy Group to develop multimedia casestudies. This latest innovation in the casemethod is far more than a video supple-ment or an online tool—rather, the pri-mary learning is contained within the

3 4 5 6 7 8

4 7

5

6

8

{ page 13 of 36 }

entr

epre

neur

ship

ACROSS THE SCHOOL, INSIDE AND OUTSIDE THE CLASSROOM, there is great interest

entrepreneurship. For MBA students, the focal point is the annual Business

which spawns not only innovative plans but successful enterprises.

In fiscal 2010, a record number of teams and MBA students participated inthe 14th iteration of the contest, which awards $25,000 in cash, togetherwith in-kind services, to each of the winners, one for the business venturetrack and one for the social venture track.

A new track: alumni

This year HBS extended entrepreneurial competition with the Alumni NewVenture Contest, designed to support promising young organizationsfounded or cofounded by the School’s graduates. Seven HBS Alumni Clubregions around the world selected seven finalists from more than 70 teams.Three HBS faculty members mentored the teams and led educational ses-sions during the finals, held on campus in tandem with the student contest.A panel of alumni entrepreneurs and venture capitalists judged the alumnicontest.

The interest in the alumni contest is a reflection of the career paths of theSchool’s graduates. Approximately half of all alumni have become entrepre-neurs within 15 years of graduation, and half of these have started two ormore businesses. According to a recent HBS survey, more post-MBA entre-preneurs said that their current position represented their ultimate careergoal than alumni as a whole.

FACU

LTY&RE

SEAR

CH

1,231Cases published by Arthur Rock Center for

Entrepreneurship faculty in the last 10 years

102Books published by Rock Center

faculty in the last 10 years

384Articles published by Rock Center

faculty in the last 10 years

ENTREPRENEURS-IN-RESIDENCE5

{ page 14 of 36 }

15

in

Plan Contest,

MBA business venture trackOsComp Systems, which is commercializ-ing a revolutionary gas-compressor tech-nology developed in conjunction withMIT that drives natural gas into pipelinesat a lower cost with greater efficiency.

Team:Shantanu Agarwal (MBA ’10)

and MIT Sloan School students PedroTomas Santos and Emmanuel Magani

MBA social venture trackUrban Water Partners, which will lease fil-ters to water vendors in Dar es Salaam,Tanzania, to markedly improve access toclean drinking water for the city’s 3 millionresidents.

Team:Porter Jones, MD (MBA ’11)Ajay Kori (MBA ’11)Aaron Matto (MBA ’11)

and University of Utah medical studentsJason Young and Justin Iwasaki

Alumni New Venture ContestKrishna Mahesh (MBA ’05) took top honors and the $25,000 cash prize at the inauguralAlumni New Venture Contest. Mahesh, representing the HBS Club of India, is the founderand CEO of Sundaram Medical Devices. Based in the southern city of Chennai, the com-pany aims to apply the high engineering, quality, and cost-control standards of the Indianautomotive industry to the development and manufacture of a low-cost but high-techmedical bed that benefits both patients and caregivers. With an estimated shortage ofmore than 3 million medical beds in India, Sundaram will address the needs of anextremely underserved market.

contest winners 26 ELECTIVE COURSEStaught by over 30 different professors

The MBA Elective Curriculum includes a widerange of entrepreneurially oriented courses. In2009–10, the most subscribed included:

Building & Sustaining a Successful Enterprise

The Coming of Managerial Capitalism: TheUnited States

Entrepreneurial Finance

Entrepreneurial Management in a TurnaroundEnvironment

Founders’ Dilemmas

Real Property

Venture Capital and Private Equity

70Teams entered in Alumni NewVenture Contest

7Alumni clubs sponsoring teamsin Alumni New Venture Contest 0

40

60

80

100

120

140

160

180

20

2008

2009

2007

Teams participating

2010

110

STUDENT BUSINESS PLAN CONTEST

2008

2009

2007

2010

Students participating

185

5

+93

7562

80

137

156

AVERAGE NUMBER OF ENTREPRENEURSHIP ELECTIVESTAKEN (PER MBA STUDENT)

2.5

MBA CURRICULUM

{ page 15 of 36 }

ALUMNI

TOTAL FY10 MBA NEED-BASED FELLOWSHIPS

21m$STUDENTS RECEIVING FELLOWSHIPS(CLASSES OF 2010 & 2011)

889out of a total enrollment of 1,864

AVERAGE FELLOWSHIP

24,000$

73% Endowed Funds

16% Current Use Funds

11% Dean’s Fund

SOURCES OF SUPPORT

AVERAGE TUITION

45,000$

2008

2006

2010

417NUMBER OF FELLOWSHIP FUNDS

0

200

400

300

100

ALUMNI ATTENDING REUNIONS

ALUMNI VOLUNTEERS

3,095

4,000+

Fundraisers

1,000 +

Advisory board members

500 +

Class & section secretaries

1,000 +

Club volunteers

1,000 +

Reunion volunteers

500 +

.......................................................

380

321

THE MBA FELLOWSHIP PROGRAM is supported entirely by gifts fromalumni, corporations, and friends of the School. Today, the fellowship programcomprises more than 400 individual funds that enable HBS to maintain itsneed-blind admission policy and admit the best and brightest studentsregardless of financial need. Thanks to the generosity of these donors,together with those who contributed to the Dean’s Fund, growth in thefellowship program has outpaced annual tuition increases and has helpedreduce the debt of graduating MBAs.

{ page 16 of 36 }

ALUMNI

71,000ALUMNI CLUBS

Geographically based alumni clubs

Affinity-based alumni clubs and associations

Affiliated Harvard Alumni clubs

clubs and associations in 42 countries

in 161 countries

9696 17

THE 2010 ALUMNI ACHIEVEMENT AWARDS represent the School’s high-est honor, recognizing individuals who, throughout their careers, have con-tributed significantly to their companies and communities while upholdingthe highest standards and values in everything they do.

scan this code tovisit www.alumni.hbs.edu

Susan Decker (MBA ’86)Former President, Yahoo! Inc.

Becoming a dedicated entrepreneur aftera career as a financial analyst, Deckerled Yahoo!’s global business operationsand spent the 2009–2010 year as anHBS Entrepreneur-in-Residence.

“When it comes to technology, we allhave the same core desires to do thingssmarter, faster, and simpler, and to stayconnected to each other. Entrepreneurswho find better ways to address theseneeds will add value through new com-panies and services.”

James Dimon (MBA ’82)

Chairman & CEO, JPMorgan Chase & Co.

Earlier in his career, Dimon was a top ex-ecutive at Salomon Smith Barney and theTravelers Group, helped create Citigroup,and rescued Bank One.

“There were many fundamental causesand contributors to the recent financialcrisis. Some practices will be different for-ever, and that’s a good thing.”

Allan Gray (MBA ’65)

Chairman, Orbis InvestmentManagement, Ltd.

Before launching the international invest-ment firm Orbis—now with about $20 bil-lion in assets under management—withhis son William (MBA ’93), Gray built ahighly successful asset management firmin his native South Africa.

“We’ve put more and more emphasison companies’ intrinsic value—includingintellectual capital and brilliant manage-ment—not just price-to-book and price-to-earnings ratios.”

James Lovell (AMP 62, 1971)President, Lovell CommunicationsFormer Astronaut, Apollo 13

As commander of Apollo 13, Lovell over-saw the mission’s safe return to Earth.After retiring from NASA, Lovell enteredbusiness in the telecommunications andtransportation industries. He now serveson several space-related boards, advo-cates for the U.S. space program, and isa sought-after speaker.

“If you aren’t motivated by the businessyou’re in, you’re in the wrong business.”

Marvin Traub (MBA ’49)

President, Marvin Traub Associates, Inc.Former CEO & President, Bloomingdale’s

During his 41-year career at Blooming-dale’s, more than half at its helm, Traubexpanded the legendary store nationallyand then globally, launched some of theworld’s most popular designers, andmentored new generations of leaders ofstores and brands.

“Brands and stores are now global. Whilethe Internet has changed everything,good stores remain distinguished by cre-ativity and a willingness to change.”

{ page 17 of 36 }

sust

aina

bilit

y THROUGHOUT ITS OPERATIONS, HBS is focused on the environment and sustaina

Notable innovations, continuous improvement, and recognition from beyond

to the depth of this commitment.

MEASURING PROGRESS IN 2010HBS tracks its progress toward sustainability across four broad areas—energy conser-vation, waste management, gaining LEED Gold certification for facilities, and the GreenLiving Program, which encompasses sustainability-oriented behavioral changes amongmembers of the community. Through this process, the School is meeting and oftenexceeding the ambitious conservation goals that Harvard President Drew Gilpin Fausthas set for the entire University.

A particular highlight for fiscal 2010 was LEED certifications from the U.S. GreenBuilding Council. HBS follows LEED guidelines for all new construction and majorrenovations. During the year, the School received its first off-site Gold certificationfor the construction of the Harvard Center Shanghai, and it surpassed the Goldstandard with Platinum certification for the renovation of McCulloch Hall, a studentresidence.

HBS Receives City of Boston Green Business AwardThe School’s Operations Department was honored by Boston Mayor Thomas M. Menino with a2010 City of Boston Green Business Award, primarily in recognition of the multiple green technolo-gies in use at Shad Hall. Mayor Menino cited HBS and the other recipients by saluting their effortsas “an outstanding example of the leadership necessary to advance Boston’s sustainability goalsand continue to grow our green economy.” This was the second accolade of the year for theHBS Operations Department, which also received a Harvard University Green Carpet Award forits chilled water plant’s greenhouse gas reduction.

Campus recycling rate, meeting theUniversity-wide goal for 2012

60%

A pilot project was initiated to eliminate theuse of bottled water in the Executive EducationAdvanced Management Program

{ page 18 of 36 }

19

bility.

the School testify

SHAD’S GREEN ROOFWhen Shad Hall, the School’s fitness and recreation facility,needed a new roof, HBS made the decision to go green by in-stalling its first living rooftop. In the fall of 2009, a garden ofmore 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 retentionand drainage system, and a shale-based planting mediumthat will not blow away or compact over time. The newplantings will spread to cover the entire garden area by thesummer of 2011.

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 reducea building’s average daily energy demand by about 15 per-cent; it absorbs and retains an estimated 75 percent ofannual rainfall, reducing storm-water runoff; and it can lasttwice as long as a conventional roof surface. Shad’s greenroof covers about a quarter of the building’s total flat roofsurface. The remainder, which is not suitable for planting, istopped by sheets of white polyvinyl chloride to reflect sunlightand reduce cooling costs. Additionally, photovoltaic panelsare 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 thebasement whose waste heat is used to supply hot water forafter-workout showers. Based on all these measures, HBS isapplying for LEED certification for Shad.

The HBS community is now creating renewable energy dur-ing indoor cycling classes at Shad. The stationary bikes wererecently fitted with special equipment that sends the energycreated through exercise to the electrical power grid andmotivates pedalers by displaying the wattage they havecreated. A typical group-cycling class with about 20 bikeshas the potential to produce up to 3.6 megawatts a year—enough to light 72 homes for a month while also reducingcarbon emissions by more than 5,000 pounds.

LEED Certification Totals

Certification pending for the Class of 1959Chapel and in process for Shad Hall

100+Energy conservation projectsin place

Reduction in greenhouse gas emissionsagainst the 2006 baseline,exceeding the University-wide goal ofa 30% reduction by 2016

21%Reduction in energy consumption againstthe 2006 baseline, bringing usagedown to 2000 levels despite an increaseof more than 200,000 square feet ofnew space and more than 6 renovationsbetween 2000 and 2005

34%

Platinum Silver

1 1Gold

5

{ page 19 of 36 }

Harvard Business Publishing has made strategic investmentsto extend the School’s reach to business leaders, companies, andeducators.

HBPUBLISHING

scan this code to visit hbr.org

HARVARD BUSINESS REVIEW REDESIGNED

In July 2009, the HBR Group was formed from three teams working on the

magazine in its print and online versions, on other interactive content for sub-

scribers at hbr.org, and on Harvard Business Press. Within six months, the

revamped print magazine was on the newsstands, and the Web site was

launched. These changes were led by publisher Joshua Macht and editor-in-

chief Adi Ignatius, both veterans of TIME magazine.

The Review maintains the quality and rigor of the articles while adding more

timely content and providing improved navigation through the magazine. Now

the Review offers readers short articles, columns, and recurring features

together with its traditional long-form pieces. On hbr.org, new interactive

features enable subscribers to comment on articles and engage with others at

the HBR Answer Exchange. In addition, the site gives HBS faculty a prominent

venue for sharing their thought leadership in their own dedicated blog.

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

NEW HARVARD MANAGEMENTOR LAUNCHED

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.

While business educators worldwidehave long used cases and other intel-lectual content from HBS, their abilityto design courses increased greatlywith the launch of the new EducatorsWeb site by the Higher EducationGroup. Once educators select theircourse materials, the group aggre-gates them, offering the resulting“coursepacks” to students at a signifi-cant reduction from standard pricing.The selection is both broad and deep,including HBS cases, Review articles,and Harvard Business Press books,together with group-generated prod-ucts: online simulations and courses,Brief Cases, and e-products of vari-ous kinds.

GREATER CUSTOMIZATION FOR EDUCATORS,LOWER COST FOR STUDENTS

{ page 20 of 36 }

21

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

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

5-YEAR SUMMARY

FOR THE FISCAL YEAR ENDED JUNE 30,

{ page 21 of 36 }

from thechief financial officer

The Dow Jones Industrial Averagehad fallen to the mid-6000s in thespring of 2009 when we were prepar-ing the School’s financial plan for fis-cal 2010. We had implemented tworounds of budget cuts after the 2008market collapse, but in parts of theSchool’s Publishing and ExecutiveEducation businesses, revenues werestill declining faster than expenses.The Harvard endowment was head-ing toward a year of negative returns,and the outlook for alumni giving wasbecoming increasingly uncertain.

Anticipating an extended period ofrevenue constraints, we launchedan aggressive effort to reduce theSchool’s cost structure even further.The HBS community responded wellto the challenge. Reflecting threerounds of restructuring and our fore-cast for subdued top-line results, ourbudget for fiscal 2010 projected rev-enue and expense levels 10 percentand 9 percent lower, respectively, thanwe had budgeted for fiscal 2009.

Although the nation’s recovery fromthe recession proved to be slow anduneven, the School’s fiscal 2010 finan-cial performance was stronger thanwe had expected—particularly in thesecond half of the year. ExecutiveEducation and Harvard Business Pub-lishing (HBP) produced solid top-lineresults and stronger margin contribu-tions to operating income. Unre-stricted current use giving to HBS

returned to prerecession levels, andendowment income came in 3 percenthigher than anticipated. Consequently,total revenues for fiscal 2010 exceededthe budget by nearly 8 percent, de-creasing only 1 percent from actualrevenues for the prior fiscal year.

Meanwhile, HBS faculty and staffreined in spending even more ag-gressively than planned, and totalexpenses for fiscal 2010 came in1 percent under budget, 4 percent be-low fiscal 2009 actual expenses, andas planned, $40 million, or 9 percent,

on long-planned strategic innovationsin the MBA curriculum, coincidingwith the launch of the University-wide academic calendar and theSchool’s first official January Term.The School’s Immersion ExperienceProgram added faculty-led studenttrips to several new locations. HBSalso introduced Intensive Seminarswith 11 on-campus offerings, as wellas a range of independent opportu-nities in the field.

Helping current MBA students andrecent graduates navigate the chal-

Fellowship Spending (in millions) MBA Total*

FY 10 $ 25 $ 35

FY09 25 33

FY08 21 26

FY07 17 22

FY06 15 19

* includes Doctoral Programs and Executive Education

lower than initially budgeted for fiscal2009. As a result, HBS continued togenerate positive cash from opera-tions in fiscal 2010. This cash flowenabled the School to add modestlyto unrestricted reserves by year-end.

Investing in MBA Education

Budget constraints did not deter HBSfrom moving forward in fiscal 2010

lenging employment market was akey priority for fiscal 2010. HBSadded resources for individual careercoaching and exploration, and in-creased spending for corporate out-reach and student travel fellowshipsto facilitate off-site interviewing andresearch. In addition, the Schoolexpanded MBA student loan repay-ment programs designed to ease the

{ page 22 of 36 }

23

debt burdens that would otherwiseprevent graduates from embarkingon careers in social enterprise andother lower-paying fields. Aided bythese career services initiatives andincreased corporate hiring activity inthe second half of fiscal 2010, thepercentage of HBS students receivingand accepting job offers three monthsafter graduation increased from theprior fiscal year.

The School is committed to makingMBA education at HBS affordable forthe broadest possible range of ap-plicants by consistently increasing fi-nancial aid for students. This has theeffect of reducing the level of netMBA student income—defined as tu-ition and fees minus the School’sMBA fellowship expense—availableto support MBA program deliveryand innovation.

Although total fellowship expense,which rose by $2 million, or 6 percent,from the prior year, was the only lineitem in the budget protected fromcuts in fiscal 2010, net student in-come increased by $7 million, or 12percent. The rise in net studentincome was primarily driven by along-planned increase in MBA stu-dent enrollment. MBA enrollmentsand fellowship expenses are expected

to return to normal in fiscal 2011,which should restore the School’slong-term trend toward diminishingreliance on net student income as asource of operational funding.

Supporting Faculty Research

The size and composition of the HBSfaculty changes from year to year asthe School’s teaching and researchstrategies evolve, and in line with

Publishing Revenue (in millions)

FY 10 $ 135

FY09 137

FY08 139

FY07 128

FY06 119

Executive Education Revenue (in millions)

FY 10 $ 113

FY09 107

FY08 106

FY07 91

FY06 81

trends in faculty recruiting and de-partures. Fiscal 2010 was no excep-tion, as the total number of facultyfull-time equivalent (FTE) positionsdeclined to 218, from 228 in fiscal2009, reflecting planned and un-planned departures, mainly amongvisiting faculty and senior lecturers.HBS remains committed to attractingand nurturing world-class facultytalent. Recruiting new tenure-trackfaculty will be one of the School’s topstrategic priorities for fiscal 2011.

Embracing the School’s cost-reduc-tion goal, HBS faculty intensified theirfocus on efficiency and scaled backtheir use of research resources forthe second consecutive year in fiscal2010. Investing in the faculty’s re-search and knowledge creation haslong been a strategic goal for theSchool, and remains so today. Conse-quently, returning to a prerecessionlevel of spending in this area is a keybudget priority for fiscal 2011.

Generating Income for Operations

Although HBP’s fiscal 2010 contribu-tion margin was stronger than antic-ipated, cyclical and secular trendscombined to make the School’s 2009and 2010 fiscal years profoundlydifficult for the global publishing in-dustry. Like all its industry peers, for

The downturn necessitated that HBPundertake comprehensive restructur-ing and expense reduction initiativesin fiscal 2009. HBP entered fiscal2010 with a cost structure appropri-ate for a lower revenue base thanactually materialized. A smaller pub-lishing organization pulled togetherand produced outstanding resultswhile spending fewer dollars. Buoyedby a rebound in demand in the sec-ond half of the year, sales of HBP’seLearning products and HarvardBusiness School cases were up fromfiscal 2009, nearly offsetting declinesin circulation and advertising rev-enues at Harvard Business Review,while Harvard Business Press andreprint sales were essentially flat. Cu-mulatively, fiscal 2010 publishing rev-enue totaled $135 million, comingin $7 million above budget and only1 percent lower than in fiscal 2009.

In Executive Education, our revenueforecast for fiscal 2010 was conser-vative in light of uncertainties aboutthe recession and the potential im-pact of the H1N1 virus on corporatetravel. These concerns proved to beunfounded, as total Executive Educa-tion revenue for the year grew by$5.6 million, or nearly 6 percent,from fiscal 2009—exceeding theSchool’s budget by 14 percent.

Executive Education launched an in-tensive effort in fiscal 2010 to growenrollment and tuition revenue inshort, focused programs, introducingseveral courses stemming from thefaculty’s current research, runningextra sessions of high-demand pro-grams, and scheduling programs tomaximize capacity utilization. Conse-quently, revenue from open enroll-ment programs maintained its record

Investment in Research (in millions)

FY 10 $ 92

FY09 97

FY08 102

FY07 92

FY06 84

some time HBP has been striving tomake an evolutionary leap to the Inter-net by refining its business model. Withits customers and content continuingtheir migration to digital platforms,HBP had to make a significant, multi-year investment in its web-based tech-nology. And as the competitive land-scape in general strengthened, HBPover the past two years looked for waysto enhance its leadership and staff.

{ page 23 of 36 }

of consistent growth, rising 5 percentfrom fiscal 2009. As in the prior year,the economy had more of an impacton custom programs. After peakingand then declining in the two priorfiscal years, custom program revenuerecovered modestly in fiscal 2010,driven by rebounding enrollments inthe second half.

While total enrollment grew 5 per-cent, Executive Education expensesfor fiscal 2010 were up by a modest2 percent from the prior fiscal year.The bulk of the revenue increasetherefore fell to the bottom line, andExecutive Education’s margin contri-bution returned to a level reachedprior to the recession.

In addition to making direct expendi-tures related to the growth in enroll-ment, the School continued to investin off-campus Executive Educationprograms and facilities—particularlyin India and China. These efforts werehighlighted by the opening of theSchool’s Harvard Center Shanghaithrough a partnership with the Har-vard China Fund. Despite the chal-lenges associated with building indowntown Shanghai, our facilitiesgroup did an excellent job creating apresentation space equipped withcase-method teaching technologythat is essentially identical to theones in Boston.

Despite the economic uncertainty,the community of HBS alumni andfriends continued their tradition ofgenerosity in fiscal 2010. The dollarvalue of new gifts and pledges re-ceived during the year increased tothe second-highest annual total inthe School’s history. Revenue fromunrestricted current use gifts—a crit-ical source of innovation funding forthe School—grew by $1 million, or 8percent, from fiscal 2009.

Based on the University’s projections,the HBS budget for fiscal 2010 as-sumed a year-over-year decline in theendowment distribution of $15 million,or 13 percent. The actual decline waslower at $12 million, mainly reflectingthe School’s efforts to maximize theavailability of restricted endowment

funds. Overall, income derived fromgifts to HBS, including distributionfrom the endowment and unrestrictedcurrent use gifts, declined 9 percent infiscal 2010, but exceeded the School’sforecast by 3 percent.

After nearly a year of belt-tightening,HBS entered fiscal 2010 with a totalexpense budget $40 million lowerthan initially planned for fiscal 2009.Approximately one-third of these sav-ings related to administrative staffreductions, as the School’s admin-istrative workforce decreased byapproximately 100 full-time positions,or 8 percent. A large number ofcontract staff positions were alsoeliminated. Given the scope of thesereductions, adjusting the School’s or-ganization and operations to a leanerenvironment remained a key man-agement priority throughout the year.Efficiency improvements were alsoimplemented in areas ranging fromfood service to building maintenanceto environmental sustainability.

Midway through 2010, business ac-tivity at HBP and Executive Educationhad increased to the point where itwas clearly time to reassess theSchool’s staffing. Several positions insales and marketing, corporate rela-tions, and operations at HBP and Ex-ecutive Education were restored as aresult of this review. The opening ofthe Harvard facility in China alsorequired some hiring for ExecutiveEducation programs. Looking forward,the bar for approval of additionalstaff positions at HBS will remainboth extremely high and focused onareas related to revenue growth andstrategic support for the School’sacademic mission.

HBS began fiscal 2010 with anunrestricted reserves balance of $96million, remained solidly cash flowpositive and, after transferring $50million to reserves held in the endow-ment, concluded the year with an ad-ditional $3 million in unrestricted re-serves. The School uses its reserves tofund strategic education and re-search initiatives and, when needed,to finance construction and renewal

Capital Investment (in millions)

FY 10 $ 14

FY09 19

FY08 40

FY07 20

FY06 49

of buildings and infrastructure oncampus. The capital budgetingprocess at HBS is highly disciplinedand focused well into the future. Inline with the School’s long-term plan,capital spending was modest in fiscal2010—as in the prior fiscal year and,at $14 million, lower than in any yearsince fiscal 1987.

The most significant project in fiscal2010 was construction of the Har-vard Center Shanghai. Most of theadditional capital spending focusedon campus renewal and environmen-tal sustainability projects. The impor-

tance of continual investment in theintegrity of the campus was under-lined during the year when a fire oc-curred at the McCulloch Hall studentresidence. Fortunately, the Schoolhad invested $4 million in life safetyimprovements at McCulloch in fiscal2009. Although the building washeavily damaged by the fire, therewere no personal injuries.

Planning for Future Innovation

The School’s financial plan for fiscal2011 reflects uncertainty in the econ-omy, as well as headwinds specific tothree of our four largest sources of in-come. HBP outperformed our expec-tations overall in fiscal 2010, but it isunclear how the publishing revenuemix will evolve over the next year ortwo, given the challenging marketenvironment and forecasts for a sloweconomic recovery. While HBP’s topline is budgeted to stay essentiallylevel in fiscal 2011, we expect thatpublishing expenses will grow asfixed and variable costs catch up tothe revenue level achieved in fiscal2010. As a result, HBP’s operatingmargin contribution is likely to be

{ page 24 of 36 }

25

somewhat constrained in the yearahead. Executive Education producedsolid results this year, but constraintsrelated to facilities and the facultycould negatively affect the School’scompetitive position in the near term.

Income from gifts and the endow-ment cannot be counted on to fill thevoid. Although unrestricted currentuse giving increased in fiscal 2010,the future growth trajectory isclouded by the uncertain state of theeconomy. We have greater visibilityinto future endowment income, andthe picture is not positive. HBS wasinformed by the University more thana year ago that the School’s fiscal2011 endowment distribution willdecline 4 percent year-over-year, re-flecting the drop in the value of theendowment in fiscal 2009.

In light of these challenges, our fiscal2011 financial plan forecasts that to-tal revenues will be flat year-over-year. Nonetheless, the School’s pur-suit of strategic initiatives will remainas energetic as ever. Total expensesfor fiscal 2011 are budgeted to riseby $39 million, or 9 percent, from fis-cal 2010. A key priority for this addi-tional spending is to support signifi-cant growth in the faculty’s researchactivity around the world. Next year’sbudget also anticipates initial spend-ing for long-term I.T. projects aimedat upgrading the School’s MBAcourse delivery and student informa-tion systems, as well as rising em-ployee benefits expense. In addition,we are planning to further increasethe School’s investments in MBA cur-riculum innovation and fellowshipsupport for students.

Under Dean Nohria’s leadership, HBSis developing a bold set of strategicplans for the next few years, and initialfunding for these initiatives is plannedfor fiscal 2011 as well. The innova-tions that emerge may lead over timeto greater emphasis on field-basedand collaborative learning in theMBA program. This could signifi-cantly affect both the MBA programoperating model and, over a periodof time, our long-term capital plan.

The School’s budget for fiscal 2011also provides HBP and Executive Ed-ucation with the additional resourcesthey need to continue navigatingtheir dynamic, highly competitivemarkets while fulfilling their coreroles at HBS. These roles are twofold:first, to leverage the faculty’s re-search to influence the practice ofmanagement on a larger scale; andsecond, to contribute margins thatprovide the School with revenue foroperations. HBP will continue to in-vest in new eLearning products andin platform technology that betterpositions the School to serve cus-tomers online. Direct and indirectexpenses for Executive Education arealso expected to rise in line with thegrowing importance of global pro-grams and higher enrollment.

The School’s capital investments forfiscal 2011 are budgeted to grow 57percent year-over-year to $22 million.Executive Education’s need for up-dated space will drive a significantshare of this spending. The Universityhas approved the School’s plan to in-vest $100 million to construct TataHall, a new Executive Education aca-demic and residence hall, for whichphilanthropic entities of India’s TataGroup have pledged $50 million—thelargest gift from an internationaldonor in the history of the School.As well, HBS will make a $15 millioninvestment in the new Harvard Inno-vation Lab to nurture game-changingideas from across the Harvard com-munity. The lab is scheduled to openin fall 2011 in a building adjacentto the HBS campus that formerlyhoused public broadcasting’s WGBH.

HBS begins fiscal 2011 well-preparedto take on big challenges. The School’sreserves balance provides the fundsnecessary to support ambitiouscampus renewal and constructioninitiatives. Our revenue forecast andexpense budget are, we believe,appropriately conservative for anuncertain economy. We remaincommitted to thoughtful stewardshipof the School’s resources in the yearahead.

Richard P. Melnick, MBA 1992Chief Financial Officer

01 OCT 2010

{ page 25 of 36 }

Revenues (in millions) 2010 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 6 7

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 6 7

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 0 5

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

STATEMENT OF ACTIVITY& CASH FLOWS*FOR THE FISCAL YEAR ENDED JUNE 30,

{ page 26 of 36 }

27

Assets (in millions) 2010 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

CONSOLIDATED BALANCESHEET

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

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 topresent the financial results in accordance with generally accepted accounting principles (GAAP). A presentation in accordance with GAAP would report higher operatingrevenues 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.

FOR THE FISCAL YEAR ENDED JUNE 30,

{ page 27 of 36 }

supplemental financialinformation

Harvard Business School funds itsoperations with a mix of revenuesources that is unique among Har-vard University schools and in highereducation. Two of the School’s busi-ness units—Harvard Business Publish-ing (HBP) and Executive Education—typically generate more than 50percent of total annual revenues,making HBS less reliant on its en-dowment than other schools.

HBP and Executive Education not onlycontribute income for operations butalso enable the School to influencethe practice of management on a

larger scale. Faculty research at HBSis funded primarily by the School, notby outside sponsors such as govern-ment agencies, foundations, andcorporations. Unimpeded by the con-straints associated with external fund-ing, HBS faculty are free to pursue theresearch opportunities they believehave the greatest potential to createnew knowledge.

The School globally disseminatesthe intellectual capital produced bythe faculty through Executive Educa-tion programs and HBP’s portfolioof magazines, books, cases, and

eLearning products. Completing theself-sustaining cycle, margin contri-butions from HBP and ExecutiveEducation serve as the primarysources of funding for the faculty’sresearch.

Revenues generated by HBP andExecutive Education are sensitive tolong-term trends in the economy andthe capital markets. The School’s en-dowment distribution revenues followa similar pattern. In fiscal years suchas 2010, however, short-term dynam-ics can affect each of these sourcesof income in different ways.

REVENUES

PUBLISHING

ENDOWMENT DISTRIBUTION & CURRENT USE GIFTS

EXECUTIVE EDUCATION TUITION

HOUSING, RENTS, & OTHER

MBA TUITION & FEES 20%

FY06

FY07

FY08

FY10

467 million

FY09

472

24%

25%

29%

2%

$451

405

368

{ page 28 of 36 }

29

Reflecting investment losses in theprior year, the School’s fiscal 2010endowment distribution revenue fellby $12 million from fiscal 2009. Therecessionary slowdown in customerdemand for some publishing productsreduced HBP’s revenue by $2 million.Interest income and revenue in theHousing, Rents, & Other categoryalso fell, decreasing by approximately$6 million on a combined basis.

These declines, however, were nearlyoffset by better-than-expected per-formance in other areas. ExecutiveEducation and MBA tuition and feesrevenues rose by a combined $14million, reflecting higher enrollmentsand increases in tuition and fees. Inaddition, revenue from unrestrictedcurrent use gifts grew by $1 million.As a result, total revenues declinedby only $5 million to $467 million, or1 percent, in a challenging year,demonstrating how diversity at thetop line adds strength, consistency,and predictability to the School’sbusiness model.

MBA Tuition and Fees

Tuition and fees revenue from theSchool’s core academic programgrew to $92 million in fiscal 2010,from $84 million in fiscal 2009. Thisincrease reflected a rise in total MBAenrollment of 55 students, or 3 per-cent, from the prior year. The Schoolcontinues to set tuition at levels thatrecover rising program delivery costsand investments designed to enrichthe HBS educational experience.

First-year MBA tuition in fiscal 2010was $46,150—near the midpointamong the seven comparable schoolstracked by the School—comparedwith $43,800 last year. MBA tuitionand fees amounted to 20 percent ofthe School’s total revenues in fiscal2010, compared with 18 percent ayear earlier.

Executive Education

Fiscal 2010 was a strong year for Ex-ecutive Education as tuition revenuegrew nearly 6 percent to $113 mil-lion, from $107 million in fiscal 2009.

This represented 24 percent of theSchool’s total revenue, comparedwith 23 percent last year. Total appli-cations to open enrollment and cus-tom programs were roughly flat fromthe prior year at nearly 11,800. Buttotal Executive Education enrollmentincreased by nearly 400, or 5 percent,to approximately 8,700, after fallingby more than 1,100 in fiscal 2009.

Harvard Business Publishing

Total HBP revenue decreased by $2million, or 1 percent, in fiscal 2010 to$135 million, from $137 million lastyear. The publishing operation gener-ated 29 percent of the School’s totalrevenue, the same percentage as infiscal 2009. Growth in sales ofeLearning products nearly offset de-clines in advertising and circulationrevenue at Harvard Business Review(HBR). Reflecting continued stabilityin the academic market, sales of Har-vard Business Press books and HBScases and teaching materials wereflat with the prior year.

Gifts and Endowment

Revenue from gifts to HBS—in theform of endowment distributionsand unrestricted current use giving—totaled $114 million in fiscal 2010,

and represented 25 percent of totalrevenue—a smaller percentage thanat most other Harvard schools. TheUniversity’s Faculty of Arts and Sci-ences, for example, relied on endow-ment distributions and current-usegifts to support 58 percent of its op-erating budget for fiscal 2010.

Nonetheless, income from gifts iscrucial to the School’s businessmodel, and fiscal 2010 was a strongyear for fundraising at HBS. Gener-ous supporters gave $130 million innew gifts and pledges—the secondhighest annual total in the history ofthe School. Total cash received fromgifts grew 60 percent to $59 million,from $37 million in fiscal 2009. Thisincluded new endowment gifts andgifts for capital projects, and pay-ments on prior years’ pledges, aswell as restricted and unrestrictedcurrent use giving.

Although unrestricted current usegifts have represented only about 3percent of total revenue for the pasttwo years, they provide crucial fund-ing for new initiatives and remaina key fundraising priority for theSchool. Revenue from unrestrictedcurrent use gifts rebounded in fiscal2010, rising 8 percent to $13 millionafter falling 14 percent to $12 million

CASH RECEIVED FROM GIFTS (in millions)

FY06

FY07

FY08

FY10

59

FY09

37

$51

5655

Gifts Received (in millions) FY10 FY09

Endowment $ 33 $ 18

Restricted Current Use 13 7

Unrestricted Current Use 13 12

Total 59 37

{ page 29 of 36 }

during the market collapse in fiscal2009.

HBS received gifts and pledges ofall types from more than 12,900donors during the year, includingMBA, Doctoral, and Executive Edu-cation alumni, as well as other friendsof the School. More than 27 percentof the School’s MBA alumni gave toHBS in fiscal 2010, compared with 24percent in fiscal 2009.

The School’s endowment distributionrevenue fell by $12 million, or 11 per-cent, from last year to $101 million.This decline reflected the University’sdecision to reduce the percentage ofinvestment returns made availablefor operations in light of the drop inthe endowment’s market value infiscal 2009. The actual decline inthe School’s fiscal 2010 endowmentdistribution was $3 million less thaninitially budgeted, however, due todiligent efforts to minimize unspentfund balances during the year. En-dowment distribution representedapproximately 22 percent of theSchool’s total revenue in fiscal 2010,compared with 24 percent in fiscal2009.

After the fiscal 2010 distribution, theSchool’s endowment and current usefunds totaled $2.3 billion at year-end,up by $194 million, or 9 percent,

from $2.1 billion at June 30, 2009.The increase in the market value ofthe endowment for fiscal 2010 re-flects $33 million in endowment giftsreceived by HBS during the year—up from $18 million in fiscal 2009—as well as net appreciation in endow-ment principal of $161 million aftersubtracting the annual distributionand decapitalizations.

Like other Harvard Universityschools, HBS raises its own endow-ment and current use funds. TheSchool independently budgets theuse of endowment distributions tosupport operations according to theterms of each gift. The HBS endow-ment, along with those of the otherHarvard schools, is managed by Har-vard Management Company (HMC),a subsidiary governed and whollyowned by the University. The ab-solute return on the University’spooled investments, including the en-dowment, was +11.0 percent in fiscal2010, net of all expenses and fees,compared with –27.3 percent for fis-cal 2009.

The HBS endowment comprises morethan 1,000 discrete funds establishedover the years by individual donors,corporations, and reunion classes.Although most endowment gifts aremade in perpetuity, allowing little orno access to principal, some allow

access to principal to provide theSchool flexibility in achieving thepurposes for which they were desig-nated. In addition, the School occa-sionally draws on capital appreciationassociated with prior-year gifts. Fundsfrom these decapitalizations are usedto support key initiatives in keepingwith donor intentions.

Harvard determines the amount thatcan be prudently be drawn from theendowment to spend in any givenyear. The payout rate reflects pastendowment performance and HMC’sprojections of future investment re-turn, consistent with the goal of pro-viding the Harvard schools with a re-liable stream of operating incomeover the long term. In the years be-fore the 2008 financial crisis, the Uni-versity’s long-term target was to dis-tribute between 5 and 5.5 percentof the endowment’s year-end marketvalue annually. This distribution in-cluded an assessment of 0.5 percentof the market value to cover a portionof University central administrationcosts.

Given the unprecedented drop in thevalue of the endowment in fiscal2009, the University decided to tem-porarily exceed the range of 5–5.5percent in order to continue provid-ing the Harvard schools with suffi-cient income for operations. This in-

UNRESTRICTED RESERVES (in millions)

FY06

FY07

FY08

FY10

99

FY09

96$

79

6560

CASH FROM OPERATIONS (in millions)

FY06

FY07

FY08

FY10

52

FY09

34

$

283023

{ page 30 of 36 }

31

creased the spending percentage forfiscal 2010 to 6.1 percent. In an ef-fort to return closer to the long-termtarget, midway through fiscal 2010the University decided to reduce theendowment distribution for the up-coming 2011 fiscal year. As a result,although the endowment’s fiscal2010 return totaled +11.0 percent,the School’s endowment distributionfor fiscal 2011 is budgeted to declinefrom the prior year by $4 million, or4 percent.

Other Revenues

Revenue in the Housing, Rents, &Other category declined by $2 mil-lion, or 15 percent, in fiscal 2010 to$11 million. This marked a return tonormal revenue levels following astrong fiscal 2009 driven by feesrelated to the Global Business Sum-mit hosted by HBS in fall 2008. TheSchool’s interest income also fell infiscal 2010, dropping by $4 million,or 67 percent, to $2 million due tolower 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

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

ENDOWMENT DISTRIBUTION (in millions)

FY06

FY07

FY08

FY10

101

FY09

113 $

UNRESTRICTED

FINANCIAL AID 24%

11%

RESEARCH 8%

PROFESSORSHIPS 39%

SPECIAL INITIATIVES 6%BUILDING OPERATIONS 6%

OTHER 6%

94

78

71

* Trust Universe Comparison Service

{ page 31 of 36 }

EXPENSESIn anticipation of declining revenues,the School’s expense budget for fiscal2010 was $18 million lower thanactual spending for fiscal 2009, and$40 million lower than initially bud-geted for that year. Driven by the ag-gressive efforts of HBS faculty andstaff to cut costs wherever possible,the School’s actual spending came in$5 million under budget in fiscal2010. Total operating expenses forfiscal 2010 decreased by $23 million,or 5 percent, to $415 million, from$438 million in fiscal 2009.

HBS designed the fiscal 2010 ex-

SALARIES & BENEFITS

FELLOWSHIPS

SPACE & OCCUPANCY 10%

FY06

FY07

FY08

FY10

415 million

FY09

438

49%

$

8%

OTHER 8%

PUBLISHING & PRINTING 12%

PROFESSIONAL SERVICES 5%UNIVERSITY ASSESSMENTS 4%

DEBT SERVICE 2%SUPPLIES & EQUIPMENT 2%

423

375

345

pense budget to align the School’scost structure with an environment ofrevenue constraints, while protectingkey priorities—academic programs,faculty research, and strategic initia-tives—to the greatest extent possible.For the purpose of managing theSchool’s expenses, the functionalareas that support these prioritiescut across several line items in theSchool’s Statement of Activity & CashFlows.

Faculty research expense includes asignificant portion of faculty salariesand benefits, as well as direct costs

for research support staff and travel.Also included in the cost of facultyresearch are allocated expenses forthe School’s network of globalresearch centers, as well as libraryresources, campus facilities, tech-nology, and administration. Whenviewed in this way, the School’s totalinvestment in faculty research for fis-cal 2010 was $92 million, comparedwith $97 million in fiscal 2009,driven in part by the 4 percent reduc-tion in the size of the faculty.

As another example, expensescharged to HBP and Executive Edu-

{ page 32 of 36 }

33

cation include direct costs for staffcompensation, specialized outsideprofessional services in areas such asI.T. and marketing, and residence ex-penses for executive program partic-ipants. The School’s calculation ofmargin contributions to operationsfrom these revenue-generating busi-ness units reflects these expenses.

Salaries & Benefits

The largest item in the School’s ex-pense budget, salaries and benefitsexpense, fell by $9 million in fiscal2010, or 4 percent, to $203 million,from $212 million in fiscal 2009. Thekey reason for the decline was a year-over-year reduction in the number offaculty and staff positions across theSchool, which offset growth in bene-fits expense and costs related tofaculty retirements. The total numberof faculty, as measured in full-timeequivalents (FTEs), can rise or fall inany given year as a result of retire-ments, departures, and fluctuationsin recruiting activity. As one of thecost-reduction measures initiatedin fiscal 2009, the School cut backon the number of one-year appoint-ments for fiscal 2010. Recruitingfewer visiting faculty and senior lec-turers, combined with normal facultyretirements and departures, reducedthe size of the faculty by 10 FTEs fromfiscal 2009 to 218.

The School’s restructuring initiativesalso resulted in a significant year-over-year decline in total administra-tive FTEs. In addition to eliminating alarge number of contract staff posi-tions, through a combination of nor-mal attrition, voluntary early retire-ments, and layoffs effective at thebeginning of fiscal 2010, HBS re-duced the size of its administrativeFTE budget by 100 positions, or 8percent, to 1,087, from 1,187 in fiscal2009.

Fellowships

The prospect of entering the work-force with high levels of debt candeter strong MBA candidates fromapplying to HBS and restrict theircareer choices upon graduation. Con-

sequently, one of the School’s keystrategic priorities is to assist stu-dents in reducing their debt at grad-uation by ensuring that fellowshipsupport, or financial aid, keeps pacewith MBA tuition and fees. Over thepast five fiscal years, the averagetwo-year MBA fellowship award hasgrown from $27,700 for the HBSClass of 2006 to $45,700 for theClass of 2011.

Funding for fellowships comes pri-marily from restricted endowmentgiving by HBS alumni and friends.Although endowment distributionrevenue declined from the prior yearin fiscal 2010, the School identifiedMBA and doctoral financial aid asthe only expense item that would notbe affected by budget cuts. TheSchool relied on other sources offunding to offset the decline in re-stricted endowment funding and sup-port continued growth in fellowshipspending during the year.

The School is also committed to ex-panding its investment in doctoraleducation. The number of doctoralcandidates grew to 130 in fiscal2010, from 120 in the prior fiscalyear. Spending for doctoral fellow-ships, stipends, and research supportincreased commensurately. HBS alsoprovides financial aid to a limitednumber of Executive Education par-ticipants to support the School’ssocial mission. Funds for these fel-lowships are drawn from ExecutiveEducation operating revenues as wellas gifts for this purpose. Financialaid for participants in the new fo-cused program, Managing Health-care Delivery, resulted in a year-over-year increase in Executive Educationfellowship spending in fiscal 2010.

HBS treats spending for fellowshipsas an expense line item on theSchool’s Statement of Activity andCash Flows. The School’s total finan-cial aid spending for fiscal 2010,including fellowships for doctoralcandidates and Executive Educationparticipants, as well as MBA students,increased by $2 million, or 6 percent,from fiscal 2009, to $35 million.

Publishing & Printing

Publishing and printing expense in-cludes HBP production costs as wellas a small amount of spending toproduce the School’s other printedmaterials and publications. AlthoughHBP continued its program of strate-gic investment in digital infrastruc-ture and content in fiscal 2010, theunit’s cost-cutting initiatives droveoverall spending down for the secondconsecutive fiscal year. As a result,the School’s total publishing andprinting expenses declined by $1 mil-lion from fiscal 2009 to $51 million.

Space & Occupancy

The HBS campus includes 33 build-ings encompassing more than 1.5 mil-lion square feet of occupied space.Space and occupancy expense in-cludes costs related to maintainingand operating the School’s buildingsand associated campus infrastruc-ture. In addition, facilities improve-ment and renovation costs that donot qualify as capital expenses aregenerally categorized as space andoccupancy.

Also included in space and occu-pancy are expenses related to diningfacilities and other campus services,as well as costs associated withleased space that houses HBP’s oper-ations. In addition, residence ex-penses for executive program partic-ipants—equivalent to cost of goodssold in Executive Education—arereported under this category. TheSchool’s fiscal 2010 expense reduc-tion initiatives included cuts incampus-wide dining costs and thepostponement of numerous smallfacilities projects. As a result, theSchool’s total space and occupancyexpenses decreased by $1 millionfrom fiscal 2009 to $41 million.

I.T. Investment (in millions)

FY 10 $ 40

FY09 55

FY08 46

FY07 37

FY06 28

{ page 33 of 36 }

Professional Services &Other Expenses

The School’s fiscal 2010 restructur-ing and cost-cutting initiatives sig-nificantly reduced spending fromfiscal 2009 in several other areas ofthe budget. Driven primarily by theelimination of contractor positions,professional services expenses de-clined by $9 million, or 29 percent, to$22 million. Expenses related tosupplies and equipment fell by $3million, or 25 percent, and spendingin the Other Expenses category de-creased by $5 million, or 14 percent,to $32 million.

University Assessments

University assessments cover essen-tial services provided to HBS by theUniversity, including payroll and ben-efits administration, processing ofaccounts receivable and payable,and legal services. In fiscal 2010,the School’s expenses in this arearose by $2 million, or 15 percent,from the prior fiscal year to $15 mil-lion. This marked the second consec-utive year of increased University as-sessments, reflecting the decline inendowment income available tosupport the University’s central ad-ministrative functions. Because Uni-versity assessments are primarilycalculated as a percent of theSchool’s total expenses on a two-year lagged basis and total spendinghas declined during this period, ex-pense for these assessments is bud-geted to remain flat in fiscal 2011.

Debt Service

HBS has long been cautious in usingdebt, and with a building debt-to-asset ratio of 4.0 percent, theSchool’s balance sheet remainedmodestly leveraged at year-end fiscal2010. The University functions as abanker for HBS, as well as the otherHarvard schools, allowing the Schoolto borrow on a triple-A-rated tax-exempt basis. The School’s buildingdebt decreased by $7 million to$112 million in fiscal 2010, as therewere no new borrowings and $7million of principal repayments. Otheruniversity debt—mainly consisting ofrepayment obligations to the Univer-sity for mortgage loans made by theSchool as a faculty recruiting incen-tive—was flat with fiscal 2009 at $26million.

The School’s debt service expense,which consists of interest paymentsto the University on this debt, in-creased in fiscal 2010 by $1 million,or 17 percent, to $7 million. As infiscal 2009, debt service expenseswere mainly associated with borrow-ings to finance campus expansionearlier in this decade. The interestportion of the School’s debt serviceamounted to less than 2 percent oftotal operating expenses in fiscal2010.

Cash Before Capital Expenses

HBS invests in capital projects andcovers the related debt service pri-marily by using cash from operations.Cash from operations is largely afunction of the margins generated byHBP and Executive Education and re-turns on the HBS endowment, offsetby total expense levels reflecting theSchool’s operational priorities. HBSalso uses prior years’ endowmentgifts or appreciation, available to bespent pursuant to donor specifica-tions, to fund capital investmentsand related debt service.

Although these sources of fundingare sensitive to short-term economicand market trends, the School devel-ops academic programs, adds fac-ulty, manages its research activity,and invests in its revenue-generatingbusinesses and campus infrastruc-ture on a long-term basis. HBS alsoinvests in unforeseen strategic oppor-tunities as they arise. As a result, theSchool’s cash from operations canfluctuate widely from year to year.

HBS began fiscal 2010 braced for ayear of declining revenues with anexpense budget substantially lowerthan initially planned for fiscal 2009.Driven by strong Executive Educationand HBP results in the second half ofthe year, as well as actual expensesthat came in under budget, actualrevenues for fiscal 2010 exceeded theSchool’s forecast by $33 million.

Consequently, cash from operationsincreased from fiscal 2009 by $18million, or 53 percent, to $52 million.In addition, use of cash from prioryears’ endowment gifts or apprecia-tion contributed $13 million to theSchool’s cash flow in fiscal 2010,compared with $11 million in fiscal2009. As a result, cash before capitalactivities grew in fiscal 2010 by $20million, or 44 percent, to $65 million,from $45 million in fiscal 2009.

{ page 34 of 36 }

35

Ending Balance/Unrestricted Reserves

HBS relies on unrestricted reserves tofinance major campus expansionprojects and capitalize on unfore-seen strategic opportunities, alongwith a mix of internally generatedcash, gifts, and debt. Because morethan 50 percent of revenues comefrom business units that are highlysensitive to the economy, maintain-ing a strong unrestricted reservesbalance is integral to financial plan-ning at HBS and to the School’s abil-ity to execute its mission over thelong term. Fueled primarily by strongcash from operations in fiscal 2010,which more than offset funds trans-ferred to the endowment reserve, theSchool’s year-end reserves balancegrew by $3 million to $99 million.

Net Capital Expenses

Consistent with the School’s campusplanning processes, the last phase ofsignificant campus investment at HBSconcluded several years ago. Capitalspending has generally declined sincethen. The School’s total capital ex-penses of $11 million for fiscal 2010,net of gifts used for capital projects,compared with $19 million for theprior year, and marked the probablelow point for the foreseeable future.In the absence of any large capitalconstruction or expansion projects infiscal 2010, the School’s capital in-vestments continued to focus onprotecting the long-term value of thephysical plant through the renewaland maintenance of buildings, cam-pus infrastructure, and I.T. systems.

Net Debt & Other Expenses

In addition to gifts and internally gen-erated cash, as well as unrestrictedreserves, the School finances majorcapital projects with debt financedthrough the University, using leveragestrategically as a means of optimizingits capital structure. HBS borrowsonly on qualified capital projects,carefully considering the interest rateenvironment, expectations for theperformance of the Harvard endow-ment, and the availability of Univer-sity debt.

The School’s new borrowings, whichhave generally declined for the pastseveral years as capital spending hasdecreased, dropped to zero in fiscal2010. At the same time, debt princi-pal payments increased to $7 million,from $5 million in fiscal 2009. Othernon-reserve activity increased signifi-cantly in fiscal 2010, primarily due tothe transfer of $50 million to theSchool’s endowment reserve in thesummer of 2009.

This reserve was established severalyears ago with the goal of realizinglong-term investment returns. As aresult of this transfer, plus investmentreturns for the year, HBS concludedfiscal 2010 with an endowmentreserve balance of $149 million, upfrom $85 million a year earlier. To-gether with the School’s debt princi-pal payments in fiscal 2010, thetransfer to the endowment reserveresulted in a $51 million decline inthe Net Debt & Other category forthe year.

Building Debt Outstanding (in millions)

FY 10 $ 112

FY09 119

FY08 121

FY07 108

FY06 108

{ page 35 of 36 }

This document is intended to provide insight into the way Harvard Business School manages its resources and plansstrategically 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 groupscomprising faculty, staff, alumni, academics, and business practitioners. Harvard University appoints a Visiting Committeeto review Harvard Business School’s strategic goals and objectives and to provide advice and input to the Dean. The groupmeets biannually and reports to Harvard University’s Board of Overseers.

We welcome questions and comments from our readers. Please direct correspondence to Richard Melnick, ChiefFinancial Officer: rmelnick@hbs.edu or to the Office of the Dean: officedean@hbs.edu.

Copyright ©2011 President & Fellows of Harvard College.

{ page 36 of 36 }

08

ANNUAL2010

14 18

28

10Executive Education

04MBA Program

07Doctoral Programs

20Publishing

12Faculty & Research

16Alumni

Social Responsibility Entrepreneurship Sustainability

21 26 27Five-Year Summary Statement of Activity &

Cash FlowsConsolidated BalanceSheet

Supplemental Information

Harvard Business SchoolSoldiers FieldBoston, Massachusetts 02163

www.hbs.edu

This document is intended to provide insight into the way Harvard Business School manages its resources and plansstrategically 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 groupscomprising faculty, staff, alumni, academics, and business practitioners. Harvard University appoints a Visiting Committeeto review Harvard Business School’s strategic goals and objectives and to provide advice and input to the Dean. The groupmeets biannually and reports to Harvard University’s Board of Overseers.

We welcome questions and comments from our readers. Please direct correspondence to Richard Melnick, ChiefFinancial Officer: rmelnick@hbs.edu or to the Office of the Dean: officedean@hbs.edu.

100%

Copyright ©2011 President & Fellows of Harvard College.

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)47,389 gallons of water

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{ page 36 of 36 }