HBS – A Business Model Perspective
A simple thought process on HBS as a business model! Some food for thought…
In this post I will try and analyze HBS from a business perceptive. This is not to say that the main objective of the school is to make money but far from it! I find it an interesting thought exercise since we always seem to think that HBS “runs smoothly” and “very thought out”. Highlighted below are just some key insights to why I think HBS is a winner in its business model! But first what is HBS’s business model?
The Business Model
Looking at their financial statements (1,2,3) , you can easily see a few sources of revenue for HBS – students, publications and endowment. Out of the three, I would argue that endowment (and any donations) is what makes the school stand out and really grow – Harvard being the school with the largest endowment (4), with the others income streams pretty much covering operational expenses. One obvious example for growth is the latest donation to the Engineering school (5) which was donated by an HBS alum.
From here it stands that if we were to try and analyze HBS’s business model from a purely economic perceptive (and again don’t get me wrong, I do truly appreciate other aspects as well), we will reach the conclusion that it is to get as many donations as possible by creating successful business leaders who will then make such donations.
How does HBS do it? Let look at a few key operational factors that are aligned with this goal
First and foremost the admissions process! One of the biggest success factors of finding the right business leaders is just to have as big a funnel as possible with the right screening process. When you have a large pool to chose from, you are more likely to be able to tweeze out the right material. With about a 12% rate of acceptance (6) out of roughly 10,000 applicants (largest number far as I know) and a dedicated staff force working on admissions through out the year, this is a strong contributing factor. To help this operational benefit, strong school standings (helped by publications and past success) and brand name help attract top quality potential students to chose from.
Second, the ability to unlock the students potential. Once you get accepted into HBS, everything is aligned to help you succeed – from CPD and SA to the classes themselves. I will touch on one aspect that I find extremely aligned and that is simply the faculty. The faculty are a huge driver for students future success for obvious reasons (great teachers, tremendous amount of effort put in and just caring), and the school is quite good at attracting top faculty for a few reasons. Compensations is high (at least, thats what people say) while also giving time to work on publications. These publications are and important part of HBS since not only do they create revenue for the school and also improve teaching quality (a good case is worth a lot to students), but most importantly it increases the HBS brand. The brand building is what helps to close this magical operational spiral by luring in better faculty and getting better potential students!
Of course, not everything is always so easy. You must always anticipate how the future business landscape will look and the effects of current trends has yet to be seen. HBS has been and still is a leader in certain “classic” areas, mainly consulting and finance (7). The change in company landscape, including the emergence of giant tech companies like Google and Facebook and the rise of the startup scene has an impact on HBS. Mainly visible with the attractiveness of “competitor” Stanford (8 – Steve Ballmer teaching at Stanford is just an example) which is better integrated into Silicon Valley to the building of the iLab, this is a changing time for HBS which must and is evolving to accommodate these changes. Also, in my opinion, the rise of popularity of MBA programs might make the executive program change dramatically since it core target is senior management without an MBA which might become a scarce resource in future years once our generation reaches those positions. Lack to adapt could lead to rough times since it is a major source of income for the school
(1) – http://www.hbs.edu/annualreport/2012/financials/index.html
(2) – http://www.hbs.edu/annualreport/2012/financials/statement.html
(3) – http://www.hbs.edu/annualreport/2012/financials/balance-sheet.html
(4) – https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment
(5) – http://www.hbs.edu/mba/admissions/class-profile/Pages/default.aspx
(6) – http://www.hbs.edu/about/facts-and-figures/Pages/statistics.aspx
(7) – http://www.hbs.edu/recruiting/data/Pages/at-a-glance.aspx?year=2015
(8) – http://www.businessinsider.com/steve-ballmer-will-teach-at-stanford-in-the-fall-usc-in-the-spring-2014-8
Student comments on HBS – A Business Model Perspective
love the post… and I always thought our core competence was growing grass!!! 🙂
Great read! It is interesting to note that revenues from Executive Education Tuition far outweighs MBA Tuitions & Fees. Perhaps the ‘role’ of MBA program is to send its best ‘products’, i.e. graduates, to all around the world and across different industries in order to strengthen its brand and recognition, which will in turn attract further business in other segments such as Executive Education (presumably more profitable than the MBA program) and Publishing. This leads to the interesting question you have raised at the end – what will happen once our generation, which has a higher percentage of MBA education, becomes to represent the majority of the senior management level.
Interesting perspective Aner – I always find it interesting to think about the strategic decisions HBS makes with its scarce resource i.e., it’s teachers time. In any other business, they would be considered under-utilized resource – how do you think that might change in the future? Also, the point of tenure seems to create all the wrong incentives and potentially a two-tiered system, do you see that changing to bring it more in-line with a traditional business model?
Great post! interesting take on the use of “resources”.
Apart from the above mentioned ways to create value, I think one of the key strengths of the model is creating a strong social experience (mainly behind the section dynamic and the diversification of the class). By doing so, apart from the direct value to students, the added value is that it increases the connection students feel toward the school which can later result in higher donations. Therefore, although the main reason for investing in the social aspect is to improve the students’ MBA experience (and potential network), the operating model still manages to create additional value to connect to its business model.
Neat post, great idea. We often talk about businesses sticking to what they are good at and focusing on products for which they have a “right to win.” For me, it seems that the Finance/Consulting realm you talk about will be around forever and that the boom of startup interest is likely cyclical and may disappear for a bit when the next recession hits. I think the iLab and other initiatives HBS has implemented to compete with other schools is great, but I wonder if HBS could lose ground to schools like Wharton or Booth in the more traditional fields if it spends too much time and energy in fields it hasn’t historically focused on. So long as the school retains its focus on the traditional areas and the other initiatives are truly incremental I don’t really see this as an issue, but never really thought about it from a business perspective before reading your post just something interesting to think about…