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