In a post yesterday we addressed the endowment income losses that many colleges and universities are currently facing as a result of the continuing global economic crisis. Today we’ll provide a closer look at Harvard Business School’s approach during this uncertain time, as outlined in a recent letter to the HBS community by Dean Jay Light.
Perhaps most noteworthy was Light’s mention that HBS intends to increase its class size slightly beginning this fall. This, coupled with the development of new executive education programs, is part of an effort to broaden the school’s revenue sources.
In keeping with university-wide efforts to cut costs, HBS also will limit salary increases, offer early retirement incentives and be very prudent in its new hires, Light said.
According to Light, HBS is actually well-positioned to navigate the continuing economic hardships it faces, thanks to strategic investment policies, reliance on a range of revenue sources in addition to the endowment and short-term flexibility within the budget process. In fact, Light explained, the HBS business model does not depend on endowment income as its main revenue source but instead relies on a mix of that income combined with MBA tuition, executive education programs, the school’s publishing division and alumni giving. (For a closer look at the HBS business model, consult the Financial Review section of the school’s annual report for 2008.)
Application volume has been a bright spot amid these hard economic times, Light shared. “On the positive side, applications to the MBA and doctoral programs are up, and the applicant pools are exceptionally strong,” he said.
Executive education has been more of a mixed bag. The school has faced more postponements and cancellations of its executive education programs, but overall enrollments have remained stable and the school has partnered with a small number of new organizations to offer custom programs.
The news from the recruiting desk is more sobering. “As a wider range of companies encounter financial constraints, fewer are able to hire our students, and job postings for both first and second year students are down significantly — particularly in finance and manufacturing,” Light reported. Alumni giving, too, has dropped.
“All of these factors taken together, combined with a significant decline in the endowment, and in the context of global economic indicators predicting a prolonged downturn, make clear that we can’t expect the coming few years to be business as usual,” Light said. Though still the largest of any university in the country, Harvard University’s endowment was down 22 percent for the second half of 2008 according to a recent Bloomberg report.
Through its various planned cost-cutting mechanisms, HBS aims to reduce expenses by 5 percent and has identified an additional 5 percent of reductions that could be made as necessary.
“In everything we do, we are working hard to ensure we maintain the excellence of our core programs and the elements that make Harvard Business School distinctive,” Light assured. He promised to keep the community informed through periodic emails and letters and cited the school’s “On the Global Economic Crisis” website as a resource for related research and activities by HBS faculty.
