HBS: Creating Human, Intellectual, and Financial Capital

Don't forget that we are part of one of the best-designed organizations in the world.

HBS’s business and operating models reinforce each other, enabling it achieve its mission to “educate leaders who make a difference in the world.”[1]

Business Model

HBS and its faculty create value for students. Students seek to enroll in a structured learning program, meet other future leaders, earn a prestigious degree, and get a good job. The faculty maintains HBS’s position at the apex of global business school education. They do so by conducting research and writing cases.

HBS captures value in three main ways. Students pay tuition and fees ($277m in FY2014).[2] HBS sells cases and materials to other institutions to earn publishing revenue ($190m in FY2014).[3] Alumni donate to the endowment, which distributes revenue to HBS ($120m in FY2014).[4]

Operating Model and Alignment

HBS’s operating model focuses on improving the student experience, recruiting faculty, creating cases, and seeking donations.

MBA Program

The goal of the MBA program is to place students in jobs that lead to managerial positions where they are happy, are financially successful, and donate. Learning begins in the classroom. The curriculum focuses on real-world problems but also includes non-case classes (e.g., FIELD). Professors bring case protagonists to class. HBS standardizes the Section academic experience: each Section learns the same cases in each subject. At Harvard Law School, in contrast, the material that students learn in each class depends on the professor, which can seem unfair.

The social experience matters. Each RC Section creates its own path. Smaller groups of friends create longer-lasting relationships. A professor will meet with each Section periodically during RC year to catch up about section norms and culture. HBS tries to reduce the probability and severity of any negative Section experiences that would color alumni’s recollections of HBS. Happy alumni donate and generate publicity for HBS. Rakuten CEO Hiroshi Mikitani ‘93, for example, named Rakuten’s new corporate headquarters “Crimson House.”[5]

Investment in Faculty; Large Executive Education Program

Students’ learning hinges on talented faculty. They do higher quality research, write more cases, and are better teachers. Research funding and faculty salaries are expensive ($276m in salaries and benefits expense in FY2014).[6] Tuition from MBA students, however, is limited by class size (larger class size dilutes prestige) and savings (MBA students have, on average, about four years of work experience).[7]

Executive Education students help fund the difference. HBS enrolled an average of 9,959 Executive Education students per year between 2012 and 2014.[8] There were 5.4x as many Executive Education students as MBA students.[9] Although each Executive Education student pays less on average than each MBA student ($16,311 vs. $60,785 in FY2014), Executive Education students generate 44% more revenue in total ($164m vs. $113m).[10] HBS uses price customization for Executive Education students to create value. On-campus options, for example, range from $10,000 for a five day course on “Leading Product Innovation” to $78,000 for a 1.5 month-long course called the “Advanced Management Program.”[11]

Creating Cases and Improving Teaching

Publishing revenue is HBS’s largest source of revenue (when viewing MBA tuition and Executive Education tuition separately). HBS uses its assets to help faculty write more cases. Professors have access to their former students, who are in corporate situations that become relevant case material. HBS invested in eight Global Research Centers that generate geographically diverse and timely content.

HBS also emphasizes cases over traditional academic research. In 2014, HBS faculty produced 617 teaching materials (including 210 cases[12]), compared to 193 published research articles and 18 published books.[13] Its tenure policies likely incent junior faculty to write field-based cases.[14] HLS faculty, in contrast, write academic articles that are published in Law Reviews or journals. Most are not discussed in class. HLS’s classroom material, unlike HBS’s, consists of past judicial opinions, which faculty cannot create.


Donations from successful, loyal alumni with fond memories of their HBS experience complete the virtuous cycle. The cycle consists of recruiting faculty to do research and write cases, creating a learning environment that attract students to HBS, helping students become successful and happy, and convincing them to donate, which helps hire more talented faculty.


HBS cannot be complacent. Online learning models (e.g., Coursera, edX, Udacity) threaten to disrupt traditional graduate school education. A one-year MBA may become popular in the future.[15] HBS has proven a willingness to innovate. It created the iLab to compete better in entrepreneurship and technology. It departed from the case method to create FIELD. It joined the online learning space by creating HBX. The alignment between HBS’s business and operating models generates human, intellectual, and financial capital that HBS can use to innovate further.



[1] http://www.hbs.edu/about/Pages/default.aspx. Accessed Dec. 6, 2015.

[2] http://www.hbs.edu/about/annualreport/2014/Documents/HBS-Annual-Statements-2014.pdf. Accessed Dec. 6, 2015.

[3] See note 2.

[4] See note 2.

[5] http://global.rakuten.com/corp/about/crimsonhouse/. Accessed Dec. 6, 2015.

[6] Id.

[7] http://www.hbs.edu/recruiting/data/Pages/at-a-glance.aspx. Accessed Dec. 8, 2015.

[8] http://www.hbs.edu/about/facts-and-figures/Pages/statistics.aspx. Accessed Dec. 6, 2015.

[9] Id.

[10] See note 2.

[11] http://www.exed.hbs.edu/programs/Pages/program-finder.aspx? Accessed Dec. 6, 2015.

[12] http://www.hbs.edu/about/leadership/dean/Pages/priorities.aspx. Accessed Dec. 6, 2015.

[13] See note 8.

[14] Hemel, Daniel J., Junior Professor Criticizes HBS Through Blog, The Harvard Crimson, Feb. 27, 2004, http://www.thecrimson.com/article/2004/2/27/junior-professor-criticizes-hbs-through-blog/?page=single.

[15] See, e.g., Chisa, Ellen, Harvard Business School of 2020, Medium.com, Dec. 1, 2015, https://medium.com/harvard-business-school-digital-initiative/harvard-business-school-of-2020-411ee1bd7261#.j3vifsq75.


Quirky: Crowdsourcing Innovation


Ferrari: Innovation on the Road and Track

19 thoughts on “HBS: Creating Human, Intellectual, and Financial Capital

  1. 😀

  2. And I think the virtuous cycle is definitely too strong to break. Good reputation can attract talent >>> High talent is likely to be successful >>> Give donation back when successful >>> Have money to spend (invest & Pay good compensation) >>> Have highly qualified faculty >>> and so on…

  3. Nice job!

  4. I thought of writing about HBS too. I think one of the key cultural strength is that HBS continuously tries to improve its education through various feedback processes. The fact that HBS recently introduced FIELD and changes cases every year makes it clear that HBS is actually changing its product offering quite flexibly.

  5. Great post! Really like the connection between the operating model of the RC Section experience and other social experiences that HBS intentionally creates / supports and their business model of alumni donations. Astute observation!

  6. Hey Steven! Nice article! Based on what you wrote it seems HBS’ COGS (mainly faculty salaries) is quite high at 47% of its Revenues! On a more serious note, HBS is indeed one of the best-designed organizations in the world. You mention that tuition revenues is limited by class size, however tuition fees have been increasing substantially over the years which has also benefited HBS allure. The way I see it, higher fees and limited class size, leads to higher selectivity of the institution and in-turn higher prestige, and the cycle you describe begins… 🙂

  7. Fascinating – I’d guessed that cases/published material generate revenue but not to this degree. Maybe the faculty should work with students to publish twice the number of cases to reduce MBA tuition by half…

  8. I recently saw people from other business schools use HBS cases in their classes. I heard that HBS also sells rights to use some of the cases to other institutions to generate another revenue stream.

    1. They do. It’s an industry practice. In fact if you go to the HBS review you can even purchase cases from Tsinghua publishing team as well 🙂

  9. Thanks for putting things into perspective with numbers! I think the prestigious part of this education program also lies in its selectivity, the faculty resources. It seems the business has 3 parts 1) publishing – stable high ROI biz 2) MBA – core biz lower ROI but stable 3) higher margin exe program 4) others (moving online etc) As the new initiatives continue to move in (which to some extent imply a shift in biz model), such as Exec program, online education program, how do you balance the resource allocation with its core MBA program, preservation of its franchised value while it scales up?

    1. Good question – it’ll be hard to balance in-person (high selectivity/high prestige/small quantity/high price) with online. I think HBS has to offer the “best” deal for the online courses and use that to spread the HBS name – there will always be students who want to get an in-person MBA. HBS should also offer a basic programming course. Loudest voice saying a two-year, in-person MBA isn’t useful is probably the tech community.

  10. Boom! Nicely done Steven. Very interesting to read the different levers of the HBS business model and actually think about the way the unique HBS classroom experience and pedagogical principles actually reinforce things like students’ willingness to donate and teachers’ relationships with students who they may be able to leverage later to write cases. I agree that the business model and operating model at HBS are well aligned and look forward to seeing what the school does to continue this alignment in the face of the future risks you called out at the end.

  11. Great post, Steven. I was infact discussing HBS business and operating models with a friend a few months ago. One question I have is how will the increasing focus on the online learning models change the business models going forward. Wondering if you know about the impact on other schools who have been selling online courses for some time now.

    1. I’m not sure what the impact on schools has been. Given how many schools are rushing into the online arena, I assume they see it as a way to spread their brand further to people (and their communities) who wouldn’t have attended in-person anyway. More thoughts about online in my comment above.

  12. Great post Steven! Do you think that online education (e.g. HBX) will ever be a meaningful revenue stream for HBS? Do you think that there is a risk to HBS becoming “too commercialized” through online learning?

  13. Great post Steven! enjoyed reading it.
    To your point on donations, HBS indeed successfully created an ecosystem of strong alumni, faculty, students and corporate networks- the people which co-creates the brand name of HBS to continuously feed into a virtuous cycle of attracting top talents and maintain this flow.

  14. This is an awesome post! You’re absolutely right, HBS’s operating and business models are highly aligned to accomplish the goal of producing some of the world’s best business managers and ensuring its graduates are well-equipped to be competitive in the marketplace. However, as the institution continues to strive “to educate leaders who are going to make a difference in the world,” what tweaks will HBS have to make to its operating model to be competitive with other providers of post-collegiate education? Will they have to expand beyond traditional pools of applicants? Do they have to broaden the curriculum? Just a few things to consider….

  15. Hi SChen,
    I thought this was a really interesting look into the financials of the MBA program – great analysis – really curious what your thoughts are on the question you posed in class, ie, what do you think HBS can do to make sure the value of the MBA is not diluted although many people can now access exec ed and now online classes through HBX?

  16. g

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