HBS’s business and operating models reinforce each other, enabling it achieve its mission to “educate leaders who make a difference in the world.”
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). HBS sells cases and materials to other institutions to earn publishing revenue ($190m in FY2014). Alumni donate to the endowment, which distributes revenue to HBS ($120m in FY2014).
Operating Model and Alignment
HBS’s operating model focuses on improving the student experience, recruiting faculty, creating cases, and seeking donations.
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.”
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). 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).
Executive Education students help fund the difference. HBS enrolled an average of 9,959 Executive Education students per year between 2012 and 2014. There were 5.4x as many Executive Education students as MBA students. 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). 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.”
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), compared to 193 published research articles and 18 published books. Its tenure policies likely incent junior faculty to write field-based cases. 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. 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.
 http://www.hbs.edu/about/annualreport/2014/Documents/HBS-Annual-Statements-2014.pdf. Accessed Dec. 6, 2015.
 See note 2.
 See note 2.
 http://global.rakuten.com/corp/about/crimsonhouse/. Accessed Dec. 6, 2015.
 http://www.hbs.edu/recruiting/data/Pages/at-a-glance.aspx. Accessed Dec. 8, 2015.
 http://www.hbs.edu/about/facts-and-figures/Pages/statistics.aspx. Accessed Dec. 6, 2015.
 See note 2.
 http://www.exed.hbs.edu/programs/Pages/program-finder.aspx? Accessed Dec. 6, 2015.
 http://www.hbs.edu/about/leadership/dean/Pages/priorities.aspx. Accessed Dec. 6, 2015.
 See note 8.
 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.
 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.