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Harvard’s Incredible Shrinking Executive-Education Programs

5.26.20


During the past decade of recovery from the Great Recession of 2008-2009, Harvard has enjoyed progressively robust growth in executive and continuing education—so much so that this “business” has come to play an important role in diversifying the University’s overall revenues, distinguishing it from peer research institutions. Now, many of those operations, and much of the associated revenues, are at risk.

In the fiscal year ended June 30, 2019, according to the annual financial report, tuition from all undergraduate and graduate degree programs, after financial aid, totaled $504 million: barely more than the $500 million in executive and continuing-education program fees. Moreover, although the former revenues grew 4 percent, the latter grew three times as fast. For that year, continuing and executive education accounted for more than 9 percent of University operating revenues, and the pace of growth pointed to a rising share. But with the decision to end residential education as of mid March (to protect community members from the spread of the coronavirus), much of that revenue has evaporated, with significant implications for several schools. This is perhaps the most important financial development to date distinguishing the challenges associated with the current pandemic crisis from the purely financial upheaval a dozen years earlier—and another suggestion that this time, Harvard is contending with fundamental academic issues.

On May 5, when executive vice president Katie Lapp advised the community that Harvard faced a net shortfall of $415 million in anticipated revenues for the year ending this June 30, and a further $750 million in the next fiscal year, she cited numerous causes including the costs of getting students home and refunding room and board fees for the rest of the semester. Of note, she then listed “the necessary step of cancelling in-person continuing and executive education courses and programs.”

Of the half-billion dollars in revenue associated with those programs in fiscal 2019 (and likely more until the world changed about halfway through this year), nearly half came from Harvard Business School’s (HBS) powerful franchise, based in a four-building complex at the eastern end of its Allston campus. The Faculty of Arts and Sciences’ (FAS) extension operation ranks second in size.

In HBS’s case, executive-education tuition (a reported $222 million in fiscal 2019) overshadowed the entire M.B.A program by far (tuition and fees of $140 million), and accounted for about one-quarter of school revenues overall. With the suspension of residential teaching, essentially all of that executive-education business vanished from March through at least this summer. That abrupt upheaval—combined with slower publication sales and reduced philanthropy—resulted in a $115-million reduction in expected revenue for the fiscal year ending this June 30 (a detailed report is available here). Although the school in April telegraphed that its budgeted $43-millon surplus for the current fiscal year 2020 would turn into a $22-million deficit, by early May it forecast savings and reductions in spending that could yield a break-even year, or perhaps even a small surplus. In fiscal 2021, however, Dean Nitin Nohria and executive dean for administration Angela Crispi anticipated “an even larger drop in revenues, reflecting current assumptions about the M.B.A. class size, the number of programs we can run on campus for executive education, alumni giving, and publishing sales”—raising the specter of “a potential deficit for the year of as much as $80 million.”

University leaders have always known that executive-education growth engine was economically cyclical: during recessions, employers can easily reduce such outlays. In the case of the HBS flagship, the unimaginable effect of a pandemic shutting the program down is far more drastic. HBS will try to compensate in part with technologically enabled online experiences, but it must also assume that the global recession will crimp businesses’ budgets for such training for the foreseeable future.

The effect is less pronounced for FAS, but the operating surplus from the extension school (in which it has invested heavily in recent years) translates into valuable, unrestricted cash. Presenting the courses of study to the faculty at its May meeting, interim extension dean Henry Leitner pointed to the large number of online offerings—but also noted that campus-based courses, and online ones with a campus component, would be unavailable during at least the coming fall semester. They are the highest-revenue courses, so as enrollment declines, Dean Claudine Gay will be hard-pressed to replace that source of FAS income for an indeterminate future.

Other schools are at risk, too. Both the Harvard Kennedy School and the Graduate School of Education run large professional-education programs in Cambridge, with summer sessions an important part of their offerings. Each ranks in the middle among the University’s schools in their dependence on student income (degree and continuing-education-program tuition and fees) as a share of their operating revenues—and each normally generates a healthy percentage of its budget from those professional-education programs. This year, not so much.

Every Harvard school, premised on residential education and research, now must operate under unprecedented conditions, of unknown duration. Compounding the problem, acutely, in financial terms, is the swift and severe impact of those same pandemic conditions on the University’s uniquely large, and heretofore powerfully successful, professional and continuing-education programs, to the tune of tens or hundreds of millions of dollars—and counting.

 

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