Harvard Business School announced last week that it would lay off 16 of its more than 1,000 employees as part of a broader downsizing that will reduce the School's overall staff by 130 people.

In a letter to faculty and staff on June 23, HBS Dean Jay O. Light and Associate Dean for Administration Angela Q. Crispi said it was a "difficult day" for the School but that there was no alternative.

"Our goal (indeed, our need) has been to prepare the School not just for next year but also for the years after," the letter said. "Ultimately, this means we must become a smaller organization."

Through the latest staff reductions and other cost-cutting initiatives, HBS has trimmed roughly $40 million from its budget, according to HBS spokesman Brian C. Kenny. In their letter, Light and Crispi expressed hopes that no further layoffs would be necessary, but noted that new hiring would be closely monitored.

In a move separate from last week's staff cuts, Harvard Business Publishing has laid off 20 of its 250 employees as well, Kenny said. The School's publishing arm—which prints books, a business journal, and case studies used in HBS classes—has been hit hard by the recession, he said, along with the rest of the industry.

The Business School's financial organization is unique among Harvard's schools. Typically, over 50 percent of the School's revenue comes from publishing and executive education programs. Both will likely generate less income this year, Kenny said.

HBS also drew more heavily from the endowment in fiscal year 2009 than in the past. Its endowment payout, which was $94 million in fiscal year 2008, increased to $115 million in fiscal year 2009, which ended Tuesday.

In addition to the layoffs, 42 out of 103 eligible HBS employees took early retirement incentive packages from the University this past spring—a participation rate of over 40 percent, the highest out of all the University's schools. The letter also noted that roughly 50 temporary and contract workers, mainly in operations and facilities, will not have their contracts renewed for fiscal year 2010—which begins today—and others will leave the school through "normal attrition."

Kenny said the staff cuts were made strategically and that they came mainly from areas that do not directly affect students, such as alumni relations, fundraising, libraries, and IT.

"The guiding principle for the dean and school leadership throughout the year has been that we need to take every measure to preserve the core work of the School—teaching and faculty scholarship," Kenny said.

To further reduce costs, the Business School has limited landscaping operations and closed some dining outlets in its student center.

In a late April interview, Light said that the School began to respond to the crisis in March 2008 by cutting expenses and postponing several capital projects. But in the recent letter, he and Crispi wrote that it was not enough. Other cost-cutting measures that staff had suggested to avoid layoffs, such as furloughs and pay reductions, would also be too little, they said.

"We have been deeply impressed by the generosity with which these ideas were raised," the letter read. "Unfortunately, though, they are stopgaps rather than measures that would help us achieve sustainable change."

—Staff writer William N. White can be reached at wwhite@fas.harvard.edu.