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Business A Changing World
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Business Fifth Edition
A Changing World
O. C. Ferrell Colorado State University
Geoffrey Hirt DePaul University
Linda Ferrell University of Wyoming
Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
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BUSINESS: A CHANGING WORLD Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2006, 2003, 2000, 1996, 1993 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOW/DOW 0 9 8 7 6 5 4 ISBN
0-07-297358-7
Editorial director: John E. Biernat Sponsoring editor: Ryan Blankenship Senior developmental editor: Christine Scheid Executive marketing manager: Ellen Cleary Media producer: Benjamin Curless Lead project manager: Mary Conzachi Senior production supervisor: Sesha Bolisetty Lead designer: Pam Verros Photo research coordinator: Ira C. Roberts Photo researcher: Mike Hruby Media project manager: Joyce J. Chappetto Supplement producer: Gina F. DiMartino Developer, Media technology: Brian Nacik Cover/interior design: Maureen McCutcheon Typeface: 10.5/12 Minion Compositor: Carlisle Communications, Ltd. Printer: R. R. Donnelley Library of Congress Cataloging-in-Publication Data Ferrell, O.C. Business : a changing world / O.C. Ferrell, Geoffrey Hirt, Linda Ferrell.—5th ed. p. cm. Includes index. ISBN 0-07-297358-7 (alk. paper) 1. Business. 2. Management—United States. I. Hirt, Geoffrey A. II. Ferrell, Linda. III. Title. HF 1008.F47 2006 650--dc22 2004042321
www.mhhe.com
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To Kathlene Ferrell To Linda Hirt To Norlan and Phyllis Nafziger
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Welcome to Where other authors entered the essentials market with “ground down” versions of their hardback editions, we entered it with a book developed from the “ground up” to effectively and efficiently teach Introduction to Business. We focused on the needs of the essentials market from the very beginning. There is so much information available to students today: the Internet, magazines, newspapers, television, radio, encyclopedic textbooks, trade books—the list is endless. You can overwhelm a student with too much information too soon in providing an understanding of the world of business. Our goal is too selectively provide the right balance of content and application to engage students and heighten their interest in studying about business concepts. Our book has been successful because we provide a real-world, comprehensive framework in a compact format. Examples, boxed features, and video cases are up to date and make business come alive for students. Our Web site and supplementary classroom teaching materials provide support to enhance the learning experience. When we started revising the fifth edition, 24 Introduction to Business instructors were asked to provide reviews of each chapter. This analysis yielded strong praise for the previous edition, but also provided directions for continued improvement. The consensus indicated the need for greater balance in coverage of topics, avoiding the overemphasis of trendy business fads. We gained insight into the types of companies and nonprofit organizations to focus on in the boxes, examples, and cases that are most useful in the classroom. We would like to welcome Linda Ferrell, University of Wyoming, to the author team. Linda brings a rich background of business experience as well as a successful academic career to the team. As an advertising account executive on the Pizza Hut and McDonald’s accounts, her experience in working with franchisees, agencies, and corporations has filtered into the book. Her small business experience working with small retailers has broadened our perspective and appreciation of this area. She also pioneered and co-developed the role-playing exercises at the end of
“ground up” vi
each part. With her Ph.D. in management from the University of Memphis, she complements the author team in content specialization.
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the Fifth Edition There have been many dramatic changes in business since the fourth edition was published. We have learned that the Internet and e-business continue to evolve, but have not completely reshaped the world of business. We explore Google’s success in e-commerce and its “dutch auction” method of selling its stock. The interface between business and government has become even more significant as government policies have affected interest rates, regulations, and entire industries (such as accounting). The ramifications of the Sarbanes-Oxley Act and corporate governance are integrated at the appropriate level for this course. At the moment, the dramatic growth of developing countries such as China is having a tremendous impact on the prices of commodities and on global competition. Outsourcing has become a popular way for businesses to stay competitive, but is controversial among workers and communities negatively affected by such decisions. Companies such as IBM are examined to understand the business rationale on outsourcing as well as the role of countries such as India in the outsourcing debate. These as well as many other evolving issues are carefully addressed in the fifth edition. One thing we’ve learned over the last few years is that business has to be open and fair to all stakeholders, including investors, employees, customers, and members of society. We explore the Enron, WorldCom, and Parmalat business failures that affected many of us. On the other hand, we look at the highly responsible acts of companies such as Hershey Foods, Starbucks, and Home Depot. Introduction to Business students need to understand that most businesses are responsible and have value systems that encourage and even require ethical and responsible conduct. On the other hand, the conduct of some business leaders and their organizations has damaged the reputation of the world of business. Students need to discuss and understand these events to be able to defend business and develop as ethical business leaders. The fifth edition integrates these concerns into every chapter in content, examples, and boxes. We have written a supplement for instructors on teaching business ethics in Introduction to Business.
Our hope is that all of our readers, students and instructors alike, find Business: A Changing World to be what we have striven to make it: the best value available for helping to
teach — and learn — Introduction
to Business.
–O.C., Geoff, Linda vii
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Created from the ground up, The best selling paperback text on the market, Business: A Changing World was built from the ground up—that is, developed and written expressly for faculty and students who value a brief, flexible, and affordable paperback with the most up-to-date coverage available. Conversly, most brief Intro to Business textbooks on the market today are simply “ground-down” versions of much longer hardcover books. None of these books is truly designed to meet the needs of students or instructors; they’re afterthoughts, products chiefly designed to leverage existing content, not to help you teach your course. With market-leading teaching support and fresh content and examples, Business: A Changing World offers just the mix of currency, flexibility, and value that you need. It is the fastest-growing book—and the best value available—in the brief Introductory Business market. What sets Ferrell/Hirt/Ferrell apart from the competition? An unrivaled mixture of current content, topical depth, and the best teaching support around:
The Freshest Topics and Examples
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Because it isn’t tied to the revision cycle of a larger book, Business: A Changing World inherits no outdated or irrelevant examples or coverage. Everything in the fifth edition reflects the very latest developments in the business world, from Google’s “dutch auction” approach to selling its stock, to the controversy over outsourcing. In addition, ethics continues to be a key issue and Ferrell uses “Consider Ethics and Social Responsibility” boxes to instill in students the importance of ethical conduct in business.
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Just Enough of a Good Thing
It’s easy for students taking their first steps into business to become overwhelmed. Longer books try to solve this problem by chopping out examples or topics to make ad hoc shorter editions. Business: A Changing World carefully builds just the right mix of coverage and applications to give your students a firm grounding in business principles. Where other books have you sprinting through the semester to get everything in, Ferrell allows you the breathing space to explore topics and incorporate other activities that are important to you and your students.
Teaching Assistance that Makes a Difference The first and often most serious hurdle in teaching is engaging your students’ interest, making them understand how textbook material plays a very real role in real business activities. The instructor’s material for Business: A Changing World is full of helpful resources that enable you to do this, including detailed teaching notes and additional material in the Instructor’s Manual, even for each text part’s roleplaying exercises. Furthermore, the new Active Classroom Resource Manual is loaded with additional team projects, cases, and exercises.
There’s much more to Business: A Changing World, and much more it can do for your course. To learn about Ferrell’s great pedagogical features and top-notch ancillaries, keep reading.
not ground down
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Getting a Handle on Business Business: A Changing World’s pedagogy helps your students get the most out of their reading, from handy outlines at the beginning of the chapter to a range of questions and exercises at the end of it.
CHAPTER OUTLINE
Chapter Outlines
Introduction Organizational Culture
These provide a useful overview of all the topics covered in the chapter, giving students a sneak preview of what they’ll be learning. Special expanded outlines are available on the book’s Online Learning Center (see page xvii).
Developing Organizational Structure Assigning Tasks Specialization Departmentalization
Assigning Responsibility Delegation of Authority Degree of Centralization Span of Managment Organizational Layers
Forms of Organizational Structure Line Structure Line-and-Staff Structure Multidivisional Structure Matrix Structure
The Role of Groups and
OBJECTIVES After reading this chapter, you will be able to:
x
•
Define organizational structure and relate how organizational structures develop.
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Describe how specialization and departmentalization help an organization achieve its goals.
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Distinguish between groups and teams and identify the types of groups that exist in organizations.
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Determine how organizations assign responsibility for tasks and delegate authority.
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Compare and contrast some common forms of organizational structure.
• •
Describe how communication occurs in organizations. Analyze a business’s use of teams.
Organization, Teamwork, and Communication OBJECTIVES After reading this chapter, you will be able to:
•
Define organizational structure and relate how organizational structures develop.
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Describe how specialization and departmentalization help an organization achieve its goals.
•
Distinguish between groups and teams and identify the types of groups that exist in organizations.
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Determine how organizations assign responsibility for tasks and delegate authority.
•
Compare and contrast some common forms of organizational
Chapter Objectives These appear at the beginning of each chapter to provide goals for students to reach in their reading. The objectives are then used in the “Review Your Understanding,” the summary at the end of each chapter, and help the students gauge whether they’ve properly learned and retained the material.
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Chapter 8
Introduction Organizational Culture Developing Organizational Structure Assigning Tasks
After the space shuttle Columbia broke up on reentry in 2003, killing all seven astronauts on board, the National Aeronautics and Space Agency (NASA) spent more than a year reexamining itself as well as studying the circumstances surrounding the catastrophe in an effort to prevent future accidents in the space program. Barely one year later, NASA was given a new mandate by President George W. Bush to return humans to the moon, even while it continued to oversee the construction of the International Space Station and its ongoing program of unmanned explorations of nearby planets. To address these challenges, NASA was confronted with the need for an attitude adjustment. In addition to careful analysis of the Columbia disaster, NASA employed the consulting firm Behavioral Sciences Technology (BST) to assess what role the agency’s values and culture might have played. The consulting firm found that the agency’s “can-do” culture may have stifled employees’ willingness to speak out about concerns that ultimately led to the destruction of the Columbia. Astronaut Jim Wetherbee, a veteran of six shuttle missions, said, “There are a lot of people who won’t speak up. They were afraid of being rendered ineffective, which at NASA is the equivalent of being fired.” A survey of NASA’s 19,000 employees found many who shared that view.
Organization, Teamwork, and Communication
Specialization Departmentalization
Assigning Responsibility Delegation of Authority Degree of Centralization Span of Managment Organizational Layers
Forms of Organizational Structure Line Structure Line-and-Staff Structure Multidivisional Structure Matrix Structure
The Role of Groups and Teams in Organizations Committees Task Forces Teams
OBJECTIVES After reading this chapter, you will be able to:
•
Define organizational structure and relate how organizational structures develop.
•
Describe how specialization and departmentalization help an organization achieve its goals.
•
Distinguish between groups and teams and identify the types of groups that exist in organizations.
•
Determine how organizations assign responsibility for tasks and delegate authority.
•
Compare and contrast some common forms of organizational structure.
• •
Describe how communication occurs in organizations.
continued
Analyze a business’s use of teams.
Communicating in Organizations Formal Communication Informal Communication Channels Monitoring Communication
Enter the World of Business
CHAPTER OUTLINE
NASA Looks Inward Before Going Back to the Stars
Chapter-Opening Vignette These anecdotes neatly illustrate the real-world implications of the business issues students will encounter in their reading. A “Revisit the World of Business” segment at the end of the chapter requires students to return to the Opening Vignette to answer follow-up questions, calling on the insight they’ve gained from reading the chapter.
Solve the Dilemma
Solve the Dilemma Quest Star in Transition Quest Star (QS), which manufactures quality stereo loudspeakers, wants to improve its ability to compete against Japanese firms. Accordingly, the company has launched a comprehensive quality-improvement program for its Iowa plant. The QS Intracommunication Leadership Initiative (ILI) has flattened the layers of management. The program uses teams and peer pressure to accomplish the plant’s goals instead of multiple management layers with their limited opportunities for communication. Under the initiative, employees make all decisions within the boundaries of their responsibilities, and they elect team representatives to coordinate with other teams. Teams are also assigned tasks ranging from establishing policies to evaluating on-the-job safety.
However, employees who are not self-motivated team players are having difficulty getting used to their peers’ authority within this system. Upper-level managers face stress and frustration because they must train workers to supervise themselves. 1. What techniques or skills should an employee have to assume a leadership role within a work group? 2. If each work group has a team representative, what problems will be faced in supervising these representatives? 3. Evaluate the pros and cons of the system developed by QS.
These boxes give students an opportunity to think creatively in solving a realistic business situation.
Explore Your Career Options Flexibility First!
Explore Your Career Options These end-of-chapter features offer valuable advice on a wide spectrum of business career choices.
Most business school students major in marketing, finance, accounting, management information systems, general management, or sales. Upon graduation, they generally expect to be hired by a company to do more of whatever it is they were trained to do as a student. For example, an accounting major expects to be an accountant. However, depending upon the way the company is organized, the roles played by the employees will differ. If you are hired by a large, divisionalized company, you might expect to practice your profession among many others doing the same or similar tasks. You are likely to learn one part of the business fairly well but be completely uninformed about other departments or divisions. A wise employee in this situation will learn to request occasional transfers to other divisions to learn all aspects of the corporation thereby improving his or her usefulness to the
may find that you are for which you were t employees are often to make the organiz can come as a shoc cover that, in additio doing bookkeeping, s Likewise, employ heavy use of teams may find that the com skills learned in sch you may find that yo and expertise, but yo engineering, comput to understand the nee bers of the team Org
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Getting a Handle on Business These features, scattered liberally throughout the book, use real and often familiar companies to highlight various issues of importance in business today.
Consider Ethics & Social Responsibility Consider Ethics & Social Responsibility Ethics in business continues to be a major public concern, and it is vital for students to understand that unethical conduct hurts investors, customers, and indeed the entire business world. These features highlight the importance of ethical conduct and show how businesses can serve a vital, positive function in their communities.
Think Globally Think Globally The global economy is important to more than large multinationals these days: issues of economics, culture, language and more can affect all levels of domestic business, and Think Globally boxes encourage students to keep their eyes on the big picture.
CHAPTER 2
The Dynamics of Business and Economics
Embrace Technology Business technology means more than computers. From cell phones and PDAs to sophisticated project management and inventory tracking systems, Embrace Technology boxes teach students just how pervasive technology is throughout the business world.
Embrace Technology xii
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Growing a Business Growing a Business
1 2
3
New to the fifth edition, this feature highlights entrepreneurial opportunities, showing the issues and obstacles in building a venture from the ground up.
Responding to Business Challenges Responding to Business Challenges These boxes illustrate how businesses overcome tough challenges and provide an excellent vehicle for stimulating class discussions.
Enhance Business Productivity Enchance Business Productivity Valuable tips and insights on one issue that’s vital to everyone at all levels of business.
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End-of-Chapter Material Whether your students discover it on their own or you make it an integral part of your classroom and homework assignments, the end-of-chapter material provides a great opportunity to reinforce and expand upon the chapter content.
CHAPTER 2 Business Ethics and Social Responsibility
Review Your Understanding Define business ethics and social responsibility and examine their importance. Business ethics refers to principles and standards that define acceptable business conduct. Acceptable business behavior is defined by customers, competitors, government regulators, interest groups, the public, and each individual’s personal moral principles and values. Social responsibility is the obligation an organization assumes to maximize its positive impact and minimize its negative impact on society. Socially responsible businesses win the trust and respect of their employees, customers, and society and, in the long run, increase profits. Ethics is important in business because it builds trust and confidence in business relationships. Unethical actions may result in negative publicity, declining sales, and even legal action. Detect some of the ethical issues that may arise in business. An ethical issue is an identifiable problem, situation, or opportunity requiring a person or organization to choose from among several actions that must be evaluated as right or wrong. Ethical issues can be categorized in the context of their relation with conflicts of interest, fairness and honesty, communications, and business associations. Specify how businesses can promote ethical behavior by employees. Businesses can promote ethical behavior by employees by limiting their opportunity to engage in misconduct. Formal codes of ethics, ethical policies, and ethics training programs reduce the incidence of unethical behavior by informing employees what is expected of them and providing punishments for those who fail to comply.
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PART 1 Business in a Changing World
Explain the four dimensions of social responsibility. The four dimensions of social responsibility are economic (being profitable), legal (obeying the law), ethical (doing what is right, just, and fair), and voluntary (being a good corporate citizen). 1. Define business ethics. Who determines whether a business activity is ethical? Is unethical conduct illegal? Debate an organization’s always social responsibilities to owners, employees, consumers, the environment, andand social 2. Distinguish between ethics the community. responsibility. 3. Why proper has ethics become soproceimportant in business? Businesses must maintain accounting dures, provide all relevant information about the What perfor-are some of the 4. What is an ethical issue? mance of the firm to investors, and protect owners’ ethical issues namedthe in your text? Why are they rights and investments.ethical In relations issues? with employees, businesses are expected to provide safe workplace, 5. What is a codea of ethics? How can one reduce pay employees adequately for theirbehavior work, and treat them unethical in business? fairly. Consumerism refers to the activities undertaken by independent individuals, groups, and organizations to protect their rights as consumers. Increasingly, society expects businesses to take greater responsibility for the environment, especially with regard to animal rights, as well as water, air, land, noise pollution. busi-of businesses 1. and Discuss some recentMany examples nesses engage in activities to make the communities engaging in unethical practices.inClassify these which they operate betterpractices places for to live and aseveryone issues of conflict of interest, fairness work. and honesty, communications, or business relationships. Why do you think the businesses Evaluate the ethics of a business’s decision. chose to behave unethically? What actions might the taken? an ethiThe “Solve the Dilemma” businesses box on pagehave 41 presents cal dilemma at Checkers Pizza. Using theclass material 2. Discuss with your someprepossible methods of sented in this chapter, you should be able standards to analyzeinthe improving ethical business. Do you think ethical issues present in that the dilemma, Barnard’s business evaluate should regulate its own activities or plan, and develop a course of action for the firm.
Revisit the World of Business
Check Your Progress
Get Involved
Build Your Skills
bribes 36 business ethics 32 codes of ethics 42
businesses in newspapers or business journals. Explain why you believe their actions are socially 36 responsible. Why do you think the companies chose to act as they did? Mini-Case You work for a company that has implemented a policy of a smoke-free environment. You discover employees smoking in the restrooms of the building. You also smoke and don’t like having to go outside to do it. What do you do?
40 Mini-Case Your co-worker is copying company-purchased software and taking it home. You know a certain program costs $400, and you have been saving for a while to buy it. What do you do?
Potential Answers Potential Answers A. You figure you can copy it too since nothing has A. You ignore the situation. ever happened to your co-worker. B. You confront the employees and ask them to stop. B. You tell your co-worker he can’t legally do this. Task: C. You join them, but only occasionally. C. You report the matter to the ethics office. Form into groups of four to six managers and appoint a D. You contact your ethics or human resources D. You mention this to your supervisor. group leader who will lead a discussion ofrepresentative the case, obtain and ask him or her to handle the a consensus answer to the case, and be situation. the one to report the group’s answers to the instructor. You will have five minutes to reach each decision, after which time, the instructor will give the point values and rationale for each choice. Then you will have five minutes for the next case, etc., until all four cases have been completed. Keep track of your group’s score for each case; the winning team will be the group scoring the most points. Since this game is designed to reflect life, you may believe that some cases lack clarity or that some of your choices are not as precise as you would have liked. Also, • while Transparency International Provides a listing of the most corrupt countries in the world. some cases have only one solution, others have more than one solution. Each choice is www.transparency.org assessed points to
MAKING DECISIONS ABOUT ETHICAL ISSUES
Background: 3. Do you think Home Depot would be as successful if it The merger of Lockheed and Martin Mariwas not involved in social responsibility initiatives? etta created Lockheed Martin, the numberWhy or why not? one company in the defense industry—an industry that includes such companies as McDonnell Douglas and Northrop Grumman. You and the rest of the class are managers at Lockheed Martin Corporation, Orlando, Florida. You are getting ready to do the group exercise in an ethics training session. The training instructor announces you will be playing Gray Matters: The Ethics Game. You are told that Gray Matters, consumerism 49 plagiarism 40 which was prepared for your company’s employees, is also corporate citizenship 45 social 32 including Harvard University, and playedresponsibility at 41 universities, at 65 other companies. Although there are 55 scenarios in ethical issue 35 whistleblowing 43 Gray Matters, you will have time during this session to complete only the four scenarios that your group draws from the stack of cards.61
1. Why do you think Home Depot has such a strong commitment to communities? 2. What are the social responsibility benefits to a company that recycles, uses environmentally responsible forest products, and encourages customers to use energy efficient products?
Learn the Terms
CHAPTER 2 Business Ethics and Social Responsibility 57 6. List and discuss the arguments for and against social responsibility by business (Table 2.7). Can you think of any additional arguments (for or against)? Your group draws cards 4, 7, 36, and 40. 7. What responsibilities does a business have toward its employees? 7 4 8. What responsibilities does business have with regard Mini-Case to the environment? What steps have been taken by Mini-Case You are aware that a fellow employee uses drugs on For severalthe months now, one of your colleagues has some responsible businesses to minimize negative the job. Another friend encourages you to confront the slacking off, and you are getting stuck doing the impact of their activities on thebeen environment? person instead of informing the supervisor. What do work. You think it is unfair. What do you do? 9. What are a business’s responsibilities toward the you do? Potential Answers community in which it operates? Potential Answers A. Recognize this as an opportunity for you to A. You speak to the alleged user and encourage demonstrate how capable you are. him to get help. B. Go to your supervisor and complain about this B. You elect to tell your supervisor that you susunfair workload. pect an employee is using drugs on the job. C. Discuss the problem with your colleague in an C. You confront the alleged user and tell him either attempt toand solve the problem without involving that the federal government should establish to quit using drugs or you will “turn him in.” others. enforce ethical standards? How do you think D. Report the matter to employee assistance. D. Discuss the problem with the human resources businesspeople feel? department. 3. Find some examples of socially responsible
E
eXtreme Surfing
reflect which answer is the most correct. Your group’s task Responsibility • Business for Social is to select only one option in each case. www.bsr.org
Offers news and resources about social responsibility in business today as part of a membership organization of global corporations.
• E-Ethics Center www.e-businessethics.com
Provides a wealth of information about business ethics, corporate citizenship, organizational compliance, and related topics.
• Bureau of Consumer Protection www.ftc.gov/bcp/bcp.htm
Warns consumers information about unfair, deceptive, or fraudulent business practices and offers advice on how to avoid them.
Review Your Understanding Define marketing and describe the exchange process. Marketing is a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas. Marketing facilitates the exchange, the act of giving up one thing in return for something else. The central focus of marketing is to satisfy needs. Specify the functions of marketing. Marketing includes many varied and interrelated activities: buying, selling, transporting, storing, grading, financing, marketing research, and risk taking.
whose needs and wants a company focuses its marketing efforts). Some firms use a total-market approach, designating everyone as the target market. Most firms divide the total market into segments of people who have relatively similar product needs. A company using a concentration approach develops one marketing strategy for a single market segment, whereas a multisegment approach aims marketing efforts at two or more segments, developing a different marketing strategy for each.
The marketing concept is the idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its goals. If a company does not implement the marketing concept by providing products that consumers need and want while achieving its own objectives, it will not survive. Examine the development of a marketing strategy, including market segmentation and marketing mix.
Summarize the environmental forces that influence marketing decisions.
Revisit the World of Business These exercises refer to the chapter opening vignettes (see page xi) and ask students to answer more in-depth questions using the knowledge they gained in their reading.
g tional line relationship between superiors and subordinates, and specialized staff managers are available to assist line managers. A multidivisional structure gathers departments into larger groups called divisions. A matrix,
p g attempting to restructure to a team envi the material presented in this chapter, to evaluate the firm’s efforts and make for resolving the problems that have de
Revisit the World of Business 1. Which organizational factor contributed most to the Columbia disaster at NASA? 2. In what way did the organizational culture contribute to the disaster?
3. How can NASA harness its “can-d succeed to create safer missions t and beyond?
Learn the Terms accountability 236 centralized organization 237 committee 243 customer departmentalization 235 decentralized organization 237 delegation of authority 236
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Are your students sometimes unsure whether they’ve properly absorbed the chapter material? This feature resummarizes the chapter objectives, leaving students in no doubt of what they’re expected to remember.
Investigate how marketers conduct marketing research and study buying behavior. Carrying out the marketing concept is impossible unless marketers know what, where, when, and how consumers buy; marketing research into the factors that influence buying behavior helps marketers develop effective marketing strategies. Marketing research is a systematic, objective process of getting information about potential customers to guide marketing decisions. Buying behavior is the decision processes and actions of people who purchase and use products.
Explain the marketing concept and its implications for developing marketing strategies.
Review Your Understanding
group 242 line-and-staff structure 239 line structure 239 matrix structure 241 multidivisional structure 240 organizational chart 231
project teams 244 quality-assurance t circles) 245 responsibility 236 self-directed work t span of manageme
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accounts. Find out what, if any, restrictions are in effect for NOW accounts and regular checking accounts. In which type of account and in what institution would you deposit your money? Why?
car loan? A home loan? Why?
Build Your Skills
Build Your Skills MANAGING MONEY Background: You have just graduated from college and have received an offer for your dream job (annual salary: $35,000). This premium salary is a reward for your hard work, perseverance, and good grades. It is also a reward for the social skills you developed in college doing service work as a tutor for high school students and interacting with the business community as the program chairman of the college business fraternity, Delta Sigma Pi. You are engaged and plan to be married this summer. You and your spouse will have a joint income of $60,000, and the two of you are trying to decide the best way to manage your money.
Task: Research available financial service area, and answer the following quest 1. What kinds of institutions and se to help manage your money? 2. Do you want a full service financ can take care of your banking, in investing needs or do you want t business among individual speci you made this choice? 3. What retirement alternatives do
These activities are designed to be carried out in teams, giving you a launching pad for a lively inclass discussion.
E
e-Xtreme Surfing
e-Xtreme Surfing This feature points out Web sites that elaborate on the chapter content. All eXtreme Surfing sites can be linked at your discretion from the book’s Online Learning Center (see pages xvi–xvii). CHAPTER 12
• Leading Concepts www.leadingconcepts.com/
Provides information about th companies improve commun
• Model Electronic Privacy Act http://archive.aclu.org/issues/ worker/legkit2.html
Offers information from the A legislation regulating electro
• NASA’s organizational chart www.hq.nasa.gov/hq/orgchart.htm
Presents the organizational c
Customer-Driven Marketing
See for Yourself Videocase FISHING FOR SUCCESS: THE PIKE PLACE FISH MARKET It has been almost 100 years since the Pike Place Market opened in Seattle. In response to rising produce costs and concerns that farmers were being deprived of their just return by middlemen— a pound of onions rose from 10 cents to $1 in just one year—the market opened so that consumers could buy directly from farmers. On opening day, eight farmers merged on the corner of First and Pike, and more than 10,000 eager buyers showed up to choose from their wares. Today, the Pike Place Market is much more than its name suggests. Covering roughly nine acres, the market comprises food stores (bakeries, dairies, fish/seafood, commercial produce stands, meat and butcher shops, produce stands, specialty food stores as well as restaurants, cafés, and fast-food businesses) and mercantile shops (antiques and collectibles, art galleries, books, stationery and cards, clothing and shoes, cookware, and flowers) with over 100 vendors operating each day. One of the more popular shops is Uli’s Famous Sausage which produces
Role-Play Exercises at the end of each part give students the opportunity to assume organizational roles and make decisions through application of the text concepts.
counter banter and shout, “Anyone Tourists and shoppers cheer and ca Perhaps the most unique chara Fish Market is the fact that, excep never advertised. If you look on the you can read numerous articles t about the company in local new newspapers, magazines, and trave mer’s. The fish market also receives time it is featured on a Food TV cha fact, the company receives more most large companies that spend m Such publicity is far more valuabl cause it is not a paid placement. Th erated is the result of unique, stro that consumers want to read about Pike Place Market was featured network in a two-hour live broadcas that try to get on QVC every year j
See For Yourself Videocase Stimulate your students with these engaging case videos, all of which are new to this edition.
Part 4 Role-Play Exercise*
eQuality Assured Quality Assured (QA), a nonprofit organization, was started in 1977 to promote the establishment, development, and preservation of high professional standards and audit the social responsibility of companies in the United States. The audits could be used to promote the company’s good corporate citizenship and determine areas that need improvement. Of the four issues of social responsibility (voluntary, ethical, legal, and economic), it had always focused most on the voluntary and ethical aspects. During the early years, QA dedicated a majority of its resources to environ-
eQuality has a full-time staff of 50 emplo core workers are responsible for all the fu formed at the organization. Most are not expe cation, but carry out functional responsibili accounting and technology. Some important t monitoring the business environment, determ issues need to be addressed, interacting wit profit organizations, recruiting volunteers, an all aspects of the projects. Because of the deadline, a majority of the paid staff feels ove
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Instructors Supplements Instructor’s Resource CD-ROM Everything you need to get the most from your textbook, including:
Instructor’s Manual. Includes learning objectives; lecture outlines; PowerPoint notes; supplemental lecture; answers to discussion questions and end-of-chapter exercises; notes for video cases; term paper and project topics; suggestions for guest speakers; and roles and options for implementing the role playing exercises in each text part.
Computerized Test Bank. Includes hundreds of multiple choice, true/false and essay questions.
PowerPoint Presentations.
Organized in outline format, there are 20-25
slides per chapter. Additional figures and tables from the text may be found on the CD-ROM in the “Image Bank.” Link to Online
Learning Center
(www.mhhe.com/ferrell5e)
Online Learning Center (OLC) with Premium Content www.mhhe.com/ferrell5e Access everything you need to teach a great course through our convenient online resource. A secured Instructor Resource Center stores your essential course materials to save you prep time before class. The Instructor’s Manual, Solutions, PowerPointTM, and sample syllabi are now just a couple of clicks away; you’ll also find useful packaging information and notes.
A Guide for Introducing and Teaching Ethics in Introduction to Business Written by O.C. Ferrell and Linda Ferrell, this is your one-stop guide for integrating this important issue into all aspects of your course. It helps you to demonstrate how business ethics lead to business success and offers a wide range of business ethics resources, including university centers, government resources, and corporate ethics programs.
Active Classroom Resource Guide An Additional collection of team projects, cases, and exercises that instructors can choose from to be used in class or out.
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Student Supplements
Study Guide Each chapter of the Study Guide includes a chapter summary, learning objectives, and plenty of true/false, matching, and multiplechoice questions to practice.
Interactive Study Guide on CD-ROM Each chapter of this powerful review tool includes sample quizzes, along with activities from McGraw-Hill/Irwin’s self-assessment series “Build Your Management Skills.”
Online Learning Center (OLC) with Premium Content www.mhhe.com/ferrell5e More and more students are studying online. That’s why we offer an Online Learning Center (OLC) that follows Business: A Changing World chapter by chapter. It doesn’t require any building or maintenance on your part, and is ready to go the moment you and your students type in the URL. As your students study, they can refer to the OLC Web site for such benefits as: •
Internet-based activities
•
Self-grading quizzes
•
Learning objectives
•
Extended chapter summaries
•
Additional video and related video exercises The fifth edition includes an online running video case highlighting entrepreneur Todd McFarlane, who parlayed his artistic ability (and a passion for sports) into a multimillion dollar business that straddles film and television production, toys, comic books, sports licensing and games. Students watch and learn as McFarlane explains how he leads his company across all functional areas of business, illustrating how firms deal with the problems and opportunities of today’s business world. With one video case for each part of the textbook highlighting this fun and unique company, students and instructors are provided a complete context for discussing every aspect of introductory business.
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Create an Online Course
For the instructor needing to educate students online, we offer Business: A Changing World content for complete online courses. To make this possible, we have joined forces with the most popular delivery platforms currently available. These platforms are designed for instructors who want complete control over course content and how it is presented to students. You can customize the Business: A Changing World Online Learning Center content and author your own course materials. It’s entirely up to you. Products like WebCT, Blackboard, and eCollege all expand the reach of your course. Online discussion and message boards will now complement your office hours. Thanks to a sophisticated tracking system, you will know which students need more attention—even if they don’t ask for help. That’s because online testing scores are recorded and automatically placed in your grade book, and if a student is struggling with coursework, a special alert message lets you know. Remember, Business: A Changing World’s content is flexible enough to use with any platform currently available. If your department or school is already using a platform, we can help. For information on McGraw-Hill/Irwin’s course management supplements, including PageOut, Instructor Advantage, and Knowledge Gateway, see “Knowledge Gateway” on the next page.
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Managing an Online Course Knowledge Gateway
PageOut
mhhe.eduprise.com/home.nsf
PageOut is McGraw-Hill/Irwin’s custom Web site service. Now you can put your course online without knowing a word of HTML, selecting from a variety of prebuilt Web site templates. And if none of our ideas suit you, we’ll be happy to work with your ideas.
Developed with the help of our partner, Eduprise, the McGraw-Hill Knowledge Gateway is an all-purpose service and resource center for instructors teaching online. While training programs from WebCT and Blackboard will help teach you their software, only McGraw-Hill has services to help you actually manage and teach your online course, as well as run and maintain the software. Knowledge Gateway offers an online library full of articles and insights that focus on how online learning differs from a traditional class environment. The First Level of Knowledge Gateway is available to all professors browsing the McGraw-Hill Higher Education
If you want a custom site but don’t have time to build it yourself, we offer a team of product specialists ready to help. Just call 1-800-634-3963 and ask to speak with a PageOut specialist. You will be asked to send in your course materials and then participate in a brief telephone consultation. Once we have your information, we build your Web site for you, from scratch. Best of all, PageOut is free when you adopt Business: A Changing World! To learn more, please visit www.pageout.net.
Web site, and consists of an introduction to OLC content, access to the first level of the Resource Library, technical support, and information on Instructional Design Services available through Eduprise. The Second Level is password-protected and provides access to the expanded Resource Library; technical and pedagogical support for WebCT, Blackboard, and TopClass; the online Instructional Design helpdesk; and an online discussion forum for users. The Knowledge Gateway provides a considerable advantage for teaching online—and it’s only available through McGraw-Hill. To learn how these platforms can assist your online course, contact your McGraw-Hill/Irwin representative.
Instructor Advantage and Instructor Advantage Plus Instructor Advantage is a special level of service McGrawHill offers in conjunction with WebCT and Blackboard. A team of platform specialists is always available, either by toll-free phone or e-mail, to ensure everything runs smoothly through the life of your adoption. Instructor Advantage is available free to all McGraw-Hill customers. Instructor Advantage Plus is available to qualifying McGraw-Hill adopters (see your representative for details). IA Plus guarantees you a full day of on-site training by a Blackboard or WebCT specialist, for yourself and up to nine colleagues. Thereafter, you will enjoy the benefits of unlimited telephone and e-mail support throughout the life of your adoption. IA Plus users also have the opportunity to access the McGraw-Hill Knowledge Gateway (see above).
Superior Service No matter which online course solution you choose, you can count on the highest level of service. That’s what sets McGraw-Hill apart. Once you choose Business: A Changing World, our specialists offer free training and answer any question you have through the life of your adoption.
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Acknowledgments The fifth edition of Business: A Changing World would not have been possible without the commitment, dedication, and patience of Gwyneth Walters. She assisted the authors in developing and coordinating all of the content in the text, ancillaries, and the Online Learning Center. Barbara Gilmer made significant contributions to the content of the previous edition. Ryan Blankenship, Sponsoring Editor, provided leadership and creativity in planning and implementing all aspects of the fifth edition. Christine Scheid, Senior Developmental Editor, did an outstanding job of coordinating all aspects of the development and production process. Mary Conzachi was the Project Manager. Mark Molsky managed the technical aspects of the Online Learning Center. Others important in this edition include Joyce Chappetto (Supplements), Ellen Cleary (Marketing Manager), Pam Verros (Design) and Dan Wiencek (Advertising).
Liza Hann and Nori Comello contributed several boxes to this edition. Sarah Scott contributed boxes, cases, and assisted in the overall revision process. Michael Hartline developed the Personal Career Plan in Appendix C and assisted in developing the Business Plan in Appendix B. Vickie Bajtelsmit developed Appendix D on personal financial planning. Eric Sandberg of Interactive Learning assisted in developing the interactive exercises and “Business Around the World” on the CD. Anthony Chelte of Western New England College helped us with the Student CD Chapter Quizzes and Outlines. Many others have assisted us with their helpful comments, recommendations, and support throughout this and previous editions. We’d like to express our thanks to the reviewers who helped us shape the fifth edition:
James Bartlett University of Illinois
Peggy Hager Winthrop University
Dyan Pease Sacramento City College
Stephanie Bibb Chicago State University
Verne Ingram Red Rocks Community College
John Pharr Cedar Valley College
Alka Bramhandkar Ithaca College
Steven Jennings Highland Community College
Shirley Polejewski University of St. Thomas
Michael Cicero Highline Community College
Eileen Kearney Montgomery County Community College
Daniel Powroznik Chesapeake College
Debbie Collins Anne Arundel Community College—Arnold
Craig Kelley California State University—Sacramento
Krista Price Heald College
Laurie Dahlin Worcester State College
Arbrie King Baton Rouge Community College
Larry Prober Rider University
Tom Diamante Adelphi University
John Knappenberger Mesa State College
Kathy Pullins Columbus State Community College
John Eagan Erie Community College/City Campus SUNY
Anthony Koh University of Toledo
Tom Reading Ivy Tech State College
Robert Ericksen Craven Community College
Dorinda Lynn Pensacola Junior College
Susan Roach Georgia Southern University
Art Fischer Pittsburg State University
Larry Martin Community College of Southern Nevada— West Charles
Dave Robinson University of California—Berkely
Toni Forcino Montgomery College—Germantown
Kristina Mazurak Albertson College of Idaho
Marianne Sebok Community College of Southern Nevada— West Charles
Mary Meredith University of Louisiana at Lafayette
Cheryl Stansfield North Hennepin Community College
Ross Gittell University of New Hampshire
Michelle Meyer Joliet Junior College
Ron Stolle Kent State University—Kent
Gary Grau Northeast State Tech Community College
Fred Nerone International College—Naples
Jeff Strom Virginia Western Community College
Claudia Green Pace University
Michael Nugent SUNY—Stony Brook University New York
Cheryl Stansfield North Hennepin Community College
David Gribbin East Georgia College
Wes Payne Southwest Tennessee Community College
Steve Tilley Gainesville College
Chris Gilbert Tacoma Community College/University of Washington
Lawrence Yax Pensacola Junior College—Warrington
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We extend special appreciation to the following people who reviewed previous editions: Linda Anglin, Mankato State University John Bajkowski, American Association of Individual Investors Barbara Boyington, Brookdale County College of Monmouth Suzanne Bradford, Angelina College Eric Brooks, Orange County Community College Nicky Buenger, Texas A&M University Anthony Buono, Bentley College William Chittenden, Texas Tech University M. Lou Cisneros, Austin Community College Karen Collins, Lehigh University Katherine Conway, Boro of Manhattan Community College Rex Cutshall, Vincennes University Dana D’Angelo, Drexel University John DeNisco, Buffalo State College Joyce Domke, DePaul University Michael Drafke, College of DuPage Thomas Enerva, Lakeland Community College Joe Farinella, DePaul University James Ferrell, R. G. Taylor, P.C. Jennifer Friestad, Anoka—Ramsey Community College Bob Grau, Cuyahoga Community College—Western Campus Jack K. Gray, Attorney-at-Law, Houston, Texas Catherine Green, University of Memphis Phil Greenwood, University of St. Thomas Michael Hartline, Florida State University Neil Herndon, University of Missouri James Hoffman, Borough of Manhattan Community College Joseph Hrebenak, Community College of Allegheny County— Allegheny Campus Stephen Huntley, Florida Community College Rebecca Hurtz, State Farm Insurance Co. Roger Hutt, Arizona State University—West Scott Inks, Ball State University Carol Jones, Cuyahoga Community College—Eastern Campus Gilbert “Joe” Joseph, University of Tampa Norm Karl, Johnson County Community College Janice Karlan, LaGuardia Community College Ina Midkiff Kennedy, Austin Community College Daniel LeClair, AACSB Frank Lembo, North Virginia Community College Richard Lewis, East Texas Baptist College Corinn Linton, Valencia Community College Corrine Livesay, Mississippi College Thomas Lloyd, Westmoreland Community College Terry Loe, Kennerow University Isabelle Maignan, ING
Debbie Thorne McAlister, Texas State University—San Marcos John McDonough, Menlo College Tom McInish, University of Memphis Noel McDeon, Florida Community College Glynna Morse, Augusta College Fred Nerone, International College of Naples Laura Nicholson, Northern Oklahoma College Stef Nicovich, University of New Hampshire Constantine G. Petrides, Borough of Manhattan Community College Stephen Pruitt, University of Missouri—Kansas City Charles Quinn, Austin Community College Victoria Rabb, College of the Desert Marsha Rule, Florida Public Utilities Commission Carol A. Rustad, Sylvan Learning Martin St. John, Westmoreland Community College Nick Sarantakes, Austin Community College Elise “Pookie” Sautter, New Mexico State University Dana Schubert, Colorado Springs Zoo Jeffery L. Seglin, Seglin Associates Daniel Sherrell, University of Memphis Nicholas Siropolis, Cuyahoga Community College Robyn Smith, Pouder Valley Hospital Wayne Taylor, Trinity Valley Community College Ray Tewell, American River College Jay Todes, Northlake College Amy Thomas, Roger Williams University Ted Valvoda, Lakeland Community College Sue Vondram, Loyola University Elizabeth Wark, Springfield College Emma Watson, Arizona State University—West Jerry E. Wheat, Indiana University Southeast Frederik Williams, North Texas State University Pat Wright, Texas A&M University Timothy Wright, Lakeland Community College
O.C. Ferrell Geoffrey Hirt Linda Ferrell – July 2004
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Authors O.C. Ferrell O.C. Ferrell is Chair of the Department of Marketing and the Ehrhardt, Keefe, Steiner, and Hottman P. C. Professor of Business Administration at Colorado State University. He also has held faculty positions at the University of Memphis, University of Tampa, Texas A&M University, Illinois State University, and Southern Illinois University, as well as visiting positions at Queen’s University (Ontario, Canada), University of Michigan (Ann Arbor), University of Wisconsin (Madison), and University of Hannover (Germany). He has served as a faculty member for the Master’s Degree Program in Marketing at Thammasat University (Bangkok, Thailand). Dr. Ferrell received his B.A. and M.B.A. from Florida State University and his Ph.D. from Louisiana State University. His teaching and research interests include business ethics, corporate citizenship, and marketing. Dr. Ferrell is widely recognized as a leading teacher and scholar in business. His articles have appeared in leading journals and trade publications. In addition to Business: A Changing World, he has two other textbooks, Marketing: Concepts and Strategies and Business Ethics: Ethical Decision Making and Cases, that are market leaders in their respective areas. He also has coauthored other textbooks for marketing, management, business and society, and other business courses, as well as a trade book on business ethics. He chaired the American Marketing Association (AMA) ethics committee that developed its current code of ethics. He was the vice president of marketing education and president of the Academic Council for the AMA. Dr. Ferrell’s major focus is teaching and preparing learning material for students. He has taught the introduction to business course at Colorado State University using this textbook. This gives him the opportunity to develop, improve, and test the book and ancillary materials on a first-hand basis. He has traveled extensively to work with students and understands the needs of instructors of introductory business courses. He lives in Fort Collins, Colorado, and enjoys skiing, golf, and international travel.
Geoffrey A. Hirt Geoffrey A. Hirt is currently Professor of Finance at DePaul University and a Mesirow Financial Fellow. From 1987 to 1997 he was Chairman of the Finance Department at DePaul University. He teaches investments, corporate finance, and strategic planning. He developed and was director of DePaul’s M.B.A. program in Hong Kong and has taught in Poland, Germany, Thailand, and Hong Kong. He received his Ph.D. in Finance from the University of Illinois at Champaign–Urbana, his M.B.A. from Miami University of Ohio, and his B.A. from Ohio-Wesleyan University. Dr. Hirt has directed the Chartered Financial Analysts Study program for the Investment Analysts Society of Chicago since 1987. Dr. Hirt has published several books, including Foundations of Financial Management published by Irwin/McGraw-Hill. Now in its tenth edition, this book is used at over 600 colleges and universities worldwide. It has been used in over 31 countries and has been translated into over 10 different languages. Additionally, Dr. Hirt is xxii
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AUTHORS
well-known for his text, Fundamentals of Investment Management, also published by Irwin/McGraw-Hill, and now in its seventh edition. He plays tennis and golf, is a music lover, and enjoys traveling with his wife, Linda.
Linda Ferrell Dr. Linda Ferrell is Assistant Professor in the Management & Marketing Department at the University of Wyoming. She completed her Ph.D. in Business Administration, with a concentration in management, at the University of Memphis. She has taught at the University of Tampa, Colorado State University, University of Northern Colorado, and the University of Memphis. She also team teaches a class at Thammasat University in Bangkok, Thailand. Her work experience as an account executive for McDonald’s and Pizza Hut’s advertising agencies supports her teaching of advertising, marketing management, marketing ethics and marketing principles. She has published in the Journal of Public Policy and Marketing, Journal of Business Research, Journal of Business Ethics, Journal of Marketing Education, Marketing Education Review, Journal of Teaching Business Ethics, Case Research Journal, and is co-author of Business Ethics: Ethical Decision Making and Cases (6th edition) and Business and Society (2nd edition). She is the ethics content expert for the AACSB Ethics Education Resource Center (www.aacsb.edu/eerc) and was co-chair of the 2004 AACSB Teaching Business Ethics Conference in Boulder, CO. Dr. Ferrell has served as Vice President of Development for the Academy of Marketing Science and is on the Board of Directors of the Marketing Management Association. She frequently speaks to organizations on “Teaching Business Ethics,” including the Direct Selling Education Foundation’s training programs and AACSB International Conferences. She has served as an expert witness in cases related to advertising, business ethics, and consumer protection.
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Brief Contents PART 1
Business in a Changing World
1
1 The Dynamics of Business and Economics 2 2 Business Ethics and Social Responsibility 30 Appendix A The Legal and Regulatory Environment 60 3 Business in a Borderless World 74 4 Managing Information Technology and E-Business 104 Part 1 Role-Play Exercise: National Farm and Garden, Inc. 132
PART 2
Starting and Growing a Business
133
5 Options for Organizing Business 134 6 Small Business, Entrepreneurship, and Franchising 162 Appendix B The Business Plan 188 Part 2 Role-Play Exercise: Human Response, Inc. 195
PART 3
Managing for Quality and Competitiveness
197
7 The Nature of Management 198 8 Organization, Teamwork, and Communication 226 9 Managing Service and Manufacturing Operations 254 Part 3 Role-Play Exercise: McDougal Aircraft Company 281
PART 4
Creating the Human Resource Advantage 10 Motivating the Workforce 284 11 Managing Human Resources 308 Appendix C Personal Career Plan 338 Part 4 Role-Play Exercise: eQuality Assured
PART 5
344
Marketing: Developing Relationships 12 Customer-Driven Marketing 346 13 Dimensions of Marketing Strategy 370 Part 5 Role-Play Exercise: RedRiverShops.com
PART 6
Financing the Enterprise
283
345
404
405
14 Money and the Financial System 406 15 Accounting and Financial Statements 432 16 Financial Management and Securities Markets 464 Part 4 Role-Play Exercise: Dana Fashion Designs, Inc. 491 Appendix D Personal Financial Planning 492 xxv
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Contents PART 1 Business in a Changing World CHAPTER 1 The Dynamics of Business and Economics
Introduction 4 The Nature of Business The Goal of Business
3
4
Enter the World of Business The Home Depot Helps Build Better Communities
4
The People and Activities of Business Why Study Business?
5
8
The Economic Foundations of Business Economic Systems
8
9 11
The Forces of Supply and Demand
The Nature of Competition
35
Consider Ethics and Responsibility Qwest Struggles with Legal Issues 40 Solve the Dilemma Customer Privacy 41
Solve the Dilemma 14 Consider Ethics and Responsibility Has Wal-Mart Become Too Powerful? 15 Mrs. Acres Homemade Pies
Making Decisions about Ethical Issues
41
Improving Ethical Behavior in Business
42
The Nature of Social Responsibility
16
Social Responsibility Issues
18
A Brief History of the American Economy The Role of the Entrepreneur
32
KFC Criticized for Promoting Health Benefits of Fried Chicken 38
14
Economic Cycles and Productivity
31
Consider Ethics and Responsibility 12
Responding to Business Challenges The Ups and Downs of Beef Prices 13
19
21
The Role of Government in the American Economy 22 The Role of Ethics and Social Responsibility in Business 23
Can You Learn Business in a Classroom? 24 Explore Your Career Options: Changes 24 Review Your Understanding 26 Revisit the World of Business 26 Learn the Terms 27 Check Your Progress 27 Get Involved 27 xxvi
Introduction 32 Business Ethics and Social Responsibility The Role of Ethics in Business 33 Recognizing Ethical Issues in Business
The Free-Enterprise System
The American Economy
2 CHAPTER 2 Business Ethics and Social Responsibility 30
Enter the World of Business Satellite Radio Offers More Choices
1
Build Your Skills: The Forces of Supply and Demand 27 e-Xtreme Surfing 28 See for Yourself Videocase: Starbucks 29
44
46
Explore Your Career Options: Business Ethics 54 Review Your Understanding 55 Revisit the World of Business 55 Learn the Terms 55 Check Your Progress 56 Get Involved 56 Build Your Skills: Making Decisions about Ethical Issues 56 e-Xtreme Surfing 57 See for Yourself Videocase: Money and Ethics 58 APPENDIX A: The Legal and Regulatory Environment 60
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CONTENTS
CHAPTER 3 Business in a Borderless World
Check Your Progress 99 Get Involved 100 Build Your Skills: Global Awareness 100 e-Xtreme Surfing 101 See for Yourself Videocase: BP Builds a Global Brand 101
74
Enter the World of Business 75
The Porsche Cayenne Becomes a Global Pacesetter
Introduction 76 The Role of International Business Why Nations Trade
78
CHAPTER 4 Managing Information Technology and E-Business 104
78
International Trade Barriers Economic Barriers
76
76
Trade between Countries Balance of Trade
79
79
Legal and Political Barriers
80
Social and Cultural Barriers
83
Enter the World of Business Reinventing Amazon.com 105 Introduction 106 The Impact of Technology on Our Lives Managing Information 108
Think Globally 85
Foreign Brands Challenge Coca-Cola and PepsiCo
Technological Barriers
86
Trade Agreements, Alliances, and Organizations General Agreement on Tariffs and Trade (GATT)
Global Expansion or Business as Usual?
The European Union (EU)
88
The Internet
90
112 112 114
Solve the Dilemma E-Business
91
Getting Involved in International Business Exporting and Importing
91
Licensing and Franchising
118
eBay Provides Opportunity for Small Business Entrepreneurs 119
92 93
Customer Relationship Management
94
Legal and Social Issues
Joint Ventures and Alliances
94
Privacy
Think Globally India: Beyond Outsourcing
Spam
95
120
121
122 123
Think Globally
95
Europe Takes the Lead in Privacy Protection
International Business Strategies Developing Strategies
115
Growing a Business
92
Contract Manufacturing
115
115
The Nature of E-Business E-Business Models
91
108
110
Developing Successful Freeware
International Monetary Fund
106
109
Emerging Technologies
89
90
Direct Investment
Collecting Data
Internet Uses
89
Asia-Pacific Economic Cooperation (APEC)
Outsourcing
Management Information Systems
Internet Users
Solve the Dilemma
Trading Companies
86
87
The North American Free Trade Agreement (NAFTA)
World Bank
xxvii
96
Identity Theft
96
Managing the Challenges of Global Business
Explore Your Career Options: Preparing for the Borderless World 97 Review Your Understanding 98 Revisit the World of Business 99 Learn the Terms 99
Intellectual Property and Copyrights 97
124
125
Taxing the Internet?
126
126
The Dynamic Nature of Information Technology and E-Business 126
Explore Your Career Options 127 Review Your Understanding 128 Revisit the World of Business 128
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CONTENTS
Learn the Terms 128 Check Your Progress 129 Get Involved 129 Build Your Skills: Planning a Web Site 129 e-Xtreme Surfing 130 See for Yourself Videocase: Google: The Search Engine Success Story 130 PART 1 ROLE-PLAY EXERCISE National Farm and Garden, Inc.
132
PART 2 Starting and Growing a Business 133 CHAPTER 5 Options for Organizing Business
134
Enter the World of Business 135
A Company of Companies: Zingerman’s Deli
Introduction 136 Sole Proprietorships
137
Advantages of Sole Proprietorships
137
Disadvantages of Sole Proprietorships 138
Partnerships
140
Types of Partnership
140
Articles of Partnership
140 141
Disadvantages of Partnerships
Corporations
142
Other Types of Ownership
150
152
152
169
170 171
171
Reputation
171
Disadvantages of Small-Business Ownership 171
151
To Incorporate or Not to Incorporate
Cooperatives
165
Growing a Business Burt’s Bees 170
Focus
149
Solve the Dilemma Limited Liability Companies
145
Flexibility
148
Disadvantages of Corporations
151
Introduction 164 The Nature of Entrepreneurship and Small Business 164
Costs
145
Advantages of Corporations
151
163
King’s Saddlery and King Ropes
Independence
144
Elements of a Corporation
S Corporations
Enter the World of Business
167
Advantages of Small-Business Ownership
The Longaberger Company Makes Baskets
Joint Ventures
CHAPTER 6 Small Business, Entrepreneurship, and Franchising 162
Industries That Attract Small Business
144
Responding to Business Challenges Types of Corporations
Trends in Business Ownership: Mergers and Acquisitions 153 Explore Your Career Options: Evaluating a Job Offer 155 Review Your Understanding 156 Revisit the World of Business 157 Learn the Terms 157 Check Your Progress 157 Get Involved 158 Build Your Skills: Selecting a Form of Business 158 e-Xtreme Surfing 159 See for Yourself Videocase: United Files for Bankruptcy 159
The Role of Small Business in the American Economy 165
144
Creating a Corporation
Heartland Farm Foods Co-op Helps Preserve Beef— and a Way of Life 153
What Is a Small Business?
Advantages of Partnerships Taxation of Partnerships
Enhancing Business Productivity
152
High Stress Level
172
High Failure Rate
172
Starting a Small Business The Business Plan
174
174
Forms of Business Ownership
175
169
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CONTENTS Financial Resources
175
Types of Management
Solve the Dilemma The Small-Business Challenge
176
Approaches to Starting a Small Business Help for Small-Business Managers
176
179
Growing a Business The Future for Small Business Demographic Trends
182
Making Big Businesses Act “Small” 183 Explore Your Career Options: Look to Small Business 183 Review Your Understanding 184 Revisit the World of Business 184 Learn the Terms 185 Check Your Progress 185 Get Involved 185 Build Your Skills: Creativity 185 e-Xtreme Surfing 186 See for Yourself Videocase: Dale Gray and Communication Services, Inc. 187 APPENDIX B: The Business Plan
188
PART 2 ROLE-PLAY EXERCISE Human Response, Inc. 195
PART 3 Managing for Quality and Competitiveness 197 CHAPTER 7 The Nature of Management
198
Enter the World of Business 199
Introduction 200 The Importance of Management Management Functions 201 201
Organizing Staffing
204
204
Directing Controlling
205 206
210
Skills Needed by Managers
212
213
Technical Expertise
Technological and Economic Trends
Planning
Areas of Management
Leadership at General Motors Provides Competitive Advantage 214
181
Managing the State of California
207
Enhancing Business Productivity
180 181
Opening a Ben & Jerry’s Franchise
207
Levels of Management
Leadership
xxix
200
Conceptual Skills Analytical Skills
215 215
215
Human Relations Skills
216
Where Do Managers Come From? Decision Making 217
216
Recognizing and Defining the Decision Situation
217
Responding to Business Challenges Building an Airline with Good Decisions
Developing Options Analyzing Options
218
219 219
Selecting the Best Option
219
Implementing the Decision
219
Solve the Dilemma Making Infinity Computers Competitive
Monitoring the Consequences
220
220
The Reality of Management 220 Explore Your Career Options: Management Is Alive and Well 221 Review Your Understanding 222 Revisit the World of Business 222 Learn the Terms 223 Check Your Progress 223 Get Involved 223 Build Your Skills: Functions of Management 223 e-Xtreme Surfing 224 See for Yourself Videocase: Carly Fiorina: The Most Powerful Woman in Business 225
CHAPTER 8 Organization, Teamwork, and Communication 226 Enter the World of Business NASA Looks Inward Before Going Back to the Stars
Introduction 228 Organizational Culture
228
227
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CONTENTS
Consider Ethics and Responsibility Lessons from the WorldCom Scandal 230 Developing Organizational Structure 230 Assigning Tasks 232 Specialization
Introduction 256 The Nature of Operations Management The Transformation Process
Operations Management in Service Businesses
232
Departmentalization
Planning and Designing Operations Systems 233
Assigning Responsibility
Planning the Product
236
Delegation of Authority
236
Span of Management
238
Organizational Layers
238
Forms of Organizational Structure
Planning Capacity
263
Planning Facilities
263
Solve the Dilemma Planning for Pizza 266 Managing the Supply Chain
239
239
Purchasing
262
267
267
Line-and-Staff Structure
239
Growing a Business
Multidivisional Structure
240
Coal Creek Coffee Company Supplies the Best
Matrix Structure
Managing Inventory
241
The Role of Groups and Teams in Organizations Committees
243
Task Forces
244
Teams
242
Formal Communication
268
Ensenda Outsources Same-Day Delivery
Managing Quality
Sampling
246
Informal Communication Channels Monitoring Communications
248
248
Explore Your Career Options: Flexibility First! Review Your Understanding 249 Revisit the World of Business 250 Learn the Terms 250 Check Your Progress 250 Get Involved 251 Build Your Skills: Teamwork 251 e-Xtreme Surfing 252 See for Yourself Videocase: Lee Van Arsdale and the Delta Force Illustrate the Need for Teamwork and Communication 252
249
272 274
275 275
Explore Your Career Options: A Future in Quality Assurance 276 Review Your Understanding 276 Revisit the World of Business 277 Learn the Terms 277 Check Your Progress 277 Get Involved 278 Build Your Skills: Reducing Cycle Time 278 e-Xtreme Surfing 279 See for Yourself Videocase: New Belgium Achieves Efficiency with Social Responsibility 279 PART 3 ROLE-PLAYEXERCISE McDougal Aircraft Company 281
PART 4 Creating the Human Resource Advantage 283
CHAPTER 9 Managing Service and Manufacturing Operations 254 Enter the World of Business Designing Products for a Better Customer Experience
271
Establishing Standards—ISO 9000 Inspection
270
270
Routing and Scheduling
Enhancing Business Productivity War Games to Learn TLC 245 Solve the Dilemma Quest Star in Transition 246 Communicating in Organizations 246
268
Enhancing Business Productivity Outsourcing
244
255
258
261
261
Designing the Operations Processes
236
Degree of Centralization
Line Structure
257
257
CHAPTER 10 Motivating the Workforce
284
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Enter the World of Business
Planning for Human Resources Needs 311 Recruiting and Selecting New Employees 311
285
SAS Makes Work Fun and Rewarding
Introduction 286 Nature of Human Relations 286 Historical Perspectives on Employee Motivation Classical Theory of Motivation
Recruiting Selection
288
288
Enhancing Business Productivity
Turnover
290 291
Herzberg’s Two-Factor Theory
293
Benefits
296 297
322
323
Collective Bargaining
297
Resolving Disputes
298
326 326
The Importance of Workforce Diversity
298
The Characteristics of Diversity
Solve the Dilemma Motivating to Win 300
Why Is Diversity Important?
Importance of Motivational Strategies
301
308
Enter the World of Business The Apprentice: A Novel Approach to Hiring an Employee
Introduction 310 The Nature of Human Resources Management
309
310
Affirmative Action
328
328
329
The Benefits of Workforce Diversity
Explore Your Career Options: Rating Metropolitan Areas 302 Review Your Understanding 302 Revisit the World of Business 303 Learn the Terms 303 Check Your Progress 303 Get Involved 304 Build Your Skills: Motivating 305 e-Xtreme Surfing 305 See for Yourself Videocase: The Container Store 305
CHAPTER 11 Managing Human Resources
321
Enhancing Business Productivity Pet Perks 325 Managing Unionized Employees 325
295
Strategies for Motivating Employees Job Design
Morale among the Survivors
294
295
Behavior Modification
318
Solve the Dilemma
McGregor’s Theory X and Theory Y
Expectancy Theory
316 316
Financial Compensation
Enhancing Business Productivity Bringing Home the Bacon 294
Equity Theory
315
Responding to Business Challenges IBM Shrinks Its Workforce 320 Compensating the Workforce 320
291
Maslow’s Hierarchy of Needs
Variations on Theory Z
312
Legal Issues in Recruiting and Selecting Developing the Workforce 316 Assessing Performance
Theories of Employee Motivation
Theory Z
311
Training and Development
Yum Brands Recognizes Employees for Going the Extra Mile 289
The Hawthorne Studies
xxxi
330
331
Explore Your Career Options: How Much Does It Pay? 332 Review Your Understanding 332 Revisit the World of Business 333 Learn the Terms 333 Check Your Progress 334 Get Involved 334 Build Your Skills: Appreciating and Valuing Diversity 334 e-Xtreme Surfing 336 See for Yourself Videocase: Hillerich & Bradsby Company: Makers of the Louisville Slugger 336 APPENDIX C: Personal Career Plan PART 4 ROLE-PLAY EXERCISE eQuality Assured 344
338
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CONTENTS
PART 5 Marketing: Developing Relationships 345
CHAPTER 13 Dimensions of Marketing Strategy
CHAPTER 12 Customer-Driven Marketing
Introduction 372 The Marketing Mix 372 Product Strategy 373
Enter the World of Business Turkey & Gravy Brings Attention to Small Bottler
346
Enter the World of Business Apple Takes a Bite out of the Music Industry
Introduction 348 Nature of Marketing
347
Developing New Products Classifying Products
348 349
Functions of Marketing
349
The Marketing Concept
350
Product Life Cycle
376
Pricing Strategy
Developing a Marketing Strategy Selecting a Target Market Developing a Marketing Mix
352
353
Marketing Research and Information Systems Embrace Technology Look-Look.com 360 Solve the Dilemma Will It Go? 362 Buying Behavior 362 Social Variables of Buying Behavior Understanding Buying Behavior
384
Specific Pricing Strategies
357
Psychological Variables of Buying Behavior
379
383
Pricing Objectives
354
359
362
363
364
The Marketing Environment 364 Responding to Business Challenges Low-Carb Diets Create Opportunities and Threats for the Food Industry 365
Explore Your Career Options: Customer Service in a Service Economy 366 Review Your Understanding 366 Revisit the World of Business 367 Learn the Terms 367 Check Your Progress 367 Get Involved 367 Build Your Skills: The Marketing Mix 368 e-Xtreme Surfing 368 See for Yourself Videocase: Fishing for Success: The Pike Place Fish Market 369
377
377
Identifying Products
Evolution of the Marketing Concept
371
373
Product Line and Product Mix
The Exchange Relationship
370
Distribution Strategy
385
Marketing Channels
385
384
Responding to Business Challenges Changes in American Eating Habits Create Opportunities for Retailers 386
Intensity of Market Coverage Physical Distribution
389
390
Solve the Dilemma Better Health with Snacks
391
Importance of Distribution in a Marketing Strategy 391
Promotion Strategy The Promotion Mix
391 392
Responding to Business Challenges The Perils of Using Celebrities in Advertising
Promotion Strategies: To Push or To Pull Objectives of Promotion
398
Promotional Positioning
399
394 397
Explore Your Career Options: Diverse Opportunities in Marketing 399 Review Your Understanding 399 Revisit the World of Business 400 Learn the Terms 400 Check Your Progress 401 Get Involved 401 Build Your Skills: Analyzing Motel 6‘s Strategy 401
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e-Xtreme Surfing 402 See for Yourself Videocase: Hotel Monaco
402
PART 5 ROLE-PLAY EXERCISE RedRiverShops.com 404
The Public Company Accounting Oversight Board
CHAPTER 14 Money and the Financial System Enter the World of Business The Iraqi Dinar in Crisis 407 Introduction 408 Money in the Financial System
Types of Money
405 406
The Accounting Equation The Accounting Cycle
Financial Statements
413 The American Financial System 414 Check Cashing for the Unbanked
415
441 441
442
444
The Income Statement The Balance Sheet
444
448
The Statement of Cash Flow
450
Ratio Analysis: Analyzing Financial Statements 454
418
Profitability Ratios
Embrace Technology Nonbanking Institutions
437
440 440
Double-Entry Bookkeeping
ING Direct Wants to Be Your Bank
437
The Uses of Accounting Information
The Accounting Process 408
411
455
Asset Utilization Ratios
420
Liquidity Ratios
421
455
456
Solve the Dilemma
Solve the Dilemma Seeing the Financial Side of Business
Electronic Banking
435
Accounting or Bookkeeping?
Parmalat: An “Italian Enron”?
Embrace Technology
Banking Institutions
433
Think Globally
409
The Federal Reserve System
432
Introduction 434 The Nature of Accounting 434 Consider Ethics and Responsibility Lessons from the Enron Scandal 435 Accountants
409
Characteristics of Money
CHAPTER 15 Accounting and Financial Statements Enter the World of Business
PART 6 Financing the Enterprise
Functions of Money
xxxiii
422
424
Challenge and Change in the Commercial Banking Industry 426
Explore Your Career Options: What Do Economists Do? 427 Review Your Understanding 427 Revisit the World of Business 428 Learn the Terms 428 Check Your Progress 428 Get Involved 429 Build Your Skills: Managing Money 429 e-Xtreme Surfing 429 See for Yourself Videocase: Bank One: Keeping Up With Global Trends 430
Exploring the Secrets of Accounting
Debt Utilization Ratios Per Share Data Industry Analysis
457
457
458 458
Explore Your Career Options: More Power to the Accountants 459 Review Your Understanding 459 Revisit the World of Business 460 Learn the Terms 460 Check Your Progress 461 Get Involved 461 Build Your Skills: Financial Analysis 461 e-Xtreme Surfing 462 See for Yourself Videocase: AON Manages a Diverse Array of Goods and Services 462
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CHAPTER 16 Financial Management and Securities Markets 464
Investment Banking 479 The Securities Markets 480
Enter the World of Business
Embrace Technology
Hershey Foods Corporation Stock Provides a Social Contribution 465
Google’s Dutch Auction
Introduction 466 Managing Current Assets and Liabilities Enhancing Business Productivity
466 467
467
Managing Current Liabilities
Managing Fixed Assets
470
472
Capital Budgeting and Project Selection Assessing Risk
473
473
Pricing Long-Term Money
474
Solve the Dilemma 475 Financing with Long-Term Liabilities
Surviving Rapid Growth
Bonds: Corporate IOUs Types of Bonds
476
482
The Over-the-Counter Market
482
475
483
Explore Your Career Options: Financial Management 485 Review Your Understanding 486 Revisit the World of Business 486 Learn the Terms 487 Check Your Progress 487 Get Involved 487 Build Your Skills: Choosing among Projects 487 e-Xtreme Surfing 488 See for Yourself Videocase: The New York Stock Exchange Undergoes Governance Reform 489 PART 6 ROLE-PLAY EXERCISE Dana Fashion Designs, Inc. 491
477
Financing with Owners’ Equity
481
Measuring Market Performance
Working Capital Problems in a Small Business
Managing Current Assets
Organized Exchanges
477
APPENDIX D: Personal Financial Planning
492