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Business

A Changing World

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 Bogot Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

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. ManagementUnited States. I. Hirt, Geoffrey A. II. Ferrell, Linda. III. Title. HF 1008.F47 2006 650--dc22 2004042321

www.mhhe.com

To Kathlene Ferrell To Linda Hirt To Norlan and Phyllis Nafziger

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 booksthe 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 McDonalds 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 each part. With her Ph.D. in management from the University of Memphis, she complements the author team in content specialization.

ground up
vi

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 Googles 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 weve 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.
vii

O.C., Geoff, Linda

Created from the ground up,


The best selling paperback text on the market, Business: A Changing World was built from the ground upthat 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; theyre 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 bookand the best value availablein 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

Because it isnt 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 Googles 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.

viii

Just Enough of a Good Thing

Its 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 instructors 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 Instructors Manual, even for each text parts roleplaying exercises. Furthermore, the new Active Classroom Resource Manual is loaded with additional team projects, cases, and exercises.

Theres much more to Business: A Changing World, and much more it can do for your course. To learn about Ferrells great pedagogical features and top-notch ancillaries, keep reading.

not ground down

ix

Getting a Handle on Business


Business: A Changing Worlds
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
These provide a useful overview of all the topics covered in the chapter, giving students a sneak preview of what theyll be learning. Special expanded outlines are available on the books Online Learning Center (see page xvii).

Introduction Organizational Culture Developing Organizational Structure Assigning Tasks


Specialization Departmentalization

Organization, Teamwork, and Communication


OBJECTIVES
After reading this chapter, you will be able to:

Assigning Responsibility
Delegation of Authority Degree of Centralization Span of Managment Organizational Layers

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

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:

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 theyve properly learned and retained the material.

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. Analyze a businesss use of teams.

Chapter 8
CHAPTER OUTLINE
Introduction Organizational Culture Developing Organizational Structure Assigning Tasks
Specialization Departmentalization

NASA Looks Inward Before Going Back to the Stars

Organization, Teamwork, and Communication


OBJECTIVES
After reading this chapter, you will be able to:

Enter the World of Business

Assigning Responsibility
Delegation of Authority Degree of Centralization Span of Managment Organizational Layers

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. Analyze a businesss use of teams.

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 agencys values and culture might have played. The consulting firm found that the agencys 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 wont speak up. They were afraid of being rendered ineffective, which at NASA is the equivalent of being fired. A survey of NASAs 19,000 employees found many who shared that view.
continued

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 theyve gained from reading the chapter.

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

Communicating in Organizations
Formal Communication Informal Communication Channels Monitoring Communication

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 plants 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.

Solve the Dilemma


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

xi

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.

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.

CHAPTER 2

The Dynamics of Business and Economics

Embrace Technology
xii

Growing a Business
1 2 3

Growing a Business

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 thats vital to everyone at all levels of business.

xiii

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

55

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 individuals 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.

56

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 Debate an organizations alwaysresponsibilities to social illegal? owners, employees, consumers, the environment, and social 2. Distinguish between ethics and the community. responsibility. 3. Why has ethics become proceBusinesses must maintain proper accountingso important in business? dures, provide all relevant information about the What are some of the 4. What is an ethical issue? performance of the firm to investors, issues named in your text? Why are they ethical and protect the owners rights and investments.ethical issues? with employees, In relations businesses are expected to provide a of ethics? How can one reduce 5. What is a code safe workplace, pay employees adequately for their work, andbusiness? unethical behavior in treat them 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, and noise pollution. Many busi- businesses 1. Discuss some recent examples of nesses engage in activities to makeunethical practices. Classify these engaging in the communities in which they operate better places for everyone conflict of interest, fairness practices as issues of to live and work. and honesty, communications, or business relationships. Why do you think the businesses Evaluate the ethics of a businesssbehave unethically? What actions might the chose to decision. The Solve the Dilemma businesses have taken? an ethibox on page 41 presents cal dilemma at Checkers Pizza. Using theclass some possible methods of 2. Discuss with your material presented in this chapter, you should be able standards in business. Do you think improving ethical to analyze the ethical issues present in that dilemma, evaluate Barnards own activities or the business should regulate its plan, and develop a course of action for the firm.

Check Your Progress

Get Involved

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 several months now, some responsible businesses to minimize the negative one of your colleagues has the job. Another friend encourages you to confront the impact of their activities on thebeen slacking off, and you are getting stuck doing the environment? person instead of informing the supervisor. What do work. You think it is unfair. What do you do? 9. What are a businesss 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 and that the federal government should establishto solve the problem without involving 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

Build Your Skills

Revisit the World of Business


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?

MAKING DECISIONS ABOUT ETHICAL ISSUES

Learn the Terms


bribes 36 business ethics 32 codes of ethics 42

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 industryan 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 prepared for your companys employees, is also which was 40 corporate citizenship 45 social responsibility 32 including Harvard University, and played 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

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 cant 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 ethics or human resources D. You contact your D. You mention this to your supervisor. group leader who will lead a discussion of the case, obtain ask him or her to handle the representative and a consensus answer to the case, and be situation. report the one to the groups 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 groups 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, Transparency International Provides a listing of the most corrupt countries in the world. some cases have only one solution, while others have more than one solution. Each choice is www.transparency.org assessed points to

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 dont 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?

eXtreme Surfing

reflect which answer is the most correct. Your groups task Responsibility Business for Social is to select only one option in each case. www.bsr.org E-Ethics Center www.e-businessethics.com Bureau of Consumer Protection www.ftc.gov/bcp/bcp.htm

Offers news and resources about social responsibility in business today as part of a membership organization of global corporations. Provides a wealth of information about business ethics, corporate citizenship, organizational compliance, and related topics. 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. Explain the marketing concept and its implications for developing marketing strategies. 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. 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. 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. Summarize the environmental forces that influence marketing decisions.

Review Your Understanding


Are your students sometimes unsure whether theyve properly absorbed the chapter material? This feature resummarizes the chapter objectives, leaving students in no doubt of what theyre expected to remember.

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 firms 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 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

xiv

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


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

Build Your Skills


These activities are designed to be carried out in teams, giving you a launching pad for a lively inclass discussion.

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 books Online Learning Center (see pages xvixvii).
CHAPTER 12

e-Xtreme Surfing
Provides information about th companies improve commun
Offers information from the A legislation regulating electro
Presents the organizational c

Leading Concepts www.leadingconcepts.com/

Model Electronic Privacy Act http://archive.aclu.org/issues/ worker/legkit2.html


NASAs organizational chart www.hq.nasa.gov/hq/orgchart.htm

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 yearthe 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, cafs, 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 Ulis Famous Sausage which produces 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 mers. 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 companys 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 environeQuality 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

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.

xv

Instructors Supplements
Instructors Resource CD-ROM
Everything you need to get the most from your textbook, including:

Instructors 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 Instructors Manual, Solutions, PowerPointTM, and sample syllabi are now just a couple of clicks away; youll 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/Irwins 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. Thats why we offer an Online Learning Center (OLC) that follows Business: A Changing World chapter by chapter. It doesnt 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 todays 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.

xvii

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. Its 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 attentioneven if they dont ask for help. Thats 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 Worlds 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/Irwins course management supplements, including PageOut, Instructor Advantage, and Knowledge Gateway, see Knowledge Gateway on the next page.

xviii

Managing an Online Course


Knowledge Gateway
mhhe.eduprise.com/home.nsf
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 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 onlineand its only available through McGraw-Hill. To learn how these platforms can assist your online course, contact your McGraw-Hill/Irwin representative.

PageOut
PageOut is McGraw-Hill/Irwins 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, well be happy to work with your ideas. If you want a custom site but dont 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.

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. Thats 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).
James Bartlett University of Illinois Stephanie Bibb Chicago State University Alka Bramhandkar Ithaca College Michael Cicero Highline Community College Debbie Collins Anne Arundel Community CollegeArnold Laurie Dahlin Worcester State College Tom Diamante Adelphi University John Eagan Erie Community College/City Campus SUNY Robert Ericksen Craven Community College Art Fischer Pittsburg State University Toni Forcino Montgomery CollegeGermantown Chris Gilbert Tacoma Community College/University of Washington Ross Gittell University of New Hampshire Gary Grau Northeast State Tech Community College Claudia Green Pace University David Gribbin East Georgia College Peggy Hager Winthrop University Verne Ingram Red Rocks Community College Steven Jennings Highland Community College Eileen Kearney Montgomery County Community College Craig Kelley California State UniversitySacramento Arbrie King Baton Rouge Community College John Knappenberger Mesa State College Anthony Koh University of Toledo Dorinda Lynn Pensacola Junior College Larry Martin Community College of Southern Nevada West Charles Kristina Mazurak Albertson College of Idaho Mary Meredith University of Louisiana at Lafayette Michelle Meyer Joliet Junior College Fred Nerone International CollegeNaples Michael Nugent SUNYStony Brook University New York Wes Payne Southwest Tennessee Community College

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. Wed like to express our thanks to the reviewers who helped us shape the fifth edition:

Dyan Pease Sacramento City College John Pharr Cedar Valley College Shirley Polejewski University of St. Thomas Daniel Powroznik Chesapeake College Krista Price Heald College Larry Prober Rider University Kathy Pullins Columbus State Community College Tom Reading Ivy Tech State College Susan Roach Georgia Southern University Dave Robinson University of CaliforniaBerkely Marianne Sebok Community College of Southern Nevada West Charles Cheryl Stansfield North Hennepin Community College Ron Stolle Kent State UniversityKent Jeff Strom Virginia Western Community College Cheryl Stansfield North Hennepin Community College Steve Tilley Gainesville College Lawrence Yax Pensacola Junior CollegeWarrington

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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 DAngelo, 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, AnokaRamsey Community College Bob Grau, Cuyahoga Community CollegeWestern 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 UniversityWest Scott Inks, Ball State University Carol Jones, Cuyahoga Community CollegeEastern 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 UniversitySan 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 MissouriKansas 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 UniversityWest 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

xxi

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 Queens 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 Masters 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. Ferrells 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 DePauls 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 ChampaignUrbana, 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

AUTHORS

xxiii

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 McDonalds and Pizza Huts 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 Foundations training programs and AACSB International Conferences. She has served as an expert witness in cases related to advertising, business ethics, and consumer protection.

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 283


10 Motivating the Workforce 284 11 Managing Human Resources 308 Appendix C Personal Career Plan 338 Part 4 Role-Play Exercise: eQuality Assured

344

PART 5

Marketing: Developing Relationships


12 Customer-Driven Marketing 346 13 Dimensions of Marketing Strategy 370 Part 5 Role-Play Exercise: RedRiverShops.com 404

345

PART 6

Financing the Enterprise

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

Contents
PART 1 Business in a Changing World
CHAPTER 1 The Dynamics of Business and Economics
Enter the World of Business
Satellite Radio Offers More Choices

1
2

Build Your Skills: The Forces of Supply and Demand 27 e-Xtreme Surfing 28 See for Yourself Videocase: Starbucks 29

Introduction 4 The Nature of Business


The Goal of Business Why Study Business? Economic Systems 9 4

CHAPTER 2 Business Ethics and Social Responsibility 30


Enter the World of Business
The Home Depot Helps Build Better Communities

4
5

31

The People and Activities of Business 8

The Economic Foundations of Business


The Free-Enterprise System 11 12

Introduction 32 Business Ethics and Social Responsibility The Role of Ethics in Business 33
Recognizing Ethical Issues in Business 35

32

Consider Ethics and Responsibility


KFC Criticized for Promoting Health Benefits of Fried Chicken 38

The Forces of Supply and Demand

Responding to Business Challenges The Ups and Downs of Beef Prices 13


The Nature of Competition 14

Solve the Dilemma 14 Consider Ethics and Responsibility Has Wal-Mart Become Too Powerful? 15
Mrs. Acres Homemade Pies

Consider Ethics and Responsibility Qwest Struggles with Legal Issues 40 Solve the Dilemma Customer Privacy 41
Making Decisions about Ethical Issues Improving Ethical Behavior in Business 41 42

Economic Cycles and Productivity

16 19

The Nature of Social Responsibility


Social Responsibility Issues 46

44

The American Economy

18
21

A Brief History of the American Economy The Role of the Entrepreneur 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
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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

CONTENTS

xxvii

CHAPTER 3 Business in a Borderless World 74


Enter the World of Business
The Porsche Cayenne Becomes a Global Pacesetter

75

Introduction 76 The Role of International Business


Why Nations Trade Balance of Trade Economic Barriers 76 78 78 Trade between Countries

76

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

International Trade Barriers


79 Legal and Political Barriers Social and Cultural Barriers

79
80 83

CHAPTER 4 Managing Information Technology and E-Business 104


Enter the World of Business Reinventing Amazon.com 105 Introduction 106 The Impact of Technology on Our Lives Managing Information 108 86
88 Management Information Systems Collecting Data 109 112 112 114 108

Think Globally
Foreign Brands Challenge Coca-Cola and PepsiCo

85

106

Technological Barriers

86 87

Trade Agreements, Alliances, and Organizations


General Agreement on Tariffs and Trade (GATT) The North American Free Trade Agreement (NAFTA)

The Internet

110

Solve the Dilemma


Global Expansion or Business as Usual?

Internet Users

89
90

Internet Uses

The European Union (EU) World Bank 90

89

Emerging Technologies

Asia-Pacific Economic Cooperation (APEC) International Monetary Fund Exporting and Importing Trading Companies 92 92 93 94 Licensing and Franchising Contract Manufacturing Outsourcing 94 91 91

Solve the Dilemma


Developing Successful Freeware

115

E-Business 91

115
115 118

Getting Involved in International Business

The Nature of E-Business E-Business Models

Growing a Business
eBay Provides Opportunity for Small Business Entrepreneurs 119

Customer Relationship Management

120

Legal and Social Issues


Privacy Spam 122 123

121

Joint Ventures and Alliances

Think Globally
India: Beyond Outsourcing

95 96

Direct Investment

95 96

Think Globally
Europe Takes the Lead in Privacy Protection

124

International Business Strategies


Developing Strategies

Identity Theft

125 126 126

Intellectual Property and Copyrights Taxing the Internet?

Managing the Challenges of Global Business 97

Explore Your Career Options: Preparing for the Borderless World 97 Review Your Understanding 98 Revisit the World of Business 99 Learn the Terms 99

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

xxviii

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

Enhancing Business Productivity


Heartland Farm Foods Co-op Helps Preserve Beef and a Way of Life 153

PART 2 Starting and Growing a Business 133


CHAPTER 5 Options for Organizing Business
Enter the World of Business
A Company of Companies: Zingermans Deli

134
135

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

Introduction 136 Sole Proprietorships

CHAPTER 6 Small Business, Entrepreneurship, and Franchising 162


Enter the World of Business
Kings Saddlery and King Ropes

137
137

Advantages of Sole Proprietorships

163

Disadvantages of Sole Proprietorships 138

Partnerships

140
140 140 141 142

Types of Partnership Articles of Partnership

Introduction 164 The Nature of Entrepreneurship and Small Business 164


What Is a Small Business? 165 The Role of Small Business in the American Economy 165 Industries That Attract Small Business Independence 169 167

Advantages of Partnerships Taxation of Partnerships 144 144

Disadvantages of Partnerships

Corporations

144

Advantages of Small-Business Ownership Growing a Business Burts Bees 170


Costs 148 149 150 Focus 170 171 171 171 Flexibility Reputation

169

Creating a Corporation

Responding to Business Challenges


The Longaberger Company Makes Baskets

145

Types of Corporations

145

Elements of a Corporation Advantages of Corporations

Disadvantages of Corporations

Other Types of Ownership


Joint Ventures S Corporations 151 151

151

Disadvantages of Small-Business Ownership 171


High Stress Level High Failure Rate 172 172

Solve the Dilemma


To Incorporate or Not to Incorporate

152

Starting a Small Business


The Business Plan 174

174
175

Limited Liability Companies Cooperatives 152

152

Forms of Business Ownership

CONTENTS Financial Resources 175

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Types of Management
Levels of Management

207
207 210

Solve the Dilemma


The Small-Business Challenge

176
179

Areas of Management Leadership 213

Approaches to Starting a Small Business 176 Help for Small-Business Managers

Skills Needed by Managers

212

Growing a Business
Opening a Ben & Jerrys Franchise

The Future for Small Business


Demographic Trends 181

180 181

Enhancing Business Productivity


Leadership at General Motors Provides Competitive Advantage 214

Technical Expertise Conceptual Skills Analytical Skills 215

215 215 216

Technological and Economic 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 PART 2 ROLE-PLAY EXERCISE Human Response, Inc. 195 188

Human Relations Skills

Where Do Managers Come From? Decision Making 217 Responding to Business Challenges
Building an Airline with Good Decisions

216
217

Recognizing and Defining the Decision Situation

218

Developing Options Analyzing Options

219 219 219 219

Selecting the Best Option Implementing the Decision

Solve the Dilemma


Making Infinity Computers Competitive

220

Monitoring the Consequences

220

PART 3 Managing for Quality and Competitiveness 197


CHAPTER 7 The Nature of Management
Enter the World of Business
Managing the State of California

198
199 200

Introduction 200 The Importance of Management Management Functions 201


Planning Organizing Staffing Directing Controlling 201 204 205 206 204

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

227

Introduction 228 Organizational Culture

228

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CONTENTS

Consider Ethics and Responsibility Lessons from the WorldCom Scandal 230 Developing Organizational Structure 230 Assigning Tasks 232
Specialization 232 233 Departmentalization

Introduction 256 The Nature of Operations Management


The Transformation Process 257

257
258

Operations Management in Service Businesses

Planning and Designing Operations Systems


Planning the Product 261 262

261

Assigning Responsibility
Delegation of Authority Degree of Centralization Span of Management Organizational Layers Line Structure 239

236
236 236 238 238

Designing the Operations Processes Planning Capacity Planning Facilities 263 263

Forms of Organizational Structure


Line-and-Staff Structure Multidivisional Structure Matrix Structure Committees Task Forces Teams 244 243 244 241 239 240

239

Solve the Dilemma Planning for Pizza 266 Managing the Supply Chain
Purchasing 267

267

Growing a Business
Coal Creek Coffee Company Supplies the Best

268

Managing Inventory

268

The Role of Groups and Teams in Organizations

242

Enhancing Business Productivity


Ensenda Outsources Same-Day Delivery

270

Outsourcing

270 271 274

Routing and Scheduling

Enhancing Business Productivity War Games to Learn TLC 245 Solve the Dilemma Quest Star in Transition 246 Communicating in Organizations 246
Formal Communication 246 248 248 Informal Communication Channels Monitoring Communications

Managing Quality
Inspection Sampling 275 275

272

Establishing StandardsISO 9000

Explore Your Career Options: Flexibility First! 249 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

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

CHAPTER 9 Managing Service and Manufacturing Operations 254


Enter the World of Business
Designing Products for a Better Customer Experience

PART 4 Creating the Human Resource Advantage 283


255

CHAPTER 10 Motivating the Workforce

284

CONTENTS

xxxi

Enter the World of Business


SAS Makes Work Fun and Rewarding

285

Planning for Human Resources Needs 311 Recruiting and Selecting New Employees 311
Recruiting Selection 311 312

Introduction 286 Nature of Human Relations 286 Historical Perspectives on Employee Motivation
Classical Theory of Motivation
Yum Brands Recognizes Employees for Going the Extra Mile 289

288

288

Legal Issues in Recruiting and Selecting Developing the Workforce 316


Training and Development Assessing Performance Turnover 318 316 316

315

Enhancing Business Productivity

The Hawthorne Studies

290

Theories of Employee Motivation


Maslows Hierarchy of Needs Herzbergs Two-Factor Theory 291

291

293

Responding to Business Challenges IBM Shrinks Its Workforce 320 Compensating the Workforce 320
Financial Compensation 321

Enhancing Business Productivity Bringing Home the Bacon 294


McGregors Theory X and Theory Y Theory Z 295 295 296 297 Variations on Theory Z Equity Theory Expectancy Theory 294

Solve the Dilemma


Morale among the Survivors

322

Benefits

323

Enhancing Business Productivity Pet Perks 325 Managing Unionized Employees 325
Collective Bargaining 326 326

Strategies for Motivating Employees


Behavior Modification Job Design 298 298

297

Resolving Disputes

The Importance of Workforce Diversity


The Characteristics of Diversity Why Is Diversity Important? Affirmative Action 331 329 330 328

328

Solve the Dilemma Motivating to Win 300


Importance of Motivational Strategies 301

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


Enter the World of Business

308
309

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

The Apprentice: A Novel Approach to Hiring an Employee

Introduction 310 The Nature of Human Resources Management

310

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CONTENTS

PART 5 Marketing: Developing Relationships 345


CHAPTER 12 Customer-Driven Marketing
Enter the World of Business
Apple Takes a Bite out of the Music Industry

CHAPTER 13 Dimensions of Marketing Strategy


Enter the World of Business

370
371

Turkey & Gravy Brings Attention to Small Bottler

346
347

Introduction 372 The Marketing Mix 372 Product Strategy 373


Developing New Products Classifying Products 376 377 377 379 384 384 373

Introduction 348 Nature of Marketing

348
349 349 350 352

Product Line and Product Mix Product Life Cycle Identifying Products

The Exchange Relationship Functions of Marketing The Marketing Concept

Pricing Strategy 353

383

Evolution of the Marketing Concept

Pricing Objectives

Developing a Marketing Strategy


Selecting a Target Market Developing a Marketing Mix 354 357

Specific Pricing Strategies

Distribution Strategy
Marketing Channels

385
385

Marketing Research and Information Systems Embrace Technology Look-Look.com 360 Solve the Dilemma Will It Go? 362 Buying Behavior 362
Psychological Variables of Buying Behavior Social Variables of Buying Behavior Understanding Buying Behavior 364 363 362

359

Responding to Business Challenges


Changes in American Eating Habits Create Opportunities for Retailers 386

Intensity of Market Coverage Physical Distribution 390

389

Solve the Dilemma


Better Health with Snacks

391

Importance of Distribution in a Marketing Strategy 391

The Marketing Environment 364 Responding to Business Challenges


Low-Carb Diets Create Opportunities and Threats for the Food Industry 365

Promotion Strategy
The Promotion Mix

391
392

Responding to Business Challenges


The Perils of Using Celebrities in Advertising

394
397

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

Promotion Strategies: To Push or To Pull Objectives of Promotion Promotional Positioning 398 399

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 6s Strategy 401

CONTENTS

xxxiii

e-Xtreme Surfing 402 See for Yourself Videocase: Hotel Monaco PART 5 ROLE-PLAY EXERCISE RedRiverShops.com 404

402

CHAPTER 15 Accounting and Financial Statements


Enter the World of Business
The Public Company Accounting Oversight Board

432
433

PART 6 Financing the Enterprise

405

Introduction 434 The Nature of Accounting 434 Consider Ethics and Responsibility Lessons from the Enron Scandal 435
Accountants 435 437 437 Accounting or Bookkeeping?

CHAPTER 14 Money and the Financial System 406


Enter the World of Business The Iraqi Dinar in Crisis 407 Introduction 408 Money in the Financial System
Functions of Money Types of Money 411 409 409 Characteristics of Money

The Uses of Accounting Information

Think Globally
Parmalat: An Italian Enron?

The Accounting Process 408


The Accounting Equation Double-Entry Bookkeeping The Accounting Cycle

440 440
441 441

442

Financial Statements
The Income Statement The Balance Sheet

444
444 450 448

Embrace Technology 413 The American Financial System 414


Check Cashing for the Unbanked

The Federal Reserve System Banking Institutions 418

415

The Statement of Cash Flow Profitability Ratios 455 455

Ratio Analysis: Analyzing Financial Statements 454


Asset Utilization Ratios Liquidity Ratios 456

Embrace Technology
ING Direct Wants to Be Your Bank

420

Nonbanking Institutions

421

Solve the Dilemma


Seeing the Financial Side of Business

Solve the Dilemma 422


Exploring the Secrets of Accounting

457

Electronic Banking

424

Debt Utilization Ratios Per Share Data Industry Analysis 458 458

457

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

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

xxxiv

CONTENTS

CHAPTER 16 Financial Management and Securities Markets 464


Enter the World of Business
Hershey Foods Corporation Stock Provides a Social Contribution 465

Investment Banking 479 The Securities Markets 480


Organized Exchanges 481

Embrace Technology
Googles Dutch Auction

482
482 483

The Over-the-Counter Market

Introduction 466 Managing Current Assets and Liabilities Enhancing Business Productivity
Working Capital Problems in a Small Business

Measuring Market Performance

466 467

Managing Current Assets

467 470 473

Managing Current Liabilities

Managing Fixed Assets


Assessing Risk 473

472

Capital Budgeting and Project Selection Pricing Long-Term Money 474

Solve the Dilemma


Surviving Rapid Growth

475 Financing with Long-Term Liabilities


Bonds: Corporate IOUs Types of Bonds 477 476

475

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

Financing with Owners Equity

477

APPENDIX D: Personal Financial Planning

492

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