ferrell_walkthrough (1).pdf

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 Bogotá 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. Management—United 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 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.

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

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.

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 Outlines 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).

CHAPTER OUTLINE Introduction Organizational Culture Developing Organizational Structure Assigning Tasks

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 trix Structure

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.

•

Determine how organizations ass ign res rit .

fG


x

•


•


•


•

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.

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.

Chapter 8 CHAPTER OUTLINE

Introduction Organizational Culture Developing Organizational Structure Assigning Tasks

NASA Looks Inward Before Going Back to the Stars After the space shuttleColumbia 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 theColumbia disaster, NASA employed the consulting firm Behavioral Sciences Technology (BST) to assess what role the agency’s values and cult ure might have played. The con sulting firm found that the agency’s “can-do” culture may have stifled employee s’ willingness to speak out about concerns that ultimately led to the destruction of theColum- bia. 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 DelegationofAuthority Degreeof Centralization Spanof Managment OrganizationalLayers

Forms of Organizational Structure LineStructure Line-and-StaffStructure MultidivisionalStructure MatrixStructure

The Role of Groups and Teams in Organizations Committees TaskForces Teams


•


•


•


•

Determine how organizations assign responsibility for tasks and delegateauthority.

•

Compare and contrast some common forms of organizational structure.

• •

Describe how communication occurs in organizations.

continued

s s e n i s u B f o d l r o W e h t r e t n E

Analyze a business’s use of teams.

Communicating in Organizations FormalCommunication InformalCommunication Channels Monitoring Communication

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’ au thority 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 e n this situati l learn to request oc ional iv n all r-

may find that you ar for which you were employees are often to make the organiz can come as a shoc cover that, in additio doing bookkeeping, Likewise, employ heavy use of teams may find that the co skills learned in sch you may find that yo and expertise, but yo en ing, comput ne

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 CHAPTER2

The Dynamics of Busin ess and Economics

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

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.

CHAPTER2

Business Ethics and SocialResponsibility

Review Your Understanding Define business ethics and socialr esponsibility and examine their importance. Business ethics refers to principles and standards that define acceptable business conduct. Acceptable business behavior is defined by customers,competitors,governmentregulato rs,interestgroups,the public,andeach individual’s personal moral principles and values. Social responsibility is the obligation an organization assumes to maximize its positive impactand minimize its negative impact on society.Socially responsible businesses win the trustan d respecto ftheir employe es,customers, and society and,in the long run,increase profits.Ethics is important in business because itbuilds trustand confidence in business relationship s.Unethicalactions may result in nega tive publicity, declining sales , and even legal action. Detectsome ofthe ethicalissues thatmay arise in business. An ethicalissue is an identifiable problem,situa tion,or opportunity requiring a person or organization to choose from among severalactions thatmust be evaluated as rightor wrong.Eth icalissu es can be categorized in the contextof their relation with conflicts of interest, fairness and honesty,communicatio ns,and business associations. Specify how businesses can promote ethicalbehavior by employees. Businesses can promote ethicalbeha vior by employees by limiting their opportunity to engage in misconduct. Formal codes ofethics,ethical policies,and ethics training programs reduce the incidence of unethical behavior by informing employees whatis expected ofthem and providing punishments for those who failto comply.

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PART1 Business in a Changing World

Explain the four dimensions ofsocialresp onsibility.

The four dimensions ofsocial responsibility are economic (being profitable),legal (obeying the law),ethical (doing whatis right,just, and fair),and voluntary (being a good corporate citizen). 1. Define business ethics.Who determines whether a business activity is ethical? Is unethicalconduct illegal? Debate an organization’salways socialresponsibilities to owners,employees,consum ers,the between environment,and ethics and social 2. Distinguish the community. responsibility. 3. Why has ethics become soproceimportantin business? Businesses must maintain proper accounting dures, provide all relevant information about theWhatare perfor- some ofthe an ethicalissue? 4. Whatis mance of the firm to investors, and protect owners’ ethicali ssues namedthe in your text? Why are they rights and investments.ethicalissues In relations? with employees, businesses are expected to provide a safe workplace, 5. Whatis a code ofethic s? How can onereduce 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, and noise pollution. busi-ofbusinesses 1. Discuss some recenteMany xamples nesses engage in activities to make the communities in Classify these engaging in unethical practices. which they operate better places to live and practic esfor aseveryone issuesofconflictofinterest,fairness work. and honesty,co mmunications,or business relationships. Why do you think thebusinesses Evaluate the ethics ofa business’s decision. chose to behave unethically? Whataction s mightthe taken? an ethiThe “Solve the Dilemma”businesses box on pagehave 41 presents caldilemma at Checkers Pizza. with Using theclass mater i alpreyour some possible methods of 2. Discuss sented in this chapter,you should be able to analyze improving ethicalstandards in the business. Do you think ethical issues presentin thatbus the dilemm a, should evaluate Barnard’s iness regulate its own acti vities or plan,and develop a course of action for the firm.

Check Your Progress

Get Involved

57 CHAPTER2 Business Ethics and SocialResponsibility 6. Listan d discuss the arguments for and againstso cial responsibility by business (Table 2.7).Can you think ofany additional arguments (for or against)? Your group draws cards 4,7, 36,and 40. 7. Whatrespo nsibilities does a business have toward its employees? 4 7 8. Whatresponsibilit iesdoesbusinesshavewithregard Mini-Case tothe environment?What stepshave beentaken byMini-Case For severalmonths now,one of your colleagues has You are aware that a fellow employee uses drugs on someresponsiblebusinessestominimi z ethenegative been slacking the job. Another frie nd encourages you to co nfront the impactoftheiractivitiesontheenvironm ent?off,and you are getting stuck doing the work.You think itis unfair.Whatdo you do? person instead of informing the supervisor. What do 9. Whatare a business’s responsibilities toward the you do? Potential Answers community in which itoperates? Potential Answers A. Recogniz e this as an opportunity for you to demonstrate how capable you are. A. You speak to the alleged user and encourage B. Go to your supervisor and complain aboutthis him to gethelp. unfair workload. B. You electto tell your supervisor th atyou susC. Discuss the problem with your colleague in an pect an employee is using drugs on the job. to and solve the problem without involving C. You confrontthe alleged user and tellhim either thatth e federal governmentsh ouldattempt establish to quitu sing drugs or you will “turn him in.” enforce ethical standards? How doothers. you think D. Discuss the proble m with the human resources D. Reportthe matter to employee assis tance. businesspeople feel? department. 3. Find some examples ofsocially responsible businesses in newspapers or business journals. Explain why you believe their actions are socially 40 responsible. Why do you think thecompanies chose 36

to act as they did?

Build Your Skills

Mini-Case You work for a company thathas implemented a policy ofa smoke-free environment. You discover employees smoking in the restrooms of the building. You also smoke and don’tlike having to go outside to do it. What do you do?

Mini-Case Your co-worker is copying company-purchased software and taking ithome. You know a certain program costs $400,and you have been saving for a while to buy it.Whatdo you do?

Potential Answers Potential Answers A. You figure you can copy ittoo since noth ing has A. You ignore the situation. ever happened to your co-worker. B. Youconfr onttheemplo yeesandaskthemtostop. B. You tellyour co-worker he can’tlegally do this. Background: Task: C. You join them, but only occasionally. C. You reportthe matte r to the ethics office. 1. Why do you think Home Depothas such a strong 3. Do you thinkHome Depotwould be as successfulif it The merger ofLo ckheed and Martin Mari- Form into groups offour to six managers D. You and contaappointa ct your ethics or human resources D. You mentio n this to your supervisor. commitmentto communities? was notinvolved in socialresponsibility initiatives? etta created Lockheed Martin,the number- group leader who willlead a discussionrepresentative ofthe case,obtain and ask him or her to handle the Why or why not? 2. Whatare the socialr esponsibility benefits to a one company in the defense industry—an a consensus answer to the case, and besituation. the one to report company thatre cycles,u ses environmentally industry thatincludes such companies as McDonnell Dou- the group’s answers to the instructor. You will have five responsible forestproducts, and encourages glas and Northrop Grumman. minutes to reach each decision, after which time,the incustomers to use energy efficientprodu cts? You and therestof the class are managers atLockheed structor willgive the point values and rationale for each Martin Corporation,Orlando, Florida.You are getting ready choice.Then you willhave five minutes for the next case, to do the group exerci se in an ethics training session. The etc.,untilallfour cases have been complete d.Keep track training instructor announces you will be pla yingGray ofyou r group’s score for each case;the winning team will Matters:Th e Ethics Game.You are told thatGray Matters, be the group scoring the mostpoints. b r bi es 3 6 c o n su m er i s m 4 9 pwhich l ag i a rwas i s m prepared 40 for your company’s employees,is also Since this game is designed to reflectlife, you may bebusinessethics 32 corporate citiz enship 45 socialrespons ibility 32 played at41 universities,including Harvard University,and lieve thatsome cases lack clarity or that some ofyour at65 other companies. Although there are 55 scenarios in choices are notas precise as you would have liked.Also, c o d es o f e t h i cs 4 2 e t h ci a l i s su e 3 5 whistl e blowi n g 43 • T r an s p others ar e n cy Ihave n t er n at i o na l P r ov i d es a l i s ti n g o f t he m o s t c or r up t c o u nt r ie s i n t he w o rl d . Gray Matters, you will have time during this session to some cases have only one solution,while complete only the four scenarios thaty our group draws more than one solution.Each choice iswww.transparency.org assessed points to

MAKING DECISIONS ABOUT ETHICAL ISSUES

Revisit the World of Business

E

Learn the Terms

eXtreme Surfing

from the stack ofcards.61

reflectwhich answer is the mostcorrect. • Business Your group’s for Socia task lResponsibilit y is to selectonly one optio n in each case. w ww .b sr .o r g

Offers news and re sources aboutsocialresponsib ility in business t od a ya s p ar t o f a m em be rs h ip o r ga ni z at io n o f g lo ba l c or po ra t io ns .

• E -E t hi c sC en t er w w w.e -b u s in e s se t h ic s .c o m

P ro v id es aw ea lt h o f i nf or ma ti on ab o ut b u si ne s se t hi cs , c or p or at e c i ti z e ns h i p, o r g a ni z a ti o n al c o m p li a nc e , a n dr e l at e d t o pi c s .

• Bureau ofConsumerProtectio n w w w.f tc . g ov / b cp / b cp . ht m

Warnsconsumers information aboutunfair,deceptive,or fraudulent b u si n e ss p r a c ti c es a n d o f fe r s a d vi c e o n h ow t o a v o id t h e m.

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.

et in

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.

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.

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.

mmarize the environmental forc cisions.

e

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,

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 custom rtmentalization d tion

xiv

Review Your Understanding

group 242 line-and-staff structure 239 line structure 239 matrix structure 241 ultidivision 40

project teams 24 quality-assurance circles) 245 responsibility 236 ed work

r W accou ar checking accounts. In which type of account and in what institution would you deposit your money? 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 fra ternity, 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 servic area, and answer the following ques 1.

What kinds of institutions and s to help manage your money?

2.

Do you want a full service finan can take care of your banking, i investing needs or do you want 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).

i

• Leading Concepts www.leadingconcepts.com/

Provides information about t companies improve commun

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

Offers information from the legislation regulating electr

• NASA’s organizational chart www.hq.nasa.gov/hq/orgchart.htm

Presents the organizational

i

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 l l’

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 c Perhaps the most unique char 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 ne newspapers, magazines, and trave mer’s. The fish market also r eceives time it is featured on a Food TV ch fact, the company receives more most large companies that spend Such publicity is far more valuabl cause it is not a paid placement. T erated is the result of unique, str that consumers want to read about Pike Place Market was feature network in a two-hour live broadca

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 empl 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 monitoring the business environment, deter issues need to be addressed, interacting wit profit organizations, recruiting volunteers, a all aspects of the projects. Because of the deadline, a majority of the paid staff feels ove

xv

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.

xvi

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 o bjectives

•

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.

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. 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.

xviii

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 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.

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.

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.

xix

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

xx

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

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 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

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.

xxiii

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

345

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

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

Build Your Skills: The Forces of Supply and Demand 27

1

e-Xtreme Surfing

28

See for Yourself Videocase: Starbucks

29

CHAPTER 1

The Dynamics of Business and Economics

CHAPTER 2

Enter the World of Business 3

Satellite Radio Offers More Choices

Introduction

Business Ethics and Social Responsibility 30

4

The Nature of Business The Goal of Business

2

4

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

4

The People and Activities of Business 5

Introduction

Why Study Business?

Business Ethics and Social Responsibility

8

The Economic Foundations of Business 8 Economic Systems

32

The Role of Ethics in Business

9

31

32

33

Recognizing Ethical Issues in Business 35

The Free-Enterprise System 11

Consider Ethics and Responsibility

The Forces of Supply and Demand 12

KFC Criticized for Promoting Health Benefits of Fried Chicken 38

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

Consider Ethics and Responsibility 40 Qwest Struggles with Legal Issues

14

Solve the Dilemma Customer Privacy 41

Solve the Dilemma Mrs. Acres Homemade Pies

14

Consider Ethics and Responsibility Has Wal-Mart Become Too Powerful?

Economic Cycles and Productivity

The American Economy

15

Making Decisions about Ethical Issues

41

Improving Ethical Behavior in Business

42

The Nature of Social Responsibility

16

44

Social Responsibility Issues 46

18

A Brief History of the American Economy 19

Explore Your Career Options: Business Ethics

The Role of the Entrepreneur 21


The Role of Government in the American Economy 22


The Role of Ethics and Social Responsibility in Business 23

Check Your Progress

Can You Learn Business in a Classroom?

Learn the Terms

24

Explore Your Career Options: Changes 24 Review Your Understanding Revisit the World of Business Learn the Terms

27

Check Your Progress Get Involved xxvi

27

27

26 26

Get Involved

54

55 55

55 56

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

Check Your Progress

Business in a Borderless World 74

Get Involved

Enter the World of Business

Build Your Skills: Global Awareness 75

The Porsche Cayenne Becomes a Global Pacesetter

Introduction

The Role of International Business

100

e-Xtreme Surfing

76

99 100

101

See for Yourself Videocase: BP Builds a Global Brand 101

76

Why Nations Trade 76 Trade between Countries 78

CHAPTER 4

Balance of Trade 78

79

Managing Information Technology and E-Business 104

Legal and Political Barriers

80

Enter the World of Business Reinventing Amazon.com 105

Social and Cultural Barriers

83

Introduction

International Trade Barriers Economic Barriers

79

Think Globally Technological Barriers

The Impact of Technology on Our Lives

85

Foreign Brands Challenge Coca-Cola and PepsiCo

Managing Information

86

Trade Agreements, Alliances, and Organizations General Agreement on Tariffs and Trade (GATT)

86

87

The North American Free Trade Agreement (NAFTA)

106

88

Global Expansion or Business as Usual?

108

Management Information Systems

The Internet

110 112

Internet Uses 112

89

Emerging Technologies

The European Union (EU) 89

114

Asia-Pacific Economic Cooperation (APEC) 90

Solve the Dilemma

World Bank

Developing Successful Freeware

90

International Monetary Fund Exporting and Importing Trading Companies

E-Business

91

Getting Involved in International Business

91

Customer Relationship Management

94

Legal and Social Issues

Joint Ventures and Alliances 94

Privacy

Think Globally

Spam

95

Explore Your Career Options: Preparing for the Borderless World 97

99

122 123

Identity Theft

124

125

Intellectual Property and Copyrights 126

Managing the Challenges of Global Business


121

Europe Takes the Lead in Privacy Protection

Developing Strategies 96


120

Think Globally

95

International Business Strategies 96

Learn the Terms

The Nature of E-Business 115

eBay Provides Opportunity for Small Business Entrepreneurs 119

Contract Manufacturing 93

Direct Investment

115

Growing a Business

92

India: Beyond Outsourcing

115

E-Business Models 118

91

Licensing and Franchising 92 Outsourcing

108

Collecting Data 109 Internet Users

Solve the Dilemma

106

98 99

97

Taxing the Internet?

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

CONTENTS

xxviii

Learn the Terms

128

Enhancing Business Productivity

Check Your Progress Get Involved

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

129

129

Build Your Skills: Planning a Web Site 129

Trends in Business Ownership: Mergers and Acquisitions 153

e-Xtreme Surfing 130

Explore Your Career Options: Evaluating a Job Offer 155

See for Yourself Videocase: Google: The Search Engine Success Story 130

Review Your Understanding 156

PART 1 ROLE-PLAY EXERCISE National Farm and Garden, Inc. 132

Learn the Terms 157

Revisit the World of Business Check Your Progress 157 Get Involved

PART 2 Starting and Growing a Business 133 CHAPTER 5

Options for Organizing Business 134 Enter the World of Business 136

Sole Proprietorships

137

Advantages of Sole Proprietorships

137

Disadvantages of Sole Proprietorships 138

Partnerships 140

Build Your Skills: Selecting a Form of Business e-Xtreme Surfing

159

See for Yourself Videocase: United Files for Bankruptcy 159

Small Business, Entrepreneurship, and Franchising 162 Enter the World of Business King’s Saddlery and King Ropes

Introduction

163

164

The Nature of Entrepreneurship and Small Business 164

Types of Partnership 140 Articles of Partnership

158

CHAPTER 6

135

A Company of Companies: Zingerman’s Deli

Introduction

157

140

What Is a Small Business? 165

Advantages of Partnerships 141 Disadvantages of Partnerships 142

The Role of Small Business in the American Economy 165

Taxation of Partnerships 144

Industries That Attract Small Business 167

Corporations

Advantages of Small-Business Ownership 169

144

Creating a Corporation

Independence 169

144

Responding to Business Challenges The Longaberger Company Makes Baskets

Costs

Types of Corporations 145 Elements of a Corporation

145

Growing a Business Burt’s Bees 170 170

Flexibility 171

148

Advantages of Corporations 149

Focus

Disadvantages of Corporations 150

Reputation

Other Types of Ownership Joint Ventures

171

Disadvantages of Small-Business Ownership 171

151

151

S Corporations 151

Solve the Dilemma To Incorporate or Not to Incorporate

171

152

High Stress Level

172

High Failure Rate

172

Starting a Small Business

174

Limited Liability Companies 152

The Business Plan

Cooperatives 152

Forms of Business Ownership 175

174

158

CONTENTS

Financial Resources

Types of Management

175

Solve the Dilemma

xxix

207

Levels of Management 207

The Small-Business Challenge

176

Areas of Management 210

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

179

Growing a Business Opening a Ben & Jerry’s Franchise

180

The Future for Small Business

181

Demographic Trends

Skills Needed by Managers Leadership

212

213

Enhancing Business Productivity Leadership at General Motors Provides Competitive Advantage 214

Technical Expertise 215

181

Technological and Economic Trends

182

Making Big Businesses Act “Small”

183

Conceptual Skills 215 Analytical Skills

215

Human Relations Skills

216

Explore Your Career Options: Look to Small Business 183

Where Do Managers Come From? 216


Decision Making

Revisit the World of Business Learn the Terms

Building an Airline with Good Decisions

185

Developing Options

185

Build Your Skills: Creativity e-Xtreme Surfing

Recognizing and Defining the Decision Situation

217

Responding to Business Challenges

185


184

217

218

219

Analyzing Options 219

185

Selecting the Best Option

186

219

Implementing the Decision

See for Yourself Videocase: Dale Gray and Communication Services, Inc. 187 APPENDIX B: The Business Plan

188

219

Solve the Dilemma Making Infinity Computers Competitive

Monitoring the Consequences 220

The Reality of Management

PART 2 ROLE-PLAY EXERCISE Human Response, Inc. 195

220

220

Explore Your Career Options: Management Is Alive and Well 221 Review Your Understanding 222

PART 3 Managing for Quality and Competitiveness 197 The Nature of Management 198 Enter the World of Business Managing the State of California

199

200

The Importance of Management Management Functions Planning

201

Organizing Staffing

204

204

Directing Controlling

205 206

201

200

222

Learn the Terms 223 Check Your Progress 223 Get Involved

CHAPTER 7

Introduction


223

Build Your Skills: Functions of Management e-Xtreme Surfing

223

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

CONTENTS

xxx

Introduction

Consider Ethics and Responsibility Lessons from the WorldCom Scandal

230

256

The Nature of Operations Management

257

Developing Organizational Structure 230

The Transformation Process 257

Assigning Tasks

Operations Management in Service Businesses

232

Specialization 232 Departmentalization

Planning and Designing Operations Systems 233

Assigning Responsibility Delegation of Authority

Planning the Product

236

Degree of Centralization 236 Span of Management 238 Organizational Layers

Planning Capacity

263

Planning Facilities

263

262

Solve the Dilemma Planning for Pizza 266

238

Forms of Organizational Structure Line Structure

239

Managing the Supply Chain

239

Purchasing

267

267

Line-and-Staff Structure 239

Growing a Business

Multidivisional Structure 240

Coal Creek Coffee Company Supplies the Best

Managing Inventory

Matrix Structure 241

The Role of Groups and Teams in Organizations Committees

243

Task Forces

244

Teams

242

268

Ensenda Outsources Same-Day Delivery

Managing Quality Inspection

246

Sampling

Communicating in Organizations Formal Communication

246

272

Informal Communication Channels

275 275


248


248

Explore Your Career Options: Flexibility First!

249

Check Your Progress 277


Get Involved

250


250

277

Learn the Terms 277

Review Your Understanding 249 Learn the Terms

274

Explore Your Career Options: A Future in Quality Assurance 276

246

Monitoring Communications

271

Establishing Standards—ISO 9000

Solve the Dilemma

270

270

Routing and Scheduling

Enhancing Business Productivity War Games to Learn TLC 245

268

Enhancing Business Productivity Outsourcing

244

Quest Star in Transition

261

261

Designing the Operations Processes

236

258

278

Build Your Skills: Reducing Cycle Time 278 250

e-Xtreme Surfing

251

Build Your Skills: Teamwork

See for Yourself Videocase: New Belgium Achieves Efficiency with Social Responsibility 279

251

PART 3 ROLE-PLAYEXERCISE McDougal Aircraft Company 281

e-Xtreme Surfing 252 See for Yourself Videocase: Lee Van Arsdale and the Delta Force Illustrate the Need for Teamwork and Communication 252

PART 4 Creating the Human Resource Advantage 283

CHAPTER 9

Managing Service and Manufacturing Operations 254

CHAPTER 10

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

279

255

Motivating the Workforce

284

CONTENTS

Planning for Human Resources Needs

Enter the World of Business 285

SAS Makes Work Fun and Rewarding

Introduction

Recruiting

311

Nature of Human Relations 286

Selection

312

Historical Perspectives on Employee Motivation

288

Classical Theory of Motivation 288

Enhancing Business Productivity Yum Brands Recognizes Employees for Going the Extra Mile 289

Benefits

326

The Importance of Workforce Diversity

298

The Characteristics of Diversity Why Is Diversity Important?

329 330

Affirmative Action 331

Explore Your Career Options: Rating Metropolitan Areas 302

Explore Your Career Options: How Much Does It Pay? 332



303


303

333

Learn the Terms 333

303


304

Get Involved

Build Your Skills: Motivating 305 305

See for Yourself Videocase: The Container Store 305 CHAPTER 11

Managing Human Resources

328

328

The Benefits of Workforce Diversity

Importance of Motivational Strategies 301


325

Resolving Disputes 326

298

Solve the Dilemma Motivating to Win 300

308

The Apprentice: A Novel Approach to Hiring an Employee

309

310

The Nature of Human Resources Management

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

Enter the World of Business Introduction

322

323

Collective Bargaining

Strategies for Motivating Employees 297

e-Xtreme Surfing

321

Managing Unionized Employees

Expectancy Theory 297

Get Involved

320

Enhancing Business Productivity Pet Perks 325

296

Check Your Progress

318

Morale among the Survivors

294

Variations on Theory Z 295

Learn the Terms

316

Financial Compensation

Theory Z 295

Job Design

316

Solve the Dilemma

McGregor’s Theory X and Theory Y

Behavior Modification

Training and Development

Compensating the Workforce

293

Enhancing Business Productivity Bringing Home the Bacon 294

Equity Theory

316

Responding to Business Challenges IBM Shrinks Its Workforce 320

291

Maslow’s Hierarchy of Needs 291 Herzberg’s Two-Factor Theory

Developing the Workforce

Turnover

290

311

Legal Issues in Recruiting and Selecting 315

Assessing Performance

Theories of Employee Motivation

311

Recruiting and Selecting New Employees

286

The Hawthorne Studies

xxxi

310

APPENDIX C: Personal Career Plan 338 PART 4 ROLE-PLAY EXERCISE eQuality Assured 344

CONTENTS

xxxii

PART 5 Marketing: Developing Relationships 345

CHAPTER 13

CHAPTER 12

Introduction

Customer-Driven Marketing

Dimensions of Marketing Strategy 370 Enter the World of Business Turkey & Gravy Brings Attention to Small Bottler

346

Product Strategy

347

Apple Takes a Bite out of the Music Industry

Introduction

372

The Marketing Mix

Enter the World of Business

372 373

Developing New Products

348

Classifying Products

Nature of Marketing

348

373

376

Product Line and Product Mix

The Exchange Relationship 349

Product Life Cycle 377

Functions of Marketing

349

Identifying Products

The Marketing Concept

350

377

379

Pricing Strategy 383

Evolution of the Marketing Concept 352

Developing a Marketing Strategy

Pricing Objectives

353

384

Specific Pricing Strategies

Selecting a Target Market 354

Distribution Strategy

Developing a Marketing Mix 357

384

385

Marketing Channels 385

Marketing Research and Information Systems

359

Responding to Business Challenges Changes in American Eating Habits Create Opportunities for Retailers 386

Embrace Technology Look-Look.com 360

Intensity of Market Coverage

Solve the Dilemma Will It Go? 362 Buying Behavior

Physical Distribution

362

389

390

Solve the Dilemma

Psychological Variables of Buying Behavior 362 Social Variables of Buying Behavior 363 Understanding Buying Behavior 364

The Marketing Environment

Better Health with Snacks

391

Importance of Distribution in a Marketing Strategy 391

Promotion Strategy 391

364

The Promotion Mix

Responding to Business Challenges Low-Carb Diets Create Opportunities and Threats for the Food Industry 365

392

Responding to Business Challenges The Perils of Using Celebrities in Advertising

Explore Your Career Options: Customer Service in a Service Economy 366

Promotion Strategies: To Push or To Pull Objectives of Promotion

398


Promotional Positioning

399

Revisit the World of Business Learn the Terms Get Involved


367

e-Xtreme Surfing

397


367

Build Your Skills: The Marketing Mix

394

Explore Your Career Options: Diverse Opportunities in Marketing 399

367

367

Check Your Progress

371

368

368

See for Yourself Videocase: Fishing for Success: The Pike Place Fish Market 369

400

Learn the Terms 400 Check Your Progress 401 Get Involved

401

Build Your Skills: Analyzing Motel 6‘s Strategy

401

CONTENTS

e-Xtreme Surfing

402

CHAPTER 15

See for Yourself Videocase: Hotel Monaco

402

PART 5 ROLE-PLAY EXERCISE RedRiverShops.com 404

Accounting and Financial Statements The Public Company Accounting Oversight Board

PART 6 Financing the Enterprise 405

433

434

The Nature of Accounting

434

Consider Ethics and Responsibility Lessons from the Enron Scandal 435 Accountants 435

CHAPTER 14

Money and the Financial System 406 Enter the World of Business The Iraqi Dinar in Crisis 407

The Accounting Process

408

Financial Statements

Embrace Technology

444

The Balance Sheet

448

The Statement of Cash Flow 450

The Federal Reserve System 415

Ratio Analysis: Analyzing Financial Statements

418

Profitability Ratios

Embrace Technology ING Direct Wants to Be Your Bank

441

The Income Statement 444

413

The American Financial System 414

Nonbanking Institutions

441

The Accounting Cycle 442

411

Banking Institutions

440

Double-Entry Bookkeeping 409

Check Cashing for the Unbanked

437

440

The Accounting Equation

Functions of Money 409 Types of Money

The Uses of Accounting Information Parmalat: An “Italian Enron”?

408

Characteristics of Money

Accounting or Bookkeeping? 437

Think Globally

Money in the Financial System

Liquidity Ratios

421

455

456

Solve the Dilemma

Seeing the Financial Side of Business

Electronic Banking

422

457

Exploring the Secrets of Accounting

Debt Utilization Ratios

424

Challenge and Change in the Commercial Banking Industry 426

Per Share Data

457

458

Industry Analysis 458

Explore Your Career Options: What Do Economists Do? 427

Explore Your Career Options: More Power to the Accountants 459





Learn the Terms

428

428

Check Your Progress

460

Learn the Terms 460 428


429

Get Involved

Build Your Skills: Managing Money e-Xtreme Surfing

454

Asset Utilization Ratios 455

420

Solve the Dilemma

Get Involved

432

Enter the World of Business Introduction

Introduction

xxxiii

429

429

See for Yourself Videocase: Bank One: Keeping Up With Global Trends 430

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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