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BusinessA Changing World
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Boston Burr Ridge, IL Dubuque, IA Madison, WI New YorkSan Francisco St. Louis Bangkok Bogotá Caracas Kuala LumpurLisbon London Madrid Mexico City Milan Montreal New Delhi
Santiago Seoul Singapore Sydney Taipei Toronto
Fifth Edition
O. C. FerrellColorado State University
Geoffrey HirtDePaul University
Linda FerrellUniversity of Wyoming
BusinessA Changing World
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BUSINESS: A CHANGING WORLDPublished 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 publicationmay be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior writtenconsent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage ortransmission, 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. BiernatSponsoring editor: Ryan BlankenshipSenior developmental editor: Christine ScheidExecutive marketing manager: Ellen Cleary Media producer: Benjamin CurlessLead project manager: Mary ConzachiSenior production supervisor: Sesha BolisettyLead designer: Pam VerrosPhoto research coordinator: Ira C. RobertsPhoto researcher: Mike HrubyMedia project manager: Joyce J. ChappettoSupplement producer: Gina F. DiMartinoDeveloper, Media technology: Brian NacikCover/interior design: Maureen McCutcheonTypeface: 10.5/12 MinionCompositor: Carlisle Communications, Ltd.Printer: R. R. Donnelley
Library of Congress Cataloging-in-Publication DataFerrell, 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 2006650--dc22
2004042321
www.mhhe.com
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To Kathlene Ferrell
To Linda Hirt
To Norlan and Phyllis Nafziger
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Welcome to
“ground up”
Where other authors entered the essentialsmarket with “ground down” versions of their
hardback editions, we entered it with a bookdeveloped 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
each part. With her Ph.D. in management from the University of
Memphis, she complements the author team in content
specialization.
vi
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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.
the best value available for helping toteach — and learn —
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:
Introduction to Business.
–O.C., Geoff, Linda
the Fifth Edition
vii
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Created fromthe ground up,
The Freshest Topicsand Examples
The best selling paperback text on the market, Business: A Changing World wasbuilt from the ground up—that is, developed and written expressly for facultyand students who value a brief, flexible, and affordable paperback with the mostup-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 istruly designed to meet the needs of students or instructors; they’re afterthoughts,products chiefly designed to leverage existing content, not to help you teach yourcourse.
With market-leading teaching support and fresh content and examples, Business:A Changing World offers just the mix of currency, flexibility, and value that youneed. It is the fastest-growing book—and the best value available—in the briefIntroductory Business market.
What sets Ferrell/Hirt/Ferrell apart from the competition? An unrivaled mixtureof current content, topical depth, and the best teaching support around:
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.
viii
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not grounddown
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.
Just Enough of a Good Thing
Teaching Assistance thatMakes 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 role-
playing 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.
ix
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Getting a Handleon Business
Chapter OutlinesThese provide a useful overviewof all the topics covered in thechapter, giving students a sneakpreview of what they’ll belearning. Special expandedoutlines are available on thebook’s Online Learning Center(see page xvii).
Business: A Changing World’spedagogy 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 ObjectivesThese appear at the beginning ofeach chapter to provide goalsfor students to reach in theirreading. The objectives are thenused in the “Review YourUnderstanding,” the summary atthe end of each chapter, andhelp the students gauge whetherthey’ve properly learned andretained the material.
CHAPTER OUTLINE
Introduction
Organizational Culture
Developing OrganizationalStructure
Assigning TasksSpecializationDepartmentalization
Assigning Responsibility Delegation of AuthorityDegree of CentralizationSpan of ManagmentOrganizational Layers
Forms of OrganizationalStructure
Line StructureLine-and-Staff StructureMultidivisional StructureMatrix Structure
The Role of Groups and
Organization,Teamwork, andCommunication
OBJECTIVES
After reading this chapter, you will be able to:
• Define organizational structure and relate how organizationalstructures develop.
• Describe how specialization and departmentalization help anorganization achieve its goals.
• Distinguish between groups and teams and identify the types ofgroups that exist in organizations.
• Determine how organizations assign responsibility for tasks anddelegate authority.
• Compare and contrast some common forms of organizational
OBJECTIVES
After reading this chapter, you will be able to:
• Define organizational structure and relate how organizationalstructures develop.
• Describe how specialization and departmentalization help anorganization achieve its goals.
• Distinguish between groups and teams and identify the types ofgroups that exist in organizations.
• Determine how organizations assign responsibility for tasks anddelegate authority.
• Compare and contrast some common forms of organizationalstructure.
• Describe how communication occurs in organizations.
• Analyze a business’s use of teams.
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Explore Your CareerOptionsThese end-of-chapter featuresoffer valuable advice on a widespectrum of business careerchoices.
Chapter-OpeningVignetteThese anecdotes neatly illustratethe real-world implications of thebusiness issues students willencounter in their reading. A“Revisit the World of Business”segment at the end of thechapter requires students toreturn to the Opening Vignette toanswer follow-up questions,calling on the insight they’vegained from reading the chapter.
Solve theDilemmaThese boxes givestudents anopportunity tothink creatively insolving a realisticbusinesssituation.
CHAPTER OUTLINE
Introduction
Organizational Culture
Developing OrganizationalStructure
Assigning TasksSpecializationDepartmentalization
Assigning Responsibility Delegation of AuthorityDegree of CentralizationSpan of ManagmentOrganizational Layers
Forms of OrganizationalStructure
Line StructureLine-and-Staff StructureMultidivisional StructureMatrix Structure
The Role of Groups andTeams in Organizations
CommitteesTask ForcesTeams
Communicating inOrganizations
Formal CommunicationInformal CommunicationChannelsMonitoringCommunication
NASA Looks Inward Before Going Back to the Stars
After the space shuttle Columbia broke up on reentry in 2003, killing all sevenastronauts on board, the National Aeronautics and Space Agency (NASA)spent more than a year reexamining itself as well as studying the circum-stances surrounding the catastrophe in an effort to prevent future accidentsin the space program. Barely one year later, NASA was given a new man-date by President George W. Bush to return humans to the moon, evenwhile it continued to oversee the construction of the InternationalSpace Station and its ongoing program of unmanned explorations ofnearby planets. To address these challenges, NASA was confrontedwith the need for an attitude adjustment.
In addition to careful analysis of the Columbia disaster, NASA employed theconsulting firm Behavioral Sciences Technology (BST) to assess what rolethe agency’s values and culture might have played. The consulting firm foundthat the agency’s “can-do” culture may have stifled employees’ willingness tospeak out about concerns that ultimately led to the destruction of the Colum-bia. Astronaut Jim Wetherbee, a veteran of six shuttle missions, said, “Thereare a lot of people who won’t speak up. They were afraid of being renderedineffective, which at NASA is the equivalent of being fired.” A survey ofNASA’s 19,000 employees found many who shared that view.
En
te
r
th
e
Wo
rld
o
f
Bu
sin
es
s
Organization,Teamwork, andCommunication
Chapter 8
OBJECTIVES
After reading this chapter, you will be able to:
• Define organizational structure and relate how organizationalstructures develop.
• Describe how specialization and departmentalization help anorganization achieve its goals.
• Distinguish between groups and teams and identify the types ofgroups that exist in organizations.
• Determine how organizations assign responsibility for tasks anddelegate authority.
• Compare and contrast some common forms of organizationalstructure.
• Describe how communication occurs in organizations.
• Analyze a business’s use of teams.
continued
However, employees who are not self-motivated teamplayers are having difficulty getting used to their peers’ au-thority within this system. Upper-level managers face stressand frustration because they must train workers to supervisethemselves.
1. What techniques or skills should an employee have toassume a leadership role within a work group?
2. If each work group has a team representative, whatproblems will be faced in supervising theserepresentatives?
3. Evaluate the pros and cons of the system developed by QS.
Quest Star (QS), which manufactures qualitystereo loudspeakers, wants to improve its
ability to compete against Japanese firms. Accordingly, thecompany has launched a comprehensive quality-improvementprogram for its Iowa plant. The QS Intracommunication Lead-ership Initiative (ILI) has flattened the layers of management.The program uses teams and peer pressure to accomplish theplant’s goals instead of multiple management layers with theirlimited opportunities for communication. Under the initiative,employees make all decisions within the boundaries of their re-sponsibilities, and they elect team representatives to coordi-nate with other teams. Teams are also assigned tasks rangingfrom establishing policies to evaluating on-the-job safety.
Solve the DilemmaQuest Star in Transition
Explore Your Career OptionsFlexibility First!
Most business school students major in marketing, fi-nance, accounting, management information systems,general management, or sales. Upon graduation, they gen-erally expect to be hired by a company to do more of what-ever it is they were trained to do as a student. For example,an accounting major expects to be an accountant. How-ever, 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, youmight expect to practice your profession among many oth-ers doing the same or similar tasks. You are likely to learnone part of the business fairly well but be completely un-informed about other departments or divisions. A wiseemployee in this situation will learn to request occasionaltransfers to other divisions to learn all aspects of the cor-poration thereby improving his or her usefulness to the
may find that you arefor which you were temployees are often to make the organizcan come as a shoccover that, in additiodoing bookkeeping, s
Likewise, employheavy use of teams may find that the comskills learned in schyou may find that yoand expertise, but yoengineering, computto understand the neebers of the team Orgxi
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Embrace Technology
Think Globally
Consider Ethics & Social Responsibility
Getting a Handle on Business
These features, scattered liberally throughout the book, use realand often familiar companies to highlight various issues ofimportance in business today.
Ethics in business continues to be a major public concern, and it isvital for students to understand that unethical conduct hurtsinvestors, customers, and indeed the entire business world. Thesefeatures highlight the importance of ethical conduct and show howbusinesses can serve a vital, positive function in their communities.
CHAPTER 2 The Dynamics of Business and Economics Embrace Technology
Business technology means more thancomputers. From cell phones andPDAs to sophisticated projectmanagement and inventory trackingsystems, Embrace Technology boxesteach students just how pervasivetechnology is throughout the businessworld.
Consider Ethics & Social Responsibility
Think Globally
The global economy isimportant to more than largemultinationals these days:issues of economics, culture,language and more can affectall levels of domestic business,and Think Globally boxesencourage students to keeptheir eyes on the big picture.
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Enhance Business Productivity
Growing a Business
Enchance Business Productivity
Valuable tips and insights on one issue that’s vital to everyoneat all levels of business.
Responding to Business Challenges
These boxes illustrate how businesses overcome tough challengesand provide an excellent vehicle for stimulating class discussions.
Growing a Business12
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
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End-of-ChapterMaterialWhether your students discover iton their own or you make it anintegral part of your classroomand homework assignments, theend-of-chapter material provides agreat opportunity to reinforce andexpand upon the chapter content.
Review YourUnderstandingAre your studentssometimes unsure whetherthey’ve properly absorbedthe chapter material? Thisfeature resummarizes thechapter objectives, leavingstudents in no doubt of whatthey’re expected toremember.
Revisit the World ofBusinessThese exercises refer to thechapter opening vignettes (seepage xi) and ask students toanswer more in-depth questionsusing the knowledge they gainedin their reading.
gtional line relationship between superiors and subordi-nates, and specialized staff managers are available toassist line managers. A multidivisional structure gathersdepartments into larger groups called divisions. A matrix,
p gattempting to restructure to a team envithe material presented in this chapter, to evaluate the firm’s efforts and makefor resolving the problems that have de
Revisit the World of Business1. 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-dsucceed to create safer missions tand beyond?
Learn the Termsaccountability 236centralized organization 237committee 243customer departmentalization 235decentralized organization 237delegation of authority 236
group 242line-and-staff structure 239line structure 239matrix structure 241multidivisional structure 240organizational chart 231
project teams 244quality-assurance t
circles) 245responsibility 236self-directed work tspan of manageme
Review Your UnderstandingDefine marketing and describe the exchange process.
Marketing is a group of activities designed to expedite trans-actions by creating, distributing, pricing, and promotinggoods, services, and ideas. Marketing facilitates the ex-change, the act of giving up one thing in return for somethingelse. 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 fordeveloping marketing strategies.
The marketing concept is the idea that an organizationshould try to satisfy customers’ needs through coordinatedactivities that also allow it to achieve its goals. If a com-pany does not implement the marketing concept by provid-ing products that consumers need and want whileachieving 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 marketingefforts). Some firms use a total-market approach, desig-nating everyone as the target market. Most firms divide thetotal market into segments of people who have relativelysimilar product needs. A company using a concentrationapproach develops one marketing strategy for a singlemarket segment, whereas a multisegment approach aimsmarketing efforts at two or more segments, developing adifferent marketing strategy for each.
Investigate how marketers conduct marketing researchand study buying behavior.
Carrying out the marketing concept is impossible unlessmarketers know what, where, when, and how consumersbuy; marketing research into the factors that influencebuying behavior helps marketers develop effective mar-keting strategies. Marketing research is a systematic,objective process of getting information about potentialcustomers to guide marketing decisions. Buying behav-ior is the decision processes and actions of people whopurchase and use products.
Summarize the environmental forces that influencemarketing decisions.
CHAPTER 2 Business Ethics and Social Responsibility 55
Review Your UnderstandingDefine business ethics and social responsibility andexamine their importance.
Business ethics refers to principles and standards that de-fine acceptable business conduct. Acceptable businessbehavior is defined by customers, competitors, govern-ment regulators, interest groups, the public, and each indi-vidual’s personal moral principles and values. Socialresponsibility is the obligation an organization assumes tomaximize its positive impact and minimize its negative im-pact on society. Socially responsible businesses win thetrust and respect of their employees, customers, and soci-ety and, in the long run, increase profits. Ethics is importantin business because it builds trust and confidence in busi-ness relationships. Unethical actions may result in nega-tive publicity, declining sales, and even legal action.
Detect some of the ethical issues that may arise inbusiness.
An ethical issue is an identifiable problem, situation, or op-portunity requiring a person or organization to choose fromamong several actions that must be evaluated as right orwrong. Ethical issues can be categorized in the context oftheir relation with conflicts of interest, fairness and hon-esty, communications, and business associations.
Specify how businesses can promote ethical behaviorby employees.
Businesses can promote ethical behavior by employees bylimiting their opportunity to engage in misconduct. Formalcodes of ethics, ethical policies, and ethics training pro-grams reduce the incidence of unethical behavior by in-forming employees what is expected of them and providingpunishments for those who fail to comply.
Explain the four dimensions of social responsibility.
The four dimensions of social responsibility are economic(being profitable), legal (obeying the law), ethical (doingwhat is right, just, and fair), and voluntary (being a goodcorporate citizen).
Debate an organization’s social responsibilities toowners, employees, consumers, the environment, andthe community.
Businesses must maintain proper accounting proce-dures, provide all relevant information about the perfor-mance of the firm to investors, and protect the owners’rights and investments. In relations with employees,businesses are expected to provide a safe workplace,pay employees adequately for their work, and treat themfairly. Consumerism refers to the activities undertaken byindependent individuals, groups, and organizations toprotect their rights as consumers. Increasingly, societyexpects businesses to take greater responsibility for theenvironment, especially with regard to animal rights, aswell as water, air, land, and noise pollution. Many busi-nesses engage in activities to make the communities inwhich they operate better places for everyone to live andwork.
Evaluate the ethics of a business’s decision.
The “Solve the Dilemma” box on page 41 presents an ethi-cal dilemma at Checkers Pizza. Using the material pre-sented in this chapter, you should be able to analyze theethical issues present in the dilemma, evaluate Barnard’splan, and develop a course of action for the firm.
Learn the Termsbribes 36 business ethics 32 codes of ethics 42
consumerism 49 corporate citizenship 45 ethical issue 35
plagiarism 40 social responsibility 32 whistleblowing 43
Revisit the World of Business1. 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 environmentallyresponsible forest products, and encouragescustomers to use energy efficient products?
3. Do you think Home Depot would be as successful if itwas not involved in social responsibility initiatives?Why or why not?
56 PART 1 Business in a Changing World
Get Involved1. Discuss some recent examples of businesses
engaging in unethical practices. Classify thesepractices as issues of conflict of interest, fairnessand honesty, communications, or businessrelationships. Why do you think the businesseschose to behave unethically? What actions might thebusinesses have taken?
2. Discuss with your class some possible methods ofimproving ethical standards in business. Do you thinkthat business should regulate its own activities or
that the federal government should establish andenforce ethical standards? How do you thinkbusinesspeople feel?
3. Find some examples of socially responsiblebusinesses in newspapers or business journals.Explain why you believe their actions are sociallyresponsible. Why do you think the companies choseto act as they did?
Build Your SkillsMAKING DECISIONS ABOUT ETHICAL ISSUES
Background:The merger of Lockheed and Martin Mari-etta created Lockheed Martin, the number-one company in the defense industry—an
industry that includes such companies as McDonnell Dou-glas and Northrop Grumman.
You and the rest of the class are managers at LockheedMartin Corporation, Orlando, Florida. You are getting readyto do the group exercise in an ethics training session. Thetraining instructor announces you will be playing GrayMatters: The Ethics Game. You are told that Gray Matters,which was prepared for your company’s employees, is alsoplayed at 41 universities, including Harvard University, andat 65 other companies. Although there are 55 scenarios inGray Matters, you will have time during this session tocomplete only the four scenarios that your group drawsfrom the stack of cards.61
Task:Form into groups of four to six managers and appoint agroup leader who will lead a discussion of the case, obtaina consensus answer to the case, and be the one to reportthe group’s answers to the instructor. You will have fiveminutes to reach each decision, after which time, the in-structor will give the point values and rationale for eachchoice. Then you will have five minutes for the next case,etc., until all four cases have been completed. Keep trackof your group’s score for each case; the winning team willbe the group scoring the most points.
Since this game is designed to reflect life, you may be-lieve that some cases lack clarity or that some of yourchoices are not as precise as you would have liked. Also,some cases have only one solution, while others havemore than one solution. Each choice is assessed points toreflect which answer is the most correct. Your group’s taskis to select only one option in each case.
Check Your Progress1. Define business ethics. Who determines whether a
business activity is ethical? Is unethical conductalways illegal?
2. Distinguish between ethics and socialresponsibility.
3. Why has ethics become so important in business?4. What is an ethical issue? What are some of the
ethical issues named in your text? Why are theyethical issues?
5. What is a code of ethics? How can one reduceunethical behavior in business?
6. List and discuss the arguments for and against socialresponsibility by business (Table 2.7). Can you thinkof any additional arguments (for or against)?
7. What responsibilities does a business have towardits employees?
8. What responsibilities does business have with regardto the environment? What steps have been taken bysome responsible businesses to minimize the negativeimpact of their activities on the environment?
9. What are a business’s responsibilities toward thecommunity in which it operates?
CHAPTER 2 Business Ethics and Social Responsibility 57
EeXtreme Surfing
• Transparency International Provides a listing of the most corrupt countries in the world.www.transparency.org
• Business for Social Responsibility Offers news and resources about social responsibility in business www.bsr.org today as part of a membership organization of global corporations.
• E-Ethics Center Provides a wealth of information about business ethics, corporate www.e-businessethics.com citizenship, organizational compliance, and related topics.
• Bureau of Consumer Protection Warns consumers information about unfair, deceptive, or fraudulent www.ftc.gov/bcp/bcp.htm business practices and offers advice on how to avoid them.
4
Mini-CaseFor several months now, one of your colleagues hasbeen slacking off, and you are getting stuck doing thework. You think it is unfair. What do you do?
Potential AnswersA. Recognize this as an opportunity for you to
demonstrate how capable you are.B. Go to your supervisor and complain about this
unfair workload.C. Discuss the problem with your colleague in an
attempt to solve the problem without involvingothers.
D. Discuss the problem with the human resourcesdepartment.
7
Mini-CaseYou are aware that a fellow employee uses drugs onthe job. Another friend encourages you to confront theperson instead of informing the supervisor. What doyou do?
Potential AnswersA. You speak to the alleged user and encourage
him to get help.B. You elect to tell your supervisor that you sus-
pect an employee is using drugs on the job.C. You confront the alleged user and tell him either
to quit using drugs or you will “turn him in.”D. Report the matter to employee assistance.
36
Mini-CaseYou work for a company that has implemented a policyof a smoke-free environment. You discover employeessmoking in the restrooms of the building. You alsosmoke and don’t like having to go outside to do it. Whatdo you do?
Potential AnswersA. You ignore the situation.B. You confront the employees and ask them to stop.C. You join them, but only occasionally.D. You contact your ethics or human resources
representative and ask him or her to handle thesituation.
40
Mini-CaseYour co-worker is copying company-purchased soft-ware and taking it home. You know a certain programcosts $400, and you have been saving for a while to buyit. What do you do?
Potential AnswersA. You figure you can copy it too since nothing has
ever happened to your co-worker.B. You tell your co-worker he can’t legally do this.C. You report the matter to the ethics office.D. You mention this to your supervisor.
Your group draws cards 4, 7, 36, and 40.
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See For YourselfVideocaseStimulate your students withthese engaging case videos, allof which are new to this edition.
e-Xtreme SurfingThis feature points out Web sites thatelaborate on the chapter content. AlleXtreme Surfing sites can be linkedat your discretion from the book’sOnline Learning Center (see pagesxvi–xvii).
Build Your SkillsThese activities are designed tobe carried out in teams, giving youa launching pad for a lively in-class discussion.
Role-Play Exercisesat the end of each part give studentsthe opportunity to assumeorganizational roles and makedecisions through application of thetext concepts.
accounts. Find out what, if any, restrictions are ineffect for NOW accounts and regular checkingaccounts. In which type of account and in whatinstitution would you deposit your money? Why?
car loan? A home loan? Why?
Build Your SkillsMANAGING MONEY
Background:You have just graduated from college andhave received an offer for your dream job(annual salary: $35,000). This premium salary
is a reward for your hard work, perseverance, and goodgrades. It is also a reward for the social skills you devel-oped in college doing service work as a tutor for highschool students and interacting with the business commu-nity as the program chairman of the college business fra-ternity, Delta Sigma Pi. You are engaged and plan to bemarried this summer. You and your spouse will have a jointincome of $60,000, and the two of you are trying to decidethe best way to manage your money.
Task:Research available financial servicearea, and answer the following quest1. 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, ininvesting needs or do you want tbusiness among individual speciyou made this choice?
3. What retirement alternatives do
CHAPTER 12 Customer-Driven Marketing
See for Yourself VideocaseFISHING FOR SUCCESS: THE PIKE PLACE FISH MARKET
It has been almost 100 years since the Pike PlaceMarket opened in Seattle. In response to risingproduce 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 di-rectly from farmers. On opening day, eight farmers mergedon the corner of First and Pike, and more than 10,000 eagerbuyers showed up to choose from their wares.
Today, the Pike Place Market is much more than itsname suggests. Covering roughly nine acres, the marketcomprises food stores (bakeries, dairies, fish/seafood,commercial produce stands, meat and butcher shops, pro-duce stands, specialty food stores as well as restaurants,cafés, and fast-food businesses) and mercantile shops(antiques and collectibles, art galleries, books, stationeryand cards, clothing and shoes, cookware, and flowers)with over 100 vendors operating each day. One of the morepopular shops is Uli’s Famous Sausage which produces
counter banter and shout, “Anyone Tourists and shoppers cheer and ca
Perhaps the most unique charaFish Market is the fact that, excepnever advertised. If you look on theyou can read numerous articles tabout the company in local newnewspapers, magazines, and travemer’s. The fish market also receivestime it is featured on a Food TV chafact, the company receives more most large companies that spend mSuch publicity is far more valuablcause it is not a paid placement. Therated is the result of unique, strothat consumers want to read about
Pike Place Market was featurednetwork in a two-hour live broadcasthat try to get on QVC every year j
Ee-Xtreme Surfing
• Leading Concepts Provides information about thwww.leadingconcepts.com/ companies improve commun
• Model Electronic Privacy Act Offers information from the Ahttp://archive.aclu.org/issues/ legislation regulating electroworker/legkit2.html
• NASA’s organizational chart Presents the organizational cwww.hq.nasa.gov/hq/orgchart.htm
Part 4 Role-Play Exercise*
eQuality Assured
Quality Assured (QA), a nonprofit organization, was startedin 1977 to promote the establishment, development, andpreservation of high professional standards and audit thesocial responsibility of companies in the United States. Theaudits could be used to promote the company’s good cor-porate citizenship and determine areas that need improve-ment. Of the four issues of social responsibility (voluntary,ethical, legal, and economic), it had always focused moston the voluntary and ethical aspects. During the earlyyears, QA dedicated a majority of its resources to environ-
eQuality has a full-time staff of 50 emplocore workers are responsible for all the fuformed at the organization. Most are not expecation, but carry out functional responsibiliaccounting and technology. Some important tmonitoring the business environment, determissues need to be addressed, interacting witprofit organizations, recruiting volunteers, anall aspects of the projects. Because of the deadline, a majority of the paid staff feels ove
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Instructors Supplements
Instructor’s Resource CD-ROMEverything 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; notesfor video cases; term paper and project topics; suggestions for guest speakers; and roles andoptions 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 inthe “Image Bank.”
Link to Online Learning Center(www.mhhe.com/ferrell5e)
Online Learning Center (OLC) withPremium Contentwww.mhhe.com/ferrell5eAccess 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 inIntroduction to BusinessWritten by O.C. Ferrell and Linda Ferrell, this is your one-stop guide for integrating thisimportant issue into all aspects of your course. It helps you to demonstrate how business ethicslead to business success and offers a wide range of business ethics resources, includinguniversity centers, government resources, and corporate ethics programs.
Active Classroom Resource GuideAn Additional collection of team projects, cases, and exercises that instructors can choose fromto be used in class or out.
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Student Supplements
Study GuideEach chapter of the Study Guide includes a chapter summary,
learning objectives, and plenty of true/false, matching, and multiple-
choice questions to practice.
Interactive Study Guide on CD-ROMEach 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 Contentwww.mhhe.com/ferrell5e
More and more students are studying online. That’s why we offer an Online Learning Center (OLC) that
follows Business: A Changing World chapter by chapter. It doesn’t require any building or maintenance on
your part, and is ready to go the moment you and your students type in the URL.
As your students study, they can refer to the OLC Web site for such benefits as:
• Internet-based activities
• Self-grading quizzes
• Learning objectives
• Extended chapter summaries
• Additional video and related video exercises
The fifth edition includes an online running video case highlightingentrepreneur Todd McFarlane, who parlayed his artistic ability (and a passionfor sports) into a multimillion dollar business that straddles film andtelevision production, toys, comic books, sports licensing and games.Students watch and learn as McFarlane explains how he leads hiscompany across all functional areas of business, illustrating how firmsdeal with the problems and opportunities of today’s business world.With one video case for each part of the textbook highlighting thisfun and unique company, students and instructors are provideda complete context for discussing every aspect ofintroductory business.
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Create an Online Course
For the instructor needing to educate students online, we offer Business: A Changing
World content for complete online courses. To make this possible, we have joined
forces with the most popular delivery platforms currently available. These platforms
are designed for instructors who want complete control over course content and how
it is presented to students. You can customize the Business: A Changing World Online
Learning Center content and author your own course materials. It’s entirely up to
you.
Products like WebCT, Blackboard, and eCollege all expand the reach of your course.
Online discussion and message boards will now complement your office hours.
Thanks to a sophisticated tracking system, you will know which students need more
attention—even if they don’t ask for help. That’s because online testing scores are
recorded and automatically placed in your grade book, and if a student is struggling
with coursework, a special alert message lets you know.
Remember, Business: A Changing World’s content is flexible enough to use with any
platform currently available. If your department or school is already using a platform,
we can help. For information on McGraw-Hill/Irwin’s course management
supplements, including PageOut, Instructor Advantage, and Knowledge Gateway, see
“Knowledge Gateway” on the next page.
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Knowledge Gatewaymhhe.eduprise.com/home.nsfDeveloped 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
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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
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it’s only available through McGraw-Hill.
To learn how these platforms can assist your online course,
contact your McGraw-Hill/Irwin representative.
PageOutPageOut 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
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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
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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 andInstructor Advantage PlusInstructor Advantage is a special level of service McGraw-
Hill offers in conjunction with WebCT and Blackboard. A
team of platform specialists is always available, either by
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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).
Managing an Online Course
Superior ServiceNo matter which online course solution you choose, you can count on the highest level of service. That’s what sets
McGraw-Hill apart. Once you choose Business: A Changing World, our specialists offer free training and answer any
question you have through the life of your adoption.
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AcknowledgmentsThe fifth edition of Business: A Changing World would not havebeen possible without the commitment, dedication, andpatience of Gwyneth Walters. She assisted the authors indeveloping and coordinating all of the content in the text,ancillaries, and the Online Learning Center. Barbara Gilmermade significant contributions to the content of the previousedition. Ryan Blankenship, Sponsoring Editor, providedleadership and creativity in planning and implementing allaspects of the fifth edition. Christine Scheid, SeniorDevelopmental Editor, did an outstanding job of coordinating allaspects of the development and production process. MaryConzachi was the Project Manager. Mark Molsky managed thetechnical aspects of the Online Learning Center. Othersimportant 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 thisedition. Sarah Scott contributed boxes, cases, and assisted inthe overall revision process. Michael Hartline developed thePersonal Career Plan in Appendix C and assisted in developingthe Business Plan in Appendix B. Vickie Bajtelsmit developedAppendix D on personal financial planning. Eric Sandberg ofInteractive Learning assisted in developing the interactiveexercises and “Business Around the World” on the CD.Anthony Chelte of Western New England College helped uswith the Student CD Chapter Quizzes and Outlines.
Many others have assisted us with their helpful comments,recommendations, and support throughout this and previouseditions. We’d like to express our thanks to the reviewers whohelped us shape the fifth edition:
James BartlettUniversity of Illinois
Stephanie BibbChicago State University
Alka BramhandkarIthaca College
Michael CiceroHighline Community College
Debbie CollinsAnne Arundel Community College—Arnold
Laurie DahlinWorcester State College
Tom DiamanteAdelphi University
John EaganErie Community College/City Campus SUNY
Robert EricksenCraven Community College
Art FischerPittsburg State University
Toni ForcinoMontgomery College—Germantown
Chris GilbertTacoma Community College/University ofWashington
Ross GittellUniversity of New Hampshire
Gary GrauNortheast State Tech Community College
Claudia GreenPace University
David GribbinEast Georgia College
Peggy HagerWinthrop University
Verne IngramRed Rocks Community College
Steven JenningsHighland Community College
Eileen KearneyMontgomery County Community College
Craig KelleyCalifornia State University—Sacramento
Arbrie KingBaton Rouge Community College
John KnappenbergerMesa State College
Anthony KohUniversity of Toledo
Dorinda LynnPensacola Junior College
Larry MartinCommunity College of Southern Nevada—West Charles
Kristina MazurakAlbertson College of Idaho
Mary MeredithUniversity of Louisiana at Lafayette
Michelle MeyerJoliet Junior College
Fred NeroneInternational College—Naples
Michael NugentSUNY—Stony Brook University New York
Wes PayneSouthwest Tennessee Community College
Dyan PeaseSacramento City College
John PharrCedar Valley College
Shirley PolejewskiUniversity of St. Thomas
Daniel PowroznikChesapeake College
Krista PriceHeald College
Larry ProberRider University
Kathy PullinsColumbus State Community College
Tom ReadingIvy Tech State College
Susan RoachGeorgia Southern University
Dave RobinsonUniversity of California—Berkely
Marianne SebokCommunity College of Southern Nevada—West Charles
Cheryl StansfieldNorth Hennepin Community College
Ron StolleKent State University—Kent
Jeff StromVirginia Western Community College
Cheryl StansfieldNorth Hennepin Community College
Steve TilleyGainesville College
Lawrence YaxPensacola Junior College—Warrington
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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. FerrellGeoffrey HirtLinda Ferrell– July 2004
We extend special appreciation to the following people whoreviewed previous editions:
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AuthorsO.C. FerrellO.C. Ferrell is Chair of the Department of Marketing and the Ehrhardt, Keefe,Steiner, and Hottman P. C. Professor of Business Administration at Colorado StateUniversity. He also has held faculty positions at the University of Memphis, Univer-sity of Tampa, Texas A&M University, Illinois State University, and Southern IllinoisUniversity, as well as visiting positions at Queen’s University (Ontario, Canada), Uni-versity of Michigan (Ann Arbor), University of Wisconsin (Madison), and Univer-sity of Hannover (Germany). He has served as a faculty member for the Master’sDegree 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 businessethics, corporate citizenship, and marketing.
Dr. Ferrell is widely recognized as a leading teacher and scholar in business. Hisarticles have appeared in leading journals and trade publications. In addition toBusiness: A Changing World, he has two other textbooks, Marketing: Concepts andStrategies and Business Ethics: Ethical Decision Making and Cases, that are marketleaders in their respective areas. He also has coauthored other textbooks for market-ing, management, business and society, and other business courses, as well as a tradebook on business ethics. He chaired the American Marketing Association (AMA)ethics committee that developed its current code of ethics. He was the vice presidentof 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 us-ing this textbook. This gives him the opportunity to develop, improve, and test thebook and ancillary materials on a first-hand basis. He has traveled extensively towork with students and understands the needs of instructors of introductory busi-ness courses. He lives in Fort Collins, Colorado, and enjoys skiing, golf, and interna-tional travel.
Geoffrey A. HirtGeoffrey A. Hirt is currently Professor of Finance at DePaul University and aMesirow Financial Fellow. From 1987 to 1997 he was Chairman of the Finance De-partment at DePaul University. He teaches investments, corporate finance, andstrategic planning. He developed and was director of DePaul’s M.B.A. program inHong Kong and has taught in Poland, Germany, Thailand, and Hong Kong. He re-ceived his Ph.D. in Finance from the University of Illinois at Champaign–Urbana, hisM.B.A. from Miami University of Ohio, and his B.A. from Ohio-Wesleyan Univer-sity. Dr. Hirt has directed the Chartered Financial Analysts Study program for the In-vestment Analysts Society of Chicago since 1987.
Dr. Hirt has published several books, including Foundations of Financial Manage-ment published by Irwin/McGraw-Hill. Now in its tenth edition, this book is used atover 600 colleges and universities worldwide. It has been used in over 31 countriesand has been translated into over 10 different languages. Additionally, Dr. Hirt is
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AUTHORS xxiii
well-known for his text, Fundamentals of Investment Management, also published byIrwin/McGraw-Hill, and now in its seventh edition. He plays tennis and golf, is a mu-sic lover, and enjoys traveling with his wife, Linda.
Linda FerrellDr. Linda Ferrell is Assistant Professor in the Management & Marketing Departmentat the University of Wyoming. She completed her Ph.D. in Business Administration,with a concentration in management, at the University of Memphis. She has taughtat the University of Tampa, Colorado State University, University of Northern Col-orado, and the University of Memphis. She also team teaches a class at ThammasatUniversity in Bangkok, Thailand.
Her work experience as an account executive for McDonald’s and Pizza Hut’s ad-vertising agencies supports her teaching of advertising, marketing management,marketing ethics and marketing principles. She has published in the Journal of Pub-lic Policy and Marketing, Journal of Business Research, Journal of Business Ethics, Jour-nal of Marketing Education, Marketing Education Review, Journal of Teaching BusinessEthics, Case Research Journal, and is co-author of Business Ethics: Ethical DecisionMaking and Cases (6th edition) and Business and Society (2nd edition). She is theethics content expert for the AACSB Ethics Education Resource Center(www.aacsb.edu/eerc) and was co-chair of the 2004 AACSB Teaching Business EthicsConference in Boulder, CO.
Dr. Ferrell has served as Vice President of Development for the Academy of Mar-keting Science and is on the Board of Directors of the Marketing Management As-sociation. She frequently speaks to organizations on “Teaching Business Ethics,”including the Direct Selling Education Foundation’s training programs and AACSBInternational Conferences. She has served as an expert witness in cases related to ad-vertising, business ethics, and consumer protection.
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Brief Contents
P A R T 1 Business in a Changing World 11 The Dynamics of Business and Economics 22 Business Ethics and Social Responsibility 30Appendix A The Legal and Regulatory Environment 603 Business in a Borderless World 744 Managing Information Technology and E-Business 104Part 1 Role-Play Exercise: National Farm and Garden, Inc. 132
P A R T 2 Starting and Growing a Business 1335 Options for Organizing Business 1346 Small Business, Entrepreneurship, and Franchising 162Appendix B The Business Plan 188Part 2 Role-Play Exercise: Human Response, Inc. 195
P A R T 3 Managing for Quality and Competitiveness 1977 The Nature of Management 1988 Organization, Teamwork, and Communication 2269 Managing Service and Manufacturing Operations 254Part 3 Role-Play Exercise: McDougal Aircraft Company 281
P A R T 4 Creating the Human Resource Advantage 28310 Motivating the Workforce 28411 Managing Human Resources 308Appendix C Personal Career Plan 338Part 4 Role-Play Exercise: eQuality Assured 344
P A R T 5 Marketing: Developing Relationships 34512 Customer-Driven Marketing 34613 Dimensions of Marketing Strategy 370Part 5 Role-Play Exercise: RedRiverShops.com 404
P A R T 6 Financing the Enterprise 40514 Money and the Financial System 40615 Accounting and Financial Statements 43216 Financial Management and Securities Markets 464Part 4 Role-Play Exercise: Dana Fashion Designs, Inc. 491Appendix D Personal Financial Planning 492
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Contents
P A R T 1Business in a Changing World 1CHAPTER 1The Dynamics of Business and Economics 2
Enter the World of BusinessSatellite Radio Offers More Choices 3Introduction 4The Nature of Business 4
The Goal of Business 4
The People and Activities of Business 5
Why Study Business? 8
The Economic Foundations of Business 8Economic Systems 9
The Free-Enterprise System 11
The Forces of Supply and Demand 12
Responding to Business ChallengesThe Ups and Downs of Beef Prices 13
The Nature of Competition 14
Solve the DilemmaMrs. Acres Homemade Pies 14Consider Ethics and ResponsibilityHas Wal-Mart Become Too Powerful? 15
Economic Cycles and Productivity 16
The American Economy 18A Brief History of the American Economy 19
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
Can You Learn Business in a Classroom? 24Explore Your Career Options: Changes 24Review Your Understanding 26Revisit the World of Business 26Learn the Terms 27Check Your Progress 27Get Involved 27
Build Your Skills: The Forces of Supply and Demand 27e-Xtreme Surfing 28See for Yourself Videocase: Starbucks 29
CHAPTER 2Business Ethics and Social Responsibility 30
Enter the World of BusinessThe Home Depot Helps Build Better Communities 31Introduction 32Business Ethics and Social Responsibility 32The Role of Ethics in Business 33
Recognizing Ethical Issues in Business 35
Consider Ethics and ResponsibilityKFC Criticized for Promoting Health Benefits of Fried
Chicken 38Consider Ethics and ResponsibilityQwest Struggles with Legal Issues 40Solve the DilemmaCustomer Privacy 41
Making Decisions about Ethical Issues 41
Improving Ethical Behavior in Business 42
The Nature of Social Responsibility 44Social Responsibility Issues 46
Explore Your Career Options: Business Ethics 54Review Your Understanding 55Revisit the World of Business 55Learn the Terms 55Check Your Progress 56Get Involved 56Build Your Skills: Making Decisions about EthicalIssues 56e-Xtreme Surfing 57See for Yourself Videocase: Money and Ethics 58
APPENDIX A: The Legal and Regulatory Environment 60
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CONTENTS xxvii
CHAPTER 3Business in a Borderless World 74
Enter the World of BusinessThe Porsche Cayenne Becomes a Global Pacesetter 75Introduction 76The Role of International Business 76
Why Nations Trade 76
Trade between Countries 78
Balance of Trade 78
International Trade Barriers 79Economic Barriers 79
Legal and Political Barriers 80
Social and Cultural Barriers 83
Think GloballyForeign Brands Challenge Coca-Cola and PepsiCo 85
Technological Barriers 86
Trade Agreements, Alliances, and Organizations 86General Agreement on Tariffs and Trade (GATT) 87
The North American Free Trade Agreement (NAFTA) 88
Solve the DilemmaGlobal Expansion or Business as Usual? 89
The European Union (EU) 89
Asia-Pacific Economic Cooperation (APEC) 90
World Bank 90
International Monetary Fund 91
Getting Involved in International Business 91Exporting and Importing 91
Trading Companies 92
Licensing and Franchising 92
Contract Manufacturing 93
Outsourcing 94
Joint Ventures and Alliances 94
Think GloballyIndia: Beyond Outsourcing 95
Direct Investment 95
International Business Strategies 96Developing Strategies 96
Managing the Challenges of Global Business 97
Explore Your Career Options: Preparing for the Borderless World 97Review Your Understanding 98Revisit the World of Business 99Learn the Terms 99
Check Your Progress 99Get Involved 100Build Your Skills: Global Awareness 100e-Xtreme Surfing 101See for Yourself Videocase: BP Builds a Global Brand 101
CHAPTER 4Managing Information Technology and E-Business 104
Enter the World of BusinessReinventing Amazon.com 105Introduction 106The Impact of Technology on Our Lives 106Managing Information 108
Management Information Systems 108
Collecting Data 109
The Internet 110Internet Users 112
Internet Uses 112
Emerging Technologies 114
Solve the DilemmaDeveloping Successful Freeware 115E-Business 115
The Nature of E-Business 115
E-Business Models 118
Growing a BusinesseBay Provides Opportunity for Small Business
Entrepreneurs 119Customer Relationship Management 120
Legal and Social Issues 121Privacy 122
Spam 123
Think GloballyEurope Takes the Lead in Privacy Protection 124
Identity Theft 125
Intellectual Property and Copyrights 126
Taxing the Internet? 126
The Dynamic Nature of Information Technology and E-Business 126
Explore Your Career Options 127Review Your Understanding 128Revisit the World of Business 128
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Learn the Terms 128Check Your Progress 129Get Involved 129Build Your Skills: Planning a Web Site 129e-Xtreme Surfing 130See for Yourself Videocase: Google: The Search Engine Success Story 130
PART 1 ROLE-PLAY EXERCISENational Farm and Garden, Inc. 132
P A R T 2Starting and Growing a Business 133CHAPTER 5Options for Organizing Business 134
Enter the World of BusinessA Company of Companies: Zingerman’s Deli 135Introduction 136Sole Proprietorships 137
Advantages of Sole Proprietorships 137
Disadvantages of Sole Proprietorships 138
Partnerships 140Types of Partnership 140
Articles of Partnership 140
Advantages of Partnerships 141
Disadvantages of Partnerships 142
Taxation of Partnerships 144
Corporations 144Creating a Corporation 144
Responding to Business ChallengesThe Longaberger Company Makes Baskets 145
Types of Corporations 145
Elements of a Corporation 148
Advantages of Corporations 149
Disadvantages of Corporations 150
Other Types of Ownership 151Joint Ventures 151
S Corporations 151
Solve the DilemmaTo Incorporate or Not to Incorporate 152
Limited Liability Companies 152
Cooperatives 152
Enhancing Business ProductivityHeartland Farm Foods Co-op Helps Preserve Beef—
and a Way of Life 153Trends in Business Ownership: Mergers and Acquisitions 153Explore Your Career Options: Evaluating a Job Offer 155Review Your Understanding 156Revisit the World of Business 157Learn the Terms 157Check Your Progress 157Get Involved 158Build Your Skills: Selecting a Form of Business 158e-Xtreme Surfing 159See for Yourself Videocase: United Files for Bankruptcy 159
CHAPTER 6Small Business, Entrepreneurship, and Franchising 162
Enter the World of BusinessKing’s Saddlery and King Ropes 163Introduction 164The 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 167
Advantages of Small-Business Ownership 169Independence 169
Growing a BusinessBurt’s Bees 170
Costs 170
Flexibility 171
Focus 171
Reputation 171
Disadvantages of Small-Business Ownership 171
High Stress Level 172
High Failure Rate 172
Starting a Small Business 174The Business Plan 174
Forms of Business Ownership 175
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Financial Resources 175
Solve the DilemmaThe Small-Business Challenge 176
Approaches to Starting a Small Business 176
Help for Small-Business Managers 179
Growing a BusinessOpening a Ben & Jerry’s Franchise 180The Future for Small Business 181
Demographic Trends 181
Technological and Economic Trends 182
Making Big Businesses Act “Small” 183Explore Your Career Options: Look to Small Business 183Review Your Understanding 184Revisit the World of Business 184Learn the Terms 185Check Your Progress 185Get Involved 185Build Your Skills: Creativity 185e-Xtreme Surfing 186See for Yourself Videocase: Dale Gray andCommunication Services, Inc. 187
APPENDIX B: The Business Plan 188
PART 2 ROLE-PLAY EXERCISEHuman Response, Inc. 195
P A R T 3Managing for Quality and Competitiveness 197CHAPTER 7The Nature of Management 198
Enter the World of BusinessManaging the State of California 199Introduction 200The Importance of Management 200Management Functions 201
Planning 201
Organizing 204
Staffing 204
Directing 205
Controlling 206
Types of Management 207Levels of Management 207
Areas of Management 210
Skills Needed by Managers 212Leadership 213
Enhancing Business ProductivityLeadership at General Motors Provides
Competitive Advantage 214Technical Expertise 215
Conceptual Skills 215
Analytical Skills 215
Human Relations Skills 216
Where Do Managers Come From? 216Decision Making 217
Recognizing and Defining the Decision Situation 217
Responding to Business ChallengesBuilding an Airline with Good Decisions 218
Developing Options 219
Analyzing Options 219
Selecting the Best Option 219
Implementing the Decision 219
Solve the DilemmaMaking Infinity Computers Competitive 220
Monitoring the Consequences 220
The Reality of Management 220Explore Your Career Options: Management Is Aliveand Well 221Review Your Understanding 222Revisit the World of Business 222Learn the Terms 223Check Your Progress 223Get Involved 223Build Your Skills: Functions of Management 223e-Xtreme Surfing 224See for Yourself Videocase: Carly Fiorina: The MostPowerful Woman in Business 225
CHAPTER 8Organization, Teamwork, and Communication 226
Enter the World of BusinessNASA Looks Inward Before Going Back to the Stars 227Introduction 228Organizational Culture 228
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Consider Ethics and ResponsibilityLessons from the WorldCom Scandal 230Developing Organizational Structure 230Assigning Tasks 232
Specialization 232
Departmentalization 233
Assigning Responsibility 236Delegation of Authority 236
Degree of Centralization 236
Span of Management 238
Organizational Layers 238
Forms of Organizational Structure 239Line Structure 239
Line-and-Staff Structure 239
Multidivisional Structure 240
Matrix Structure 241
The Role of Groups and Teams in Organizations 242Committees 243
Task Forces 244
Teams 244
Enhancing Business ProductivityWar Games to Learn TLC 245Solve the DilemmaQuest Star in Transition 246Communicating in Organizations 246
Formal Communication 246
Informal Communication Channels 248
Monitoring Communications 248
Explore Your Career Options: Flexibility First! 249Review Your Understanding 249Revisit the World of Business 250Learn the Terms 250Check Your Progress 250Get Involved 251Build Your Skills: Teamwork 251e-Xtreme Surfing 252See for Yourself Videocase: Lee Van Arsdale and the Delta Force Illustrate the Need for Teamwork and Communication 252
CHAPTER 9Managing Service and Manufacturing Operations 254
Enter the World of BusinessDesigning Products for a Better Customer Experience 255
Introduction 256The Nature of Operations Management 257
The Transformation Process 257
Operations Management in Service Businesses 258
Planning and Designing Operations Systems 261Planning the Product 261
Designing the Operations Processes 262
Planning Capacity 263
Planning Facilities 263
Solve the DilemmaPlanning for Pizza 266Managing the Supply Chain 267
Purchasing 267
Growing a BusinessCoal Creek Coffee Company Supplies the Best 268
Managing Inventory 268
Enhancing Business ProductivityEnsenda Outsources Same-Day Delivery 270
Outsourcing 270
Routing and Scheduling 271
Managing Quality 272Establishing Standards—ISO 9000 274
Inspection 275
Sampling 275
Explore Your Career Options: A Future in QualityAssurance 276Review Your Understanding 276Revisit the World of Business 277Learn the Terms 277Check Your Progress 277Get Involved 278Build Your Skills: Reducing Cycle Time 278e-Xtreme Surfing 279See for Yourself Videocase: New Belgium AchievesEfficiency with Social Responsibility 279
PART 3 ROLE-PLAYEXERCISEMcDougal Aircraft Company 281
P A R T 4Creating the Human ResourceAdvantage 283CHAPTER 10Motivating the Workforce 284
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Enter the World of BusinessSAS Makes Work Fun and Rewarding 285Introduction 286Nature of Human Relations 286Historical Perspectives on Employee Motivation 288
Classical Theory of Motivation 288
Enhancing Business ProductivityYum Brands Recognizes Employees
for Going the Extra Mile 289The Hawthorne Studies 290
Theories of Employee Motivation 291Maslow’s Hierarchy of Needs 291
Herzberg’s Two-Factor Theory 293
Enhancing Business ProductivityBringing Home the Bacon 294
McGregor’s Theory X and Theory Y 294
Theory Z 295
Variations on Theory Z 295
Equity Theory 296
Expectancy Theory 297
Strategies for Motivating Employees 297Behavior Modification 298
Job Design 298
Solve the DilemmaMotivating to Win 300
Importance of Motivational Strategies 301
Explore Your Career Options: Rating MetropolitanAreas 302Review Your Understanding 302Revisit the World of Business 303Learn the Terms 303Check Your Progress 303Get Involved 304Build Your Skills: Motivating 305e-Xtreme Surfing 305See for Yourself Videocase: The Container Store 305
CHAPTER 11Managing Human Resources 308
Enter the World of BusinessThe Apprentice: A Novel Approach to Hiring an Employee 309Introduction 310The Nature of Human Resources Management 310
Planning for Human Resources Needs 311Recruiting and Selecting New Employees 311
Recruiting 311
Selection 312
Legal Issues in Recruiting and Selecting 315Developing the Workforce 316
Training and Development 316
Assessing Performance 316
Turnover 318
Responding to Business ChallengesIBM Shrinks Its Workforce 320Compensating the Workforce 320
Financial Compensation 321
Solve the DilemmaMorale among the Survivors 322
Benefits 323
Enhancing Business ProductivityPet Perks 325Managing Unionized Employees 325
Collective Bargaining 326
Resolving Disputes 326
The Importance of Workforce Diversity 328The Characteristics of Diversity 328
Why Is Diversity Important? 329
The Benefits of Workforce Diversity 330
Affirmative Action 331
Explore Your Career Options: How Much Does It Pay? 332Review Your Understanding 332Revisit the World of Business 333Learn the Terms 333Check Your Progress 334Get Involved 334Build Your Skills: Appreciating and Valuing Diversity 334e-Xtreme Surfing 336See for Yourself Videocase: Hillerich & Bradsby Company: Makers of the Louisville Slugger 336
APPENDIX C: Personal Career Plan 338
PART 4 ROLE-PLAY EXERCISEeQuality Assured 344
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P A R T 5Marketing: Developing Relationships 345CHAPTER 12Customer-Driven Marketing 346
Enter the World of BusinessApple Takes a Bite out of the Music Industry 347Introduction 348Nature of Marketing 348
The Exchange Relationship 349
Functions of Marketing 349
The Marketing Concept 350
Evolution of the Marketing Concept 352
Developing a Marketing Strategy 353Selecting a Target Market 354
Developing a Marketing Mix 357
Marketing Research and Information Systems 359Embrace TechnologyLook-Look.com 360Solve the DilemmaWill It Go? 362Buying Behavior 362
Psychological Variables of Buying Behavior 362
Social Variables of Buying Behavior 363
Understanding Buying Behavior 364
The Marketing Environment 364Responding to Business ChallengesLow-Carb Diets Create Opportunities and Threats for the
Food Industry 365Explore Your Career Options: Customer Service in a Service Economy 366Review Your Understanding 366Revisit the World of Business 367Learn the Terms 367Check Your Progress 367Get Involved 367Build Your Skills: The Marketing Mix 368e-Xtreme Surfing 368See for Yourself Videocase: Fishing for Success:The Pike Place Fish Market 369
CHAPTER 13Dimensions of Marketing Strategy 370
Enter the World of BusinessTurkey & Gravy Brings Attention to Small Bottler 371Introduction 372The Marketing Mix 372Product Strategy 373
Developing New Products 373
Classifying Products 376
Product Line and Product Mix 377
Product Life Cycle 377
Identifying Products 379
Pricing Strategy 383Pricing Objectives 384
Specific Pricing Strategies 384
Distribution Strategy 385Marketing Channels 385
Responding to Business ChallengesChanges in American Eating Habits Create Opportunities
for Retailers 386Intensity of Market Coverage 389
Physical Distribution 390
Solve the DilemmaBetter Health with Snacks 391
Importance of Distribution in a Marketing Strategy 391
Promotion Strategy 391The Promotion Mix 392
Responding to Business ChallengesThe Perils of Using Celebrities in Advertising 394
Promotion Strategies: To Push or To Pull 397
Objectives of Promotion 398
Promotional Positioning 399
Explore Your Career Options: Diverse Opportunities in Marketing 399Review Your Understanding 399Revisit the World of Business 400Learn the Terms 400Check Your Progress 401Get Involved 401Build Your Skills: Analyzing Motel 6‘s Strategy 401
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e-Xtreme Surfing 402See for Yourself Videocase: Hotel Monaco 402
PART 5 ROLE-PLAY EXERCISERedRiverShops.com 404
P A R T 6Financing the Enterprise 405CHAPTER 14Money and the Financial System 406
Enter the World of BusinessThe Iraqi Dinar in Crisis 407Introduction 408Money in the Financial System 408
Functions of Money 409
Characteristics of Money 409
Types of Money 411
Embrace TechnologyCheck Cashing for the Unbanked 413The American Financial System 414
The Federal Reserve System 415
Banking Institutions 418
Embrace TechnologyING Direct Wants to Be Your Bank 420
Nonbanking Institutions 421
Solve the DilemmaSeeing the Financial Side of Business 422
Electronic Banking 424
Challenge and Change in the Commercial BankingIndustry 426
Explore Your Career Options: What Do Economists Do? 427Review Your Understanding 427Revisit the World of Business 428Learn the Terms 428Check Your Progress 428Get Involved 429Build Your Skills: Managing Money 429e-Xtreme Surfing 429See for Yourself Videocase: Bank One: Keeping UpWith Global Trends 430
CHAPTER 15Accounting and Financial Statements 432
Enter the World of BusinessThe Public Company Accounting Oversight Board 433Introduction 434The Nature of Accounting 434Consider Ethics and ResponsibilityLessons from the Enron Scandal 435
Accountants 435
Accounting or Bookkeeping? 437
The Uses of Accounting Information 437
Think GloballyParmalat: An “Italian Enron”? 440The Accounting Process 440
The Accounting Equation 441
Double-Entry Bookkeeping 441
The Accounting Cycle 442
Financial Statements 444The Income Statement 444
The Balance Sheet 448
The Statement of Cash Flow 450
Ratio Analysis: Analyzing Financial Statements 454Profitability Ratios 455
Asset Utilization Ratios 455
Liquidity Ratios 456
Solve the DilemmaExploring the Secrets of Accounting 457
Debt Utilization Ratios 457
Per Share Data 458
Industry Analysis 458
Explore Your Career Options: More Power to the Accountants 459Review Your Understanding 459Revisit the World of Business 460Learn the Terms 460Check Your Progress 461Get Involved 461Build Your Skills: Financial Analysis 461e-Xtreme Surfing 462See for Yourself Videocase: AON Manages a DiverseArray of Goods and Services 462
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CHAPTER 16Financial Management and Securities Markets 464
Enter the World of BusinessHershey Foods Corporation Stock Provides a Social
Contribution 465Introduction 466Managing Current Assets and Liabilities 466Enhancing Business ProductivityWorking Capital Problems in a Small Business 467
Managing Current Assets 467
Managing Current Liabilities 470
Managing Fixed Assets 472Capital Budgeting and Project Selection 473
Assessing Risk 473
Pricing Long-Term Money 474
Solve the DilemmaSurviving Rapid Growth 475Financing with Long-Term Liabilities 475
Bonds: Corporate IOUs 476
Types of Bonds 477
Financing with Owners’ Equity 477
Investment Banking 479The Securities Markets 480
Organized Exchanges 481
Embrace TechnologyGoogle’s Dutch Auction 482
The Over-the-Counter Market 482
Measuring Market Performance 483
Explore Your Career Options: Financial Management 485Review Your Understanding 486Revisit the World of Business 486Learn the Terms 487Check Your Progress 487Get Involved 487Build Your Skills: Choosing among Projects 487e-Xtreme Surfing 488See for Yourself Videocase: The New York StockExchange Undergoes Governance Reform 489
PART 6 ROLE-PLAY EXERCISEDana Fashion Designs, Inc. 491
APPENDIX D: Personal Financial Planning 492
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