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Business
A Changing World
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Business
Fifth Edition

A Changing World

O. C. Ferrell
Colorado State University

Geoffrey Hirt
DePaul University

Linda Ferrell
University of Wyoming

Boston Burr Ridge, IL Dubuque, IA Madison, WI New York

San Francisco St. Louis Bangkok Bogot Caracas Kuala Lumpur
Lisbon London Madrid Mexico City Milan Montreal New Delhi
Santiago Seoul Singapore Sydney Taipei Toronto
fer73587_fm.qxd 11/16/04 12:39 PM Page iv

BUSINESS: A CHANGING WORLD

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY,
10020. Copyright 2006, 2003, 2000, 1996, 1993 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication
may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written
consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or
transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOW/DOW 0 9 8 7 6 5 4

ISBN 0-07-297358-7

Editorial director: John E. Biernat

Sponsoring editor: Ryan Blankenship
Senior developmental editor: Christine Scheid
Executive marketing manager: Ellen Cleary
Media producer: Benjamin Curless
Lead project manager: Mary Conzachi
Senior production supervisor: Sesha Bolisetty
Lead designer: Pam Verros
Photo research coordinator: Ira C. Roberts
Photo researcher: Mike Hruby
Media project manager: Joyce J. Chappetto
Supplement producer: Gina F. DiMartino
Developer, Media technology: Brian Nacik
Cover/interior design: Maureen McCutcheon
Typeface: 10.5/12 Minion
Compositor: Carlisle Communications, Ltd.
Printer: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data

Ferrell, O.C.
Business : a changing world / O.C. Ferrell, Geoffrey Hirt, Linda Ferrell.5th ed.
p. cm.
Includes index.
ISBN 0-07-297358-7 (alk. paper)
1. Business. 2. ManagementUnited States. I. Hirt, Geoffrey A. II. Ferrell, Linda. III.
Title.
HF 1008.F47 2006
650--dc22
2004042321

www.mhhe.com
fer73587_fm.qxd 11/16/04 12:39 PM Page v

To Kathlene Ferrell
To Linda Hirt
To Norlan and Phyllis Nafziger
fer73587_fm.qxd 11/19/04 10:50 AM Page vi

Welcome to
Where other authors entered the essentials
market with ground down versions of their
hardback editions, we entered it with a book
developed from the ground up to effectively and
efficiently teach Introduction to Business. We focused on the needs of
the essentials market from the very beginning. There is so much information available to
students today: the Internet, magazines, newspapers, television, radio, encyclopedic textbooks,
trade booksthe list is endless. You can overwhelm a student with too much information too
soon in providing an understanding of the world of business. Our goal is too selectively provide
the right balance of content and application to engage students and heighten their interest in
studying about business concepts.

Our book has been successful because we provide a real-world, comprehensive framework in a compact
format. Examples, boxed features, and video cases are up to date and make business come alive for
students. Our Web site and supplementary classroom teaching materials provide support to enhance the
learning experience. When we started revising the fifth edition, 24 Introduction to Business instructors
were asked to provide reviews of each chapter. This analysis yielded strong praise for the previous
edition, but also provided directions for continued improvement. The consensus indicated the need
for greater balance in coverage of topics, avoiding the overemphasis of trendy business fads. We
gained insight into the types of companies and nonprofit organizations to focus on in the boxes,
examples, and cases that are most useful in the classroom.

We would like to welcome Linda Ferrell, University of Wyoming, to the author team. Linda
brings a rich background of business experience as well as a successful academic career to
the team. As an advertising account executive on the Pizza Hut and McDonalds
accounts, her experience in working with franchisees, agencies, and corporations has
filtered into the book. Her small business experience working with small retailers
has broadened our perspective and appreciation of this area. She also
pioneered and co-developed the role-playing exercises at the end of
each part. With her Ph.D. in management from the University of

ground up Memphis, she complements the author team in content

specialization.

vi
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the Fifth Edition

There have been many dramatic changes in business since the
fourth edition was published. We have learned that the Internet and
e-business continue to evolve, but have not completely reshaped the world of
business. We explore Googles success in e-commerce and its dutch auction method of
selling its stock. The interface between business and government has become even more
significant as government policies have affected interest rates, regulations, and entire
industries (such as accounting). The ramifications of the Sarbanes-Oxley Act and corporate
governance are integrated at the appropriate level for this course. At the moment, the
dramatic growth of developing countries such as China is having a tremendous impact on the
prices of commodities and on global competition. Outsourcing has become a popular way for
businesses to stay competitive, but is controversial among workers and communities negatively
affected by such decisions. Companies such as IBM are examined to understand the business
rationale on outsourcing as well as the role of countries such as India in the outsourcing debate.
These as well as many other evolving issues are carefully addressed in the fifth edition.

One thing weve learned over the last few years is that business has to be open and fair to all
stakeholders, including investors, employees, customers, and members of society. We explore the
Enron, WorldCom, and Parmalat business failures that affected many of us. On the other hand,
we look at the highly responsible acts of companies such as Hershey Foods, Starbucks, and
Home Depot. Introduction to Business students need to understand that most businesses are
responsible and have value systems that encourage and even require ethical and responsible
conduct. On the other hand, the conduct of some business leaders and their organizations has
damaged the reputation of the world of business. Students need to discuss and understand these
events to be able to defend business and develop as ethical business leaders. The fifth edition
integrates these concerns into every chapter in content, examples, and boxes. We have written a
supplement for instructors on teaching business ethics in Introduction to Business.

Our hope is that all of our readers, students and instructors

alike, find Business: A Changing World to be what we have
striven to make it: the best value available for helping to
teach and learn Introduction to Business.
O.C., Geoff, Linda
vii
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Created from
the ground up,
The best selling paperback text on the market, Business: A Changing World was
built from the ground upthat is, developed and written expressly for faculty
and students who value a brief, flexible, and affordable paperback with the most
up-to-date coverage available.

Conversly, most brief Intro to Business textbooks on the market today are simply
ground-down versions of much longer hardcover books. None of these books is
truly designed to meet the needs of students or instructors; theyre afterthoughts,
products chiefly designed to leverage existing content, not to help you teach your
course.

With market-leading teaching support and fresh content and examples, Business:
A Changing World offers just the mix of currency, flexibility, and value that you
need. It is the fastest-growing bookand the best value availablein the brief
Introductory Business market.

What sets Ferrell/Hirt/Ferrell apart from the competition? An unrivaled mixture

of current content, topical depth, and the best teaching support around:

The Freshest Topics Because it isnt tied to the revision cycle

of a larger book, Business: A Changing
and Examples
World inherits no outdated or irrelevant
examples or coverage. Everything in the
fifth edition reflects the very latest
developments in the business world, from
Googles dutch auction approach to
selling its stock, to the controversy over
outsourcing. In addition, ethics continues
to be a key issue and Ferrell uses
Consider Ethics and Social
Responsibility boxes to instill in students
the importance of ethical conduct in
business.

viii
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Its easy for students taking their first steps into business
to become overwhelmed. Longer books try to solve this
problem by chopping out examples or topics to make ad
hoc shorter editions. Business: A Changing World
carefully builds just the right mix of coverage and
applications to give your students a firm grounding in
business principles. Where other books have you
sprinting through the semester to get everything in,
Just Enough of a Good Thing
Ferrell allows you the breathing space to explore topics
and incorporate other activities that are important to
you and your students.

Teaching Assistance that

Makes a Difference
The first and often most serious hurdle in teaching is
engaging your students interest, making them
understand how textbook material plays a very real
role in real business activities. The instructors
material for Business: A Changing World is full of
helpful resources that enable you to do this, including
detailed teaching notes and additional material in the
Instructors Manual, even for each text parts role-
playing exercises. Furthermore, the new Active
Classroom Resource Manual is loaded with
additional team projects, cases, and exercises.

Theres much more to Business: A Changing World,

and much more it can do for your course. To learn about Ferrells great
pedagogical features and top-notch ancillaries, keep reading.

not ground
down ix
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Getting a Handle
on Business
Business: A Changing Worlds
pedagogy helps your students get the most
out of their reading, from handy outlines at
the beginning of the chapter to a range of
questions and exercises at the end of it.

Chapter Outlines
CHAPTER OUTLINE
Introduction
Organization,
These provide a useful overview
Organizational Culture
Developing Organizational
Teamwork, and
of all the topics covered in the Structure
Assigning Tasks
Communication
chapter, giving students a sneak Specialization
Departmentalization
preview of what theyll be
Assigning Responsibility
learning. Special expanded Delegation of Authority OBJECTIVES
Degree of Centralization After reading this chapter, you will be able to:
outlines are available on the Span of Managment
Organizational Layers
Define organizational structure and relate how organizational
books Online Learning Center structures develop.
Forms of Organizational Describe how specialization and departmentalization help an
(see page xvii). Structure organization achieve its goals.
Line Structure
Distinguish between groups and teams and identify the types of
Line-and-Staff Structure groups that exist in organizations.
Multidivisional Structure
Matrix Structure
Determine how organizations assign responsibility for tasks and
delegate authority.
The Role of Groups and Compare and contrast some common forms of organizational

OBJECTIVES Chapter Objectives

After reading this chapter, you will be able to: These appear at the beginning of
Define organizational structure and relate how organizational each chapter to provide goals
structures develop.
Describe how specialization and departmentalization help an
for students to reach in their
organization achieve its goals. reading. The objectives are then
Distinguish between groups and teams and identify the types of used in the Review Your
groups that exist in organizations.
Determine how organizations assign responsibility for tasks and
Understanding, the summary at
delegate authority. the end of each chapter, and
Compare and contrast some common forms of organizational help the students gauge whether
structure.
Describe how communication occurs in organizations.
theyve properly learned and
Analyze a businesss use of teams. retained the material.

x
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Chapter 8 NASA Looks Inward Before Going Back

to the Stars
After the space shuttle Columbia broke up on reentry in 2003, killing all seven
astronauts on board, the National Aeronautics and Space Agency (NASA) Chapter-Opening

Enter the World of Business

spent more than a year reexamining itself as well as studying the circum-
stances surrounding the catastrophe in an effort to prevent future accidents

Organization, Vignette
CHAPTER OUTLINE in 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, even
Introduction while it continued to oversee the construction of the International
Organizational Culture
Developing Organizational
Teamwork, and Space Station and its ongoing program of unmanned explorations of
nearby planets. To address these challenges, NASA was confronted
Structure
Assigning Tasks
Communication with the need for an attitude adjustment.
In addition to careful analysis of the Columbia disaster, NASA employed the
consulting firm Behavioral Sciences Technology (BST) to assess what role These anecdotes neatly illustrate
Specialization the agencys values and culture might have played. The consulting firm found
Departmentalization
that the agencys can-do culture may have stifled employees willingness to
Assigning Responsibility
Delegation of Authority
Degree of Centralization
OBJECTIVES
speak out about concerns that ultimately led to the destruction of the Colum-
bia. Astronaut Jim Wetherbee, a veteran of six shuttle missions, said, There
are a lot of people who wont speak up. They were afraid of being rendered
the real-world implications of the
After reading this chapter, you will be able to:
Span of Managment
Organizational Layers

Forms of Organizational

Define organizational structure and relate how organizational
structures develop.
Describe how specialization and departmentalization help an
ineffective, which at NASA is the equivalent of being fired. A survey of
NASAs 19,000 employees found many who shared that view.
continued
business issues students will
Structure organization achieve its goals.
Line Structure
Line-and-Staff Structure
Multidivisional Structure
Distinguish between groups and teams and identify the types of
groups that exist in organizations.
encounter in their reading. A
Determine how organizations assign responsibility for tasks and

Revisit the World of Business

Matrix Structure delegate authority.
The Role of Groups and Compare and contrast some common forms of organizational
Teams in Organizations structure.
Committees

segment at the end of the
Describe how communication occurs in organizations.
Task Forces
Teams Analyze a businesss use of teams.

Communicating in
Organizations
Formal Communication
Informal Communication
chapter requires students to
Channels
Monitoring
Communication
return to the Opening Vignette to
answer follow-up questions,
calling on the insight theyve
gained from reading the chapter.

Solve the
Solve the Dilemma
Quest Star in Transition Dilemma
Quest Star (QS), which manufactures quality However, employees who are not self-motivated team
These boxes give
stereo loudspeakers, wants to improve its
ability to compete against Japanese firms. Accordingly, the
players are having difficulty getting used to their peers au-
thority within this system. Upper-level managers face stress
students an
company has launched a comprehensive quality-improvement
program for its Iowa plant. The QS Intracommunication Lead-
and frustration because they must train workers to supervise
themselves. opportunity to
ership Initiative (ILI) has flattened the layers of management.
The program uses teams and peer pressure to accomplish the
1. What techniques or skills should an employee have to
assume a leadership role within a work group?
think creatively in
plants goals instead of multiple management layers with their
limited opportunities for communication. Under the initiative,
2. If each work group has a team representative, what
problems will be faced in supervising these
solving a realistic
employees make all decisions within the boundaries of their re-
representatives?
sponsibilities, and they elect team representatives to coordi-
nate with other teams. Teams are also assigned tasks ranging
3. Evaluate the pros and cons of the system developed by QS. business
from establishing policies to evaluating on-the-job safety.
situation.

Explore Your Career Options

Flexibility First!
Most business school students major in marketing, fi- may find that you are
Explore Your Career nance, accounting, management information systems,
general management, or sales. Upon graduation, they gen-
for which you were t
employees are often
Options erally expect to be hired by a company to do more of what- to make the organiz
ever it is they were trained to do as a student. For example, can come as a shoc
These end-of-chapter features an accounting major expects to be an accountant. How- cover that, in additio
offer valuable advice on a wide ever, depending upon the way the company is organized, doing bookkeeping, s
the roles played by the employees will differ. Likewise, employ
spectrum of business career If you are hired by a large, divisionalized company, you heavy use of teams
choices. might expect to practice your profession among many oth- may find that the com
ers doing the same or similar tasks. You are likely to learn skills learned in sch
one part of the business fairly well but be completely un- you may find that yo
informed about other departments or divisions. A wise and expertise, but yo
employee in this situation will learn to request occasional engineering, comput
transfers to other divisions to learn all aspects of the cor- to understand the nee
poration thereby improving his or her usefulness to the bers of the team Org
xi
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Getting a Handle
on Business
These features, scattered liberally throughout the book, use real
and often familiar companies to highlight various issues of
importance in business today.

Consider Ethics & Social Responsibility

Consider Ethics & Social Responsibility
Ethics in business continues to be a major public concern, and it is
vital for students to understand that unethical conduct hurts
investors, customers, and indeed the entire business world. These
features highlight the importance of ethical conduct and show how
businesses can serve a vital, positive function in their communities.

Think Globally
Think Globally
The global economy is
Embrace Technology
CHAPTER 2 The Dynamics of Business and Economics

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.
Business technology means more than
computers. From cell phones and
PDAs to sophisticated project
management and inventory tracking
systems, Embrace Technology boxes
teach students just how pervasive
technology is throughout the business
world.

Embrace Technology
xii
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Growing a Business
1
Growing a Business
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 thats vital to everyone

at all levels of business.

xiii
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End-of-Chapter CHAPTER 2 Business Ethics and Social Responsibility 55

Material
Review Your Understanding
Define business ethics and social responsibility and
examine their importance.
Business ethics refers to principles and standards that de-
fine acceptable business conduct. Acceptable business
behavior is defined by customers, competitors, govern-
ment regulators, interest groups, the public, and each indi-
56 PART 1 Business in a Changing World
Explain the four dimensions of social responsibility.
The four dimensions of social responsibility are economic
Check Your Progress
(being profitable), legal (obeying the law), ethical (doing
what is right, just, and fair), and voluntary (being a good CHAPTER 2 Business Ethics and Social Responsibility 57
corporate citizen). 1. Define business ethics. Who determines whether a 6. List and discuss the arguments for and against social
business activity is ethical? Is unethical conduct responsibility by business (Table 2.7). Can you think

Whether your students discover it viduals personal moral principles and values. Social
responsibility is the obligation an organization assumes to
maximize its positive impact and minimize its negative im-
Debate an organizations always
owners, employees, consumers,
the community.
2. Distinguish
illegal?
social responsibilities
the environment,
responsibility.
between ethics
to
andand social
of any additional arguments (for or against)?
Your group draws cards 4, 7, 36, and 40.
7. What responsibilities does a business have toward
its employees?
4 7
pact on society. Socially responsible businesses win the 3. Why proper
has ethics become soproce-
important in business? 8. What responsibilities does business have with regard

on their own or you make it an

Businesses must maintain accounting
trust and respect of their employees, customers, and soci- dures, provide all relevant
4. What information about
is an ethical the What
issue? perfor-are some of the to the environment? What steps have been taken by Mini-Case Mini-Case
ety and, in the long run, increase profits. Ethics is important some responsible businesses to For severalthe
minimize months
negativenow, one of your colleagues has You are aware that a fellow employee uses drugs on
mance of the firm to investors, and protect
ethical issues namedthe owners
in your text? Why are they
in business because it builds trust and confidence in busi- rights and investments.ethical
In relations
issues? with employees, impact of their activities on thebeen slacking off, and you are getting stuck doing the
environment? the job. Another friend encourages you to confront the
ness relationships. Unethical actions may result in nega- work. You think it is unfair. What do you do? person instead of informing the supervisor. What do

integral part of your classroom

businesses are expected5. Whatto provide
is a codea ofsafe workplace,
ethics? How can one reduce 9. What are a businesss responsibilities toward the
tive publicity, declining sales, and even legal action. you do?
pay employees adequately for theirbehavior
unethical work, and treat them
in business? community in which it operates? Potential Answers
fairly. Consumerism refers to the activities undertaken by A. Recognize this as an opportunity for you to Potential Answers
Detect some of the ethical issues that may arise in
independent individuals, groups, and organizations to demonstrate how capable you are. A. You speak to the alleged user and encourage
business.
protect their rights as consumers. Increasingly, society

and homework assignments, the

B. Go to your supervisor and complain about this him to get help.
An ethical issue is an identifiable problem, situation, or op-
portunity requiring a person or organization to choose from
Get Involved
expects businesses to take greater responsibility for the
environment, especially with regard to animal rights, as
unfair workload.
C. Discuss the problem with your colleague in an
B. You elect to tell your supervisor that you sus-
pect an employee is using drugs on the job.
among several actions that must be evaluated as right or well as water, air, land,
1. and
Discussnoise pollution.
some recentMany
examplesbusi-of businesses attempt toand
that the federal government should establish solve the problem without involving C. You confront the alleged user and tell him either
wrong. Ethical issues can be categorized in the context of nesses engage in activities to make the communities
practices.inClassify these others. to quit using drugs or you will turn him in.

end-of-chapter material provides a their relation with conflicts of interest, fairness and hon-
esty, communications, and business associations. work.
engaging
which they operate betterpractices
places for
in unethical
aseveryone to live and
issues of conflict
and honesty, communications, or business
of interest, fairness

relationships. Why do you think the businesses

enforce ethical standards? How do you
businesspeople feel?
think
D. Discuss the problem with the human resources
department.
3. Find some examples of socially responsible
businesses in newspapers or business journals.
D. Report the matter to employee assistance.

Specify how businesses can promote ethical behavior Evaluate the ethics of a businesss decision.

great opportunity to reinforce and

chose to behave unethically? What actions might the Explain why you believe their actions are socially
by employees. 36 40
The Solve the Dilemma businesses
box on pagehave taken? an ethi-
41 presents responsible. Why do you think the companies chose
Businesses can promote ethical behavior by employees by cal dilemma at Checkers Pizza. Using
2. Discuss theclass
with your material
somepre-
possible methods of to act as they did? Mini-Case Mini-Case
limiting their opportunity to engage in misconduct. Formal sented in this chapter, you should be
improving able standards
ethical to analyzeinthebusiness. Do you think You work for a company that has implemented a policy Your co-worker is copying company-purchased soft-

expand upon the chapter content. codes 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 providing
punishments for those who fail to comply.
Revisit the World of Business
1. Why do you think Home Depot has such a strong
commitment to communities?
2. What are the social responsibility benefits to a
company that recycles, uses environmentally
responsible forest products, and encourages
customers to use energy efficient products?
ethical issues present in that
the dilemma,
business evaluate
plan, and develop a course of action for the firm.
Barnards
should regulate its own activities or of a smoke-free environment. You discover employees
smoking in the restrooms of the building. You also
smoke and dont like having to go outside to do it. What
ware and taking it home. You know a certain program
costs $400, and you have been saving for a while to buy
it. What do you do?
do you do?
Build Your Skills Potential Answers
Potential Answers
A. You figure you can copy it too since nothing has
MAKING DECISIONS ABOUT ETHICAL ISSUES A. You ignore the situation. ever happened to your co-worker.
B. You confront the employees and ask them to stop. B. You tell your co-worker he cant legally do this.
Background: Task: C. You join them, but only occasionally. C. You report the matter to the ethics office.
3. Do you think Home Depot would be as successful if it
The merger of Lockheed and Martin Mari- Form into groups of four to six managers and appoint a
D. You contact your ethics or human resources D. You mention this to your supervisor.
was not involved in social responsibility initiatives?
etta created Lockheed Martin, the number- group leader who will lead a discussion ofrepresentative
the case, obtainand ask him or her to handle the
Why or why not?
one company in the defense industryan a consensus answer to the case, and be situation.
the one to report
industry that includes such companies as McDonnell Dou- the groups answers to the instructor. You will have five
glas and Northrop Grumman. minutes to reach each decision, after which time, the in-
You and the rest of the class are managers at Lockheed structor will give the point values and rationale for each
Martin Corporation, Orlando, Florida. You are getting ready choice. Then you will have five minutes for the next case,

E
to do the group exercise in an ethics training session. The etc., until all four cases have been completed. Keep track
Learn the Terms training instructor announces you will be playing Gray of your groups score for each case; the winning team will

bribes 36 consumerism 49
Matters: The Ethics Game. You are told that Gray Matters,
plagiarism 40
which was prepared for your companys employees, is also
be the group scoring the most points.
eXtreme Surfing
Since this game is designed to reflect life, you may be-
business ethics 32 corporate citizenship 45 social
playedresponsibility 32 including Harvard University, and
at 41 universities, lieve that some cases lack clarity or that some of your
codes of ethics 42 ethical issue 35 at 65 other companies.
whistleblowing 43 Although there are 55 scenarios in choices are not as precise as you would have liked. Also,
Gray Matters, you will have time during this session to some cases have only one solution, while
Transparency International
others have Provides a listing of the most corrupt countries in the world.
complete only the four scenarios that your group draws more than one solution. Each choice is www.transparency.org
assessed points to
from the stack of cards.61 reflect which answer is the most correct. Your groups
Business task Responsibility
for Social Offers news and resources about social responsibility in business
is to select only one option in each case.
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.

Review Your Understanding

Define marketing and describe the exchange process.
Marketing is a group of activities designed to expedite trans-
actions by creating, distributing, pricing, and promoting
goods, services, and ideas. Marketing facilitates the ex-
change, 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 com-
pany does not implement the marketing concept by provid-
ing products that consumers need and want while
achieving its own objectives, it will not survive.
Examine the development of a marketing strategy,
including market segmentation and marketing mix.
whose needs and wants a company focuses its marketing
efforts). Some firms use a total-market approach, desig-
nating everyone as the target market. Most firms divide the
total market into segments of people who have relatively
Review Your
similar product needs. A company using a concentration
approach develops one marketing strategy for a single
market segment, whereas a multisegment approach aims
Understanding
marketing efforts at two or more segments, developing a
different marketing strategy for each. Are your students
Investigate how marketers conduct marketing research
sometimes unsure whether
and study buying behavior. theyve properly absorbed
Carrying out the marketing concept is impossible unless the chapter material? This
marketers know what, where, when, and how consumers
buy; marketing research into the factors that influence feature resummarizes the
buying behavior helps marketers develop effective mar-
keting strategies. Marketing research is a systematic,
chapter objectives, leaving
objective process of getting information about potential students in no doubt of what
customers to guide marketing decisions. Buying behav-
ior is the decision processes and actions of people who theyre expected to
purchase and use products.
remember.
Summarize the environmental forces that influence
marketing decisions.

g p g
tional line relationship between superiors and subordi- attempting to restructure to a team envi
nates, and specialized staff managers are available to the material presented in this chapter,
assist line managers. A multidivisional structure gathers to evaluate the firms efforts and make
departments into larger groups called divisions. A matrix, for resolving the problems that have de
Revisit the World of
Business Revisit the World of Business
These exercises refer to the 1. Which organizational factor contributed most to the 3. How can NASA harness its can-d
Columbia disaster at NASA? succeed to create safer missions t
chapter opening vignettes (see and beyond?
2. In what way did the organizational culture contribute
page xi) and ask students to to the disaster?
answer more in-depth questions
using the knowledge they gained
in their reading. Learn the Terms
accountability 236 group 242 project teams 244
centralized organization 237 line-and-staff structure 239 quality-assurance t
committee 243 line structure 239 circles) 245
customer departmentalization 235 matrix structure 241 responsibility 236
decentralized organization 237 multidivisional structure 240 self-directed work t
delegation of authority 236 organizational chart 231 span of manageme

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accounts. Find out what, if any, restrictions are in car loan? A home loan? Why?
effect for NOW accounts and regular 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 These activities are designed to
Background: Task: be carried out in teams, giving you
You have just graduated from college and Research available financial service a launching pad for a lively in-
have received an offer for your dream job area, and answer the following quest
(annual salary: $35,000). This premium salary class discussion.
1. What kinds of institutions and se
is a reward for your hard work, perseverance, and good to help manage your money?
grades. It is also a reward for the social skills you devel-
2. Do you want a full service financ
oped in college doing service work as a tutor for high
can take care of your banking, in
school students and interacting with the business commu-
investing needs or do you want t
nity as the program chairman of the college business fra-
business among individual speci
ternity, Delta Sigma Pi. You are engaged and plan to be
you made this choice?
married this summer. You and your spouse will have a joint
income of $60,000, and the two of you are trying to decide 3. What retirement alternatives do

E
the best way to manage your money.

e-Xtreme Surfing
e-Xtreme Surfing Leading Concepts Provides information about th
This feature points out Web sites that www.leadingconcepts.com/ companies improve commun
elaborate on the chapter content. All Model Electronic Privacy Act Offers information from the A
eXtreme Surfing sites can be linked http://archive.aclu.org/issues/ legislation regulating electro
worker/legkit2.html
at your discretion from the books
NASAs organizational chart Presents the organizational c
Online Learning Center (see pages
www.hq.nasa.gov/hq/orgchart.htm
xvixvii).

CHAPTER 12 Customer-Driven Marketing

See for Yourself Videocase

FISHING FOR SUCCESS: THE PIKE PLACE FISH MARKET
It has been almost 100 years since the Pike Place counter banter and shout, Anyone
See For Yourself
Market opened in Seattle. In response to rising
produce costs and concerns that farmers were
Tourists and shoppers cheer and ca
Perhaps the most unique chara Videocase
being deprived of their just return by middlemen Fish Market is the fact that, excep
a pound of onions rose from 10 cents to $1 in just one never advertised. If you look on the Stimulate your students with
yearthe market opened so that consumers could buy di- you can read numerous articles t these engaging case videos, all
rectly from farmers. On opening day, eight farmers merged about the company in local new
on the corner of First and Pike, and more than 10,000 eager newspapers, magazines, and trave of which are new to this edition.
buyers showed up to choose from their wares. mers. The fish market also receives
Today, the Pike Place Market is much more than its time it is featured on a Food TV cha
name suggests. Covering roughly nine acres, the market fact, the company receives more
comprises food stores (bakeries, dairies, fish/seafood, most large companies that spend m
commercial produce stands, meat and butcher shops, pro- Such publicity is far more valuabl
duce stands, specialty food stores as well as restaurants, cause it is not a paid placement. Th
cafs, and fast-food businesses) and mercantile shops
(antiques and collectibles, art galleries, books, stationery
Part 4 Role-Play Exercise*
erated is the result of unique, stro
that consumers want to read about
and cards, clothing and shoes, cookware, and flowers) Pike Place Market was featured
with over 100 vendors operating each day. One of the more network in a two-hour live broadcas
popular shops is Ulis Famous Sausage which produces
eQuality Assured
that try to get on QVC every year j

Role-Play Exercises Quality Assured (QA), a nonprofit organization, was started

in 1977 to promote the establishment, development, and
at the end of each part give students preservation of high professional standards and audit the
social responsibility of companies in the United States. The
the opportunity to assume audits could be used to promote the companys good cor-
organizational roles and make porate citizenship and determine areas that need improve-
ment. Of the four issues of social responsibility (voluntary,
decisions through application of the ethical, legal, and economic), it had always focused most
on the voluntary and ethical aspects. During the early
text concepts. years, QA dedicated a majority of its resources to environ-
eQuality has a full-time staff of 50 emplo
core workers are responsible for all the fu
formed at the organization. Most are not expe
cation, but carry out functional responsibili
accounting and technology. Some important t
monitoring the business environment, determ
issues need to be addressed, interacting wit
profit organizations, recruiting volunteers, an
all aspects of the projects. Because of the
deadline, a majority of the paid staff feels ove

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

Instructors Manual. Includes learning objectives; lecture outlines; PowerPoint

notes; supplemental lecture; answers to discussion questions and end-of-chapter exercises; notes
for video cases; term paper and project topics; suggestions for guest speakers; and roles and
options for implementing the role playing exercises in each text part.

Computerized Test Bank. Includes hundreds of multiple choice, true/false and

essay questions.

PowerPoint Presentations. Organized in outline format, there are 20-25

slides per chapter. Additional figures and tables from the text may be found on the CD-ROM in
the Image Bank.

Link to Online Learning Center

(www.mhhe.com/ferrell5e)

Online Learning Center (OLC) with

Premium Content
www.mhhe.com/ferrell5e
Access everything you need to teach a great course
through our convenient online resource. A secured
Instructor Resource Center stores your essential course
materials to save you prep time before class. The
Instructors Manual, Solutions, PowerPointTM, and
sample syllabi are now just a couple of clicks away;
youll also find useful packaging information and notes.

A Guide for Introducing and Teaching Ethics in

Introduction to Business
Written by O.C. Ferrell and Linda Ferrell, this is your one-stop guide for integrating this
important issue into all aspects of your course. It helps you to demonstrate how business ethics
lead to business success and offers a wide range of business ethics resources, including
university centers, government resources, and corporate ethics programs.

Active Classroom Resource Guide

An Additional collection of team projects, cases, and exercises that instructors can choose from
to be used in class or out.

xvi
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Student Supplements

Study Guide
Each chapter of the Study Guide includes a chapter summary,
learning objectives, and plenty of true/false, matching, and multiple-
choice questions to practice.

Interactive Study Guide on CD-ROM

Each chapter of this powerful review tool includes sample quizzes, along with activities from
McGraw-Hill/Irwins self-assessment series Build Your Management Skills.

Online Learning Center (OLC) with Premium Content

www.mhhe.com/ferrell5e
More and more students are studying online. Thats why we offer an Online Learning Center (OLC) that
follows Business: A Changing World chapter by chapter. It doesnt require any building or maintenance on
your part, and is ready to go the moment you and your students type in the URL.

As your students study, they can refer to the OLC Web site for such benefits as:

Internet-based activities
Self-grading quizzes
Learning objectives
Extended chapter summaries
Additional video and related video exercises

The fifth edition includes an online running video case highlighting

entrepreneur Todd McFarlane, who parlayed his artistic ability (and a passion
for sports) into a multimillion dollar business that straddles film and
television production, toys, comic books, sports licensing and games.
Students watch and learn as McFarlane explains how he leads his
company across all functional areas of business, illustrating how firms
deal with the problems and opportunities of todays business world.
With one video case for each part of the textbook highlighting this
fun and unique company, students and instructors are provided
a complete context for discussing every aspect of
introductory business.

xvii
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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. Its entirely up to
you.

Products like WebCT, Blackboard, and eCollege all expand the reach of your course.
Online discussion and message boards will now complement your office hours.
Thanks to a sophisticated tracking system, you will know which students need more
attentioneven if they dont ask for help. Thats because online testing scores are
recorded and automatically placed in your grade book, and if a student is struggling
with coursework, a special alert message lets you know.

Remember, Business: A Changing Worlds content is flexible enough to use with any
platform currently available. If your department or school is already using a platform,
we can help. For information on McGraw-Hill/Irwins course management
supplements, including PageOut, Instructor Advantage, and Knowledge Gateway, see
Knowledge Gateway on the next page.

xviii
fer73587_fm.qxd 11/19/04 10:51 AM Page xix
Managing an Online Course
Knowledge Gateway
mhhe.eduprise.com/home.nsf
Developed with the help of our partner, Eduprise, the
McGraw-Hill Knowledge Gateway is an all-purpose
service and resource center for instructors teaching online.
While training programs from WebCT and Blackboard will
help teach you their software, only McGraw-Hill has
services to help you actually manage and teach your online
course, as well as run and maintain the software.
Knowledge Gateway offers an online library full of
articles and insights that focus on how online learning
differs from a traditional class environment.
The First Level of Knowledge Gateway is available to all
professors browsing the McGraw-Hill Higher Education
Web site, and consists of an introduction to OLC content,
access to the first level of the Resource Library, technical
support, and information on Instructional Design Services
available through Eduprise.
The Second Level is password-protected and provides access
to the expanded Resource Library; technical and
pedagogical support for WebCT, Blackboard, and TopClass;
the online Instructional Design helpdesk; and an online
discussion forum for users. The Knowledge Gateway
provides a considerable advantage for teaching onlineand
its only available through McGraw-Hill.
To learn how these platforms can assist your online course,
contact your McGraw-Hill/Irwin representative.
Superior Service
No matter which online course solution you choose, you can count on the highest level of service. Thats what sets
McGraw-Hill apart. Once you choose Business: A Changing World, our specialists offer free training and answer any
question you have through the life of your adoption.
PageOut
PageOut is McGraw-Hill/Irwins custom Web site service.
Now you can put your course online without knowing a
word of HTML, selecting from a variety of prebuilt Web site
templates. And if none of our ideas suit you, well be happy
to work with your ideas.
If you want a custom site but dont have time to build it
yourself, we offer a team of product specialists ready to help.
Just call 1-800-634-3963 and ask to speak with a PageOut
specialist. You will be asked to send in your course materials
and then participate in a brief telephone consultation. Once
we have your information, we build your Web site for you,
from scratch. Best of all, PageOut is free when you adopt
Business: A Changing World! To learn more, please visit
www.pageout.net.
Instructor Advantage and
Instructor Advantage Plus
Instructor Advantage is a special level of service McGraw-
Hill 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).
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Acknowledgments
The fifth edition of Business: A Changing World would not have
been possible without the commitment, dedication, and
patience of Gwyneth Walters. She assisted the authors in
developing and coordinating all of the content in the text,
ancillaries, and the Online Learning Center. Barbara Gilmer
made significant contributions to the content of the previous
edition. Ryan Blankenship, Sponsoring Editor, provided
leadership and creativity in planning and implementing all
aspects of the fifth edition. Christine Scheid, Senior
Developmental Editor, did an outstanding job of coordinating all
aspects of the development and production process. Mary
Conzachi was the Project Manager. Mark Molsky managed the
technical aspects of the Online Learning Center. Others
important in this edition include Joyce Chappetto
(Supplements), Ellen Cleary (Marketing Manager), Pam Verros
(Design) and Dan Wiencek (Advertising).
Liza Hann and Nori Comello contributed several boxes to this
edition. Sarah Scott contributed boxes, cases, and assisted in
the overall revision process. Michael Hartline developed the
Personal Career Plan in Appendix C and assisted in developing
the Business Plan in Appendix B. Vickie Bajtelsmit developed
Appendix D on personal financial planning. Eric Sandberg of
Interactive Learning assisted in developing the interactive
exercises and Business Around the World on the CD.
Anthony Chelte of Western New England College helped us
with the Student CD Chapter Quizzes and Outlines.
Many others have assisted us with their helpful comments,
recommendations, and support throughout this and previous
editions. Wed like to express our thanks to the reviewers who
helped us shape the fifth edition:

James Bartlett Peggy Hager Dyan Pease

University of Illinois Winthrop University Sacramento City College
Stephanie Bibb Verne Ingram John Pharr
Chicago State University Red Rocks Community College Cedar Valley College
Alka Bramhandkar Steven Jennings Shirley Polejewski
Ithaca College Highland Community College University of St. Thomas
Michael Cicero Eileen Kearney Daniel Powroznik
Highline Community College Montgomery County Community College Chesapeake College
Debbie Collins Craig Kelley Krista Price
Anne Arundel Community CollegeArnold California State UniversitySacramento Heald College
Laurie Dahlin Arbrie King Larry Prober
Worcester State College Baton Rouge Community College Rider University
Tom Diamante John Knappenberger Kathy Pullins
Adelphi University Mesa State College Columbus State Community College
John Eagan Anthony Koh Tom Reading
Erie Community College/City Campus SUNY University of Toledo Ivy Tech State College
Robert Ericksen Dorinda Lynn Susan Roach
Craven Community College Pensacola Junior College Georgia Southern University
Art Fischer Larry Martin Dave Robinson
Pittsburg State University Community College of Southern Nevada University of CaliforniaBerkely
West Charles
Toni Forcino Marianne Sebok
Montgomery CollegeGermantown Kristina Mazurak Community College of Southern Nevada
Albertson College of Idaho West Charles
Chris Gilbert
Tacoma Community College/University of Mary Meredith Cheryl Stansfield
Washington University of Louisiana at Lafayette North Hennepin Community College
Ross Gittell Michelle Meyer Ron Stolle
University of New Hampshire Joliet Junior College Kent State UniversityKent
Gary Grau Fred Nerone Jeff Strom
Northeast State Tech Community College International CollegeNaples Virginia Western Community College
Claudia Green Michael Nugent Cheryl Stansfield
Pace University SUNYStony Brook University New York North Hennepin Community College
David Gribbin Wes Payne Steve Tilley
East Georgia College Southwest Tennessee Community College Gainesville College

Lawrence Yax
Pensacola Junior CollegeWarrington
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fer73587_fm.qxd 11/19/04 10:51 AM Page xxi
We extend special appreciation to the following people who
reviewed previous editions:
Linda Anglin, Mankato State University
John Bajkowski, American Association of Individual Investors
Barbara Boyington, Brookdale County College of Monmouth
Suzanne Bradford, Angelina College
Eric Brooks, Orange County Community College
Nicky Buenger, Texas A&M University
Anthony Buono, Bentley College
William Chittenden, Texas Tech University
M. Lou Cisneros, Austin Community College
Karen Collins, Lehigh University
Katherine Conway, Boro of Manhattan Community College
Rex Cutshall, Vincennes University
Dana DAngelo, Drexel University
John DeNisco, Buffalo State College
Joyce Domke, DePaul University
Michael Drafke, College of DuPage
Thomas Enerva, Lakeland Community College
Joe Farinella, DePaul University
James Ferrell, R. G. Taylor, P.C.
Jennifer Friestad, AnokaRamsey Community College
Bob Grau, Cuyahoga Community CollegeWestern Campus
Jack K. Gray, Attorney-at-Law, Houston, Texas
Catherine Green, University of Memphis
Phil Greenwood, University of St. Thomas
Michael Hartline, Florida State University
Neil Herndon, University of Missouri
James Hoffman, Borough of Manhattan Community College
Joseph Hrebenak, Community College of Allegheny County
Allegheny Campus
Stephen Huntley, Florida Community College
Rebecca Hurtz, State Farm Insurance Co.
Roger Hutt, Arizona State UniversityWest
Scott Inks, Ball State University
Carol Jones, Cuyahoga Community CollegeEastern Campus
Gilbert Joe Joseph, University of Tampa
Norm Karl, Johnson County Community College
Janice Karlan, LaGuardia Community College
Ina Midkiff Kennedy, Austin Community College
Daniel LeClair, AACSB
Frank Lembo, North Virginia Community College
Richard Lewis, East Texas Baptist College
Corinn Linton, Valencia Community College
Corrine Livesay, Mississippi College
Thomas Lloyd, Westmoreland Community College
Terry Loe, Kennerow University
Isabelle Maignan, ING
Debbie Thorne McAlister, Texas State UniversitySan Marcos
John McDonough, Menlo College
Tom McInish, University of Memphis
Noel McDeon, Florida Community College
Glynna Morse, Augusta College
Fred Nerone, International College of Naples
Laura Nicholson, Northern Oklahoma College
Stef Nicovich, University of New Hampshire
Constantine G. Petrides, Borough of Manhattan Community
College
Stephen Pruitt, University of MissouriKansas City
Charles Quinn, Austin Community College
Victoria Rabb, College of the Desert
Marsha Rule, Florida Public Utilities Commission
Carol A. Rustad, Sylvan Learning
Martin St. John, Westmoreland Community College
Nick Sarantakes, Austin Community College
Elise Pookie Sautter, New Mexico State University
Dana Schubert, Colorado Springs Zoo
Jeffery L. Seglin, Seglin Associates
Daniel Sherrell, University of Memphis
Nicholas Siropolis, Cuyahoga Community College
Robyn Smith, Pouder Valley Hospital
Wayne Taylor, Trinity Valley Community College
Ray Tewell, American River College
Jay Todes, Northlake College
Amy Thomas, Roger Williams University
Ted Valvoda, Lakeland Community College
Sue Vondram, Loyola University
Elizabeth Wark, Springfield College
Emma Watson, Arizona State UniversityWest
Jerry E. Wheat, Indiana University Southeast
Frederik Williams, North Texas State University
Pat Wright, Texas A&M University
Timothy Wright, Lakeland Community College
O.C. Ferrell
Geoffrey Hirt
Linda Ferrell
July 2004
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Authors
O.C. Ferrell
O.C. Ferrell is Chair of the Department of Marketing and the Ehrhardt, Keefe,
Steiner, and Hottman P. C. Professor of Business Administration at Colorado State
University. He also has held faculty positions at the University of Memphis, Univer-
sity of Tampa, Texas A&M University, Illinois State University, and Southern Illinois
University, as well as visiting positions at Queens 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 Masters
Degree Program in Marketing at Thammasat University (Bangkok, Thailand).
Dr. Ferrell received his B.A. and M.B.A. from Florida State University and his Ph.D.
from Louisiana State University. His teaching and research interests include business
ethics, corporate citizenship, and marketing.
Dr. Ferrell is widely recognized as a leading teacher and scholar in business. His
articles have appeared in leading journals and trade publications. In addition to
Business: A Changing World, he has two other textbooks, Marketing: Concepts and
Strategies and Business Ethics: Ethical Decision Making and Cases, that are market
leaders in their respective areas. He also has coauthored other textbooks for market-
ing, management, business and society, and other business courses, as well as a trade
book on business ethics. He chaired the American Marketing Association (AMA)
ethics committee that developed its current code of ethics. He was the vice president
of marketing education and president of the Academic Council for the AMA.
Dr. Ferrells major focus is teaching and preparing learning material for students.
He has taught the introduction to business course at Colorado State University us-
ing 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 busi-
ness courses. He lives in Fort Collins, Colorado, and enjoys skiing, golf, and interna-
tional 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 De-
partment at DePaul University. He teaches investments, corporate finance, and
strategic planning. He developed and was director of DePauls M.B.A. program in
Hong Kong and has taught in Poland, Germany, Thailand, and Hong Kong. He re-
ceived his Ph.D. in Finance from the University of Illinois at ChampaignUrbana, his
M.B.A. from Miami University of Ohio, and his B.A. from Ohio-Wesleyan 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 at
over 600 colleges and universities worldwide. It has been used in over 31 countries
and has been translated into over 10 different languages. Additionally, Dr. Hirt is

xxii
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AUTHORS xxiii

well-known for his text, Fundamentals of Investment Management, also published by

Irwin/McGraw-Hill, and now in its seventh edition. He plays tennis and golf, is a mu-
sic 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 Col-
orado, and the University of Memphis. She also team teaches a class at Thammasat
University in Bangkok, Thailand.
Her work experience as an account executive for McDonalds and Pizza Huts 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 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 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 Foundations training programs and AACSB
International Conferences. She has served as an expert witness in cases related to ad-
vertising, business ethics, and consumer protection.
fer73587_fm.qxd 11/16/04 12:41 PM Page xxiv
fer73587_fm.qxd 11/16/04 12:41 PM Page xxv

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
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Contents
PART 1 Build Your Skills: The Forces of Supply and Demand 27
Business in a Changing World 1 e-Xtreme Surfing 28
See for Yourself Videocase: Starbucks 29
CHAPTER 1
The Dynamics of Business and Economics 2
Enter the World of Business CHAPTER 2
Satellite Radio Offers More Choices 3 Business Ethics and Social
Introduction 4 Responsibility 30
The Nature of Business 4 Enter the World of Business
The Goal of Business 4 The Home Depot Helps Build Better Communities 31
The People and Activities of Business 5 Introduction 32
Why Study Business? 8 Business Ethics and Social Responsibility 32
The Economic Foundations of Business 8 The Role of Ethics in Business 33
Economic Systems 9 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 Consider Ethics and Responsibility
Qwest Struggles with Legal Issues 40
The Nature of Competition 14
Solve the Dilemma
Solve the Dilemma Customer Privacy 41
Mrs. Acres Homemade Pies 14
Making Decisions about Ethical Issues 41
Consider Ethics and Responsibility
Has Wal-Mart Become Too Powerful? 15
Improving Ethical Behavior in Business 42
Economic Cycles and Productivity 16 The Nature of Social Responsibility 44
The American Economy 18 Social Responsibility Issues 46
A Brief History of the American Economy 19 Explore Your Career Options: Business Ethics 54
The Role of the Entrepreneur 21 Review Your Understanding 55
The Role of Government in the American Revisit the World of Business 55
Economy 22 Learn the Terms 55
The Role of Ethics and Social Responsibility Check Your Progress 56
in Business 23
Get Involved 56
Can You Learn Business in a Classroom? 24
Build Your Skills: Making Decisions about Ethical
Explore Your Career Options: Changes 24
Issues 56
Review Your Understanding 26
e-Xtreme Surfing 57
Revisit the World of Business 26
See for Yourself Videocase: Money
Learn the Terms 27 and Ethics 58
Check Your Progress 27 APPENDIX A: The Legal and Regulatory
Get Involved 27 Environment 60

xxvi
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CONTENTS xxvii

CHAPTER 3 Check Your Progress 99

Business in a Borderless World 74 Get Involved 100
Enter the World of Business Build Your Skills: Global Awareness 100
The Porsche Cayenne Becomes a Global Pacesetter 75 e-Xtreme Surfing 101
Introduction 76 See for Yourself Videocase: BP Builds
The Role of International Business 76 a Global Brand 101
Why Nations Trade 76
Trade between Countries 78
CHAPTER 4
Balance of Trade 78
Managing Information Technology
International Trade Barriers 79 and E-Business 104
Economic Barriers 79
Enter the World of Business
Legal and Political Barriers 80 Reinventing Amazon.com 105
Social and Cultural Barriers 83 Introduction 106
Think Globally The Impact of Technology on Our Lives 106
Foreign Brands Challenge Coca-Cola and PepsiCo 85
Technological Barriers 86
Managing Information 108
Management Information Systems 108
Trade Agreements, Alliances, and Organizations 86
Collecting Data 109
General Agreement on Tariffs and Trade (GATT) 87
The North American Free Trade Agreement (NAFTA) 88
The Internet 110
Internet Users 112
Solve the Dilemma
Global Expansion or Business as Usual? 89 Internet Uses 112
The European Union (EU) 89 Emerging Technologies 114
Asia-Pacific Economic Cooperation (APEC) 90 Solve the Dilemma
World Bank 90
Developing Successful Freeware 115
International Monetary Fund 91 E-Business 115
The Nature of E-Business 115
Getting Involved in International Business 91
E-Business Models 118
Exporting and Importing 91
Trading Companies 92 Growing a Business
eBay Provides Opportunity for Small Business
Licensing and Franchising 92 Entrepreneurs 119
Contract Manufacturing 93 Customer Relationship Management 120
Outsourcing 94 Legal and Social Issues 121
Joint Ventures and Alliances 94 Privacy 122
Think Globally Spam 123
India: Beyond Outsourcing 95
Think Globally
Direct Investment 95 Europe Takes the Lead in Privacy Protection 124
International Business Strategies 96 Identity Theft 125
Developing Strategies 96 Intellectual Property and Copyrights 126
Managing the Challenges of Global Business 97 Taxing the Internet? 126
Explore Your Career Options: Preparing The Dynamic Nature of Information Technology
for the Borderless World 97 and E-Business 126
Review Your Understanding 98 Explore Your Career Options 127
Revisit the World of Business 99 Review Your Understanding 128
Learn the Terms 99 Revisit the World of Business 128
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Learn the Terms 128 Enhancing Business Productivity

Heartland Farm Foods Co-op Helps Preserve Beef
Check Your Progress 129 and a Way of Life 153
Get Involved 129 Trends in Business Ownership:
Build Your Skills: Planning a Web Site 129 Mergers and Acquisitions 153
e-Xtreme Surfing 130 Explore Your Career Options: Evaluating a Job Offer 155
See for Yourself Videocase: Google: Review Your Understanding 156
The Search Engine Success Story 130 Revisit the World of Business 157
PART 1 ROLE-PLAY EXERCISE Learn the Terms 157
National Farm and Garden, Inc. 132
Check Your Progress 157
Get Involved 158
PART 2 Build Your Skills: Selecting a Form of Business 158
Starting and Growing a Business 133 e-Xtreme Surfing 159
See for Yourself Videocase: United Files
CHAPTER 5
for Bankruptcy 159
Options for Organizing Business 134
Enter the World of Business CHAPTER 6
A Company of Companies: Zingermans Deli 135
Small Business, Entrepreneurship,
Introduction 136 and Franchising 162
Sole Proprietorships 137
Enter the World of Business
Advantages of Sole Proprietorships 137 Kings Saddlery and King Ropes 163
Disadvantages of Sole Proprietorships 138 Introduction 164
Partnerships 140 The Nature of Entrepreneurship
Types of Partnership 140 and Small Business 164
Articles of Partnership 140 What Is a Small Business? 165
Advantages of Partnerships 141 The Role of Small Business
Disadvantages of Partnerships 142 in the American Economy 165
Taxation of Partnerships 144 Industries That Attract Small Business 167
Corporations 144 Advantages of Small-Business Ownership 169
Creating a Corporation 144 Independence 169
Responding to Business Challenges Growing a Business
The Longaberger Company Makes Baskets 145 Burts Bees 170

Types of Corporations 145 Costs 170

Elements of a Corporation 148 Flexibility 171
Advantages of Corporations 149 Focus 171
Disadvantages of Corporations 150 Reputation 171
Other Types of Ownership 151 Disadvantages of Small-Business
Joint Ventures 151 Ownership 171
S Corporations 151 High Stress Level 172
High Failure Rate 172
Solve the Dilemma
To Incorporate or Not to Incorporate 152 Starting a Small Business 174
Limited Liability Companies 152 The Business Plan 174
Cooperatives 152 Forms of Business Ownership 175
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Financial Resources 175 Types of Management 207

Solve the Dilemma Levels of Management 207
The Small-Business Challenge 176 Areas of Management 210
Approaches to Starting a Small Business 176
Skills Needed by Managers 212
Help for Small-Business Managers 179
Leadership 213
Growing a Business Enhancing Business Productivity
Opening a Ben & Jerrys Franchise 180 Leadership at General Motors Provides
The Future for Small Business 181 Competitive Advantage 214
Demographic Trends 181 Technical Expertise 215
Technological and Economic Trends 182 Conceptual Skills 215
Making Big Businesses Act Small 183 Analytical Skills 215
Explore Your Career Options: Look to Small Human Relations Skills 216
Business 183 Where Do Managers Come From? 216
Review Your Understanding 184 Decision Making 217
Revisit the World of Business 184 Recognizing and Defining the Decision Situation 217
Learn the Terms 185 Responding to Business Challenges
Building an Airline with Good Decisions 218
Check Your Progress 185
Developing Options 219
Get Involved 185
Analyzing Options 219
Build Your Skills: Creativity 185
Selecting the Best Option 219
e-Xtreme Surfing 186 Implementing the Decision 219
See for Yourself Videocase: Dale Gray and Solve the Dilemma
Communication Services, Inc. 187 Making Infinity Computers Competitive 220
APPENDIX B: The Business Plan 188 Monitoring the Consequences 220
PART 2 ROLE-PLAY EXERCISE The Reality of Management 220
Human Response, Inc. 195 Explore Your Career Options: Management Is Alive
and Well 221
Review Your Understanding 222
PART 3 Revisit the World of Business 222
Managing for Quality Learn the Terms 223
and Competitiveness 197 Check Your Progress 223
Get Involved 223
CHAPTER 7
Build Your Skills: Functions of Management 223
The Nature of Management 198
e-Xtreme Surfing 224
Enter the World of Business
Managing the State of California 199 See for Yourself Videocase: Carly Fiorina: The Most
Powerful Woman in Business 225
Introduction 200
The Importance of Management 200 CHAPTER 8
Management Functions 201 Organization, Teamwork,
Planning 201 and Communication 226
Organizing 204 Enter the World of Business
Staffing 204 NASA Looks Inward Before Going Back to the Stars 227
Directing 205 Introduction 228
Controlling 206 Organizational Culture 228
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Consider Ethics and Responsibility Introduction 256

Lessons from the WorldCom Scandal 230
The Nature of Operations Management 257
Developing Organizational Structure 230 The Transformation Process 257
Assigning Tasks 232 Operations Management in Service Businesses 258
Specialization 232 Planning and Designing Operations Systems 261
Departmentalization 233 Planning the Product 261
Assigning Responsibility 236 Designing the Operations Processes 262
Delegation of Authority 236 Planning Capacity 263
Degree of Centralization 236 Planning Facilities 263
Span of Management 238 Solve the Dilemma
Organizational Layers 238 Planning for Pizza 266

Forms of Organizational Structure 239 Managing the Supply Chain 267

Line Structure 239 Purchasing 267
Line-and-Staff Structure 239 Growing a Business
Multidivisional Structure 240 Coal Creek Coffee Company Supplies the Best 268
Matrix Structure 241 Managing Inventory 268

The Role of Groups and Teams in Organizations 242 Enhancing Business Productivity
Ensenda Outsources Same-Day Delivery 270
Committees 243
Outsourcing 270
Task Forces 244
Routing and Scheduling 271
Teams 244
Managing Quality 272
Enhancing Business Productivity
War Games to Learn TLC 245 Establishing StandardsISO 9000 274

Solve the Dilemma Inspection 275

Quest Star in Transition 246 Sampling 275
Communicating in Organizations 246 Explore Your Career Options: A Future in Quality
Formal Communication 246 Assurance 276
Informal Communication Channels 248 Review Your Understanding 276
Monitoring Communications 248 Revisit the World of Business 277
Explore Your Career Options: Flexibility First! 249 Learn the Terms 277
Review Your Understanding 249 Check Your Progress 277
Revisit the World of Business 250 Get Involved 278
Learn the Terms 250 Build Your Skills: Reducing Cycle Time 278
Check Your Progress 250 e-Xtreme Surfing 279
Get Involved 251 See for Yourself Videocase: New Belgium Achieves
Build Your Skills: Teamwork 251 Efficiency with Social Responsibility 279
e-Xtreme Surfing 252 PART 3 ROLE-PLAYEXERCISE
McDougal Aircraft Company 281
See for Yourself Videocase: Lee Van Arsdale
and the Delta Force Illustrate the Need
for Teamwork and Communication 252
PART 4
CHAPTER 9
Managing Service and Manufacturing
Creating the Human Resource
Operations 254 Advantage 283
Enter the World of Business CHAPTER 10
Designing Products for a Better Customer Experience 255 Motivating the Workforce 284
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Enter the World of Business Planning for Human Resources Needs 311
SAS Makes Work Fun and Rewarding 285
Recruiting and Selecting New Employees 311
Introduction 286 Recruiting 311
Nature of Human Relations 286 Selection 312
Historical Perspectives on Employee Motivation 288 Legal Issues in Recruiting and Selecting 315
Classical Theory of Motivation 288 Developing the Workforce 316
Enhancing Business Productivity Training and Development 316
Yum Brands Recognizes Employees
for Going the Extra Mile 289 Assessing Performance 316
The Hawthorne Studies 290 Turnover 318

Theories of Employee Motivation 291 Responding to Business Challenges

IBM Shrinks Its Workforce 320
Maslows Hierarchy of Needs 291
Compensating the Workforce 320
Herzbergs Two-Factor Theory 293
Financial Compensation 321
Enhancing Business Productivity
Bringing Home the Bacon 294 Solve the Dilemma
Morale among the Survivors 322
McGregors Theory X and Theory Y 294
Benefits 323
Theory Z 295
Enhancing Business Productivity
Variations on Theory Z 295
Pet Perks 325
Equity Theory 296
Managing Unionized Employees 325
Expectancy Theory 297
Collective Bargaining 326
Strategies for Motivating Employees 297
Resolving Disputes 326
Behavior Modification 298
The Importance of Workforce Diversity 328
Job Design 298
The Characteristics of Diversity 328
Solve the Dilemma
Why Is Diversity Important? 329
Motivating to Win 300
The Benefits of Workforce Diversity 330
Importance of Motivational Strategies 301
Affirmative Action 331
Explore Your Career Options: Rating Metropolitan
Areas 302 Explore Your Career Options: How Much Does
It Pay? 332
Review Your Understanding 302
Review Your Understanding 332
Revisit the World of Business 303
Revisit the World of Business 333
Learn the Terms 303
Learn the Terms 333
Check Your Progress 303
Check Your Progress 334
Get Involved 304
Get Involved 334
Build Your Skills: Motivating 305
Build Your Skills: Appreciating and Valuing
e-Xtreme Surfing 305
Diversity 334
See for Yourself Videocase: The Container Store 305
e-Xtreme Surfing 336
CHAPTER 11 See for Yourself Videocase:
Managing Human Resources 308 Hillerich & Bradsby Company:
Makers of the Louisville Slugger 336
Enter the World of Business
The Apprentice: A Novel Approach to Hiring an Employee 309 APPENDIX C: Personal Career Plan 338
Introduction 310 PART 4 ROLE-PLAY EXERCISE
The Nature of Human Resources Management 310 eQuality Assured 344
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PART 5 CHAPTER 13
Marketing: Developing Dimensions of Marketing Strategy 370
Relationships 345 Enter the World of Business
Turkey & Gravy Brings Attention to Small Bottler 371
CHAPTER 12 Introduction 372
Customer-Driven Marketing 346 The Marketing Mix 372
Enter the World of Business Product Strategy 373
Apple Takes a Bite out of the Music Industry 347 Developing New Products 373
Introduction 348 Classifying Products 376
Nature of Marketing 348 Product Line and Product Mix 377
The Exchange Relationship 349 Product Life Cycle 377
Functions of Marketing 349 Identifying Products 379
The Marketing Concept 350 Pricing Strategy 383
Evolution of the Marketing Concept 352 Pricing Objectives 384
Developing a Marketing Strategy 353 Specific Pricing Strategies 384
Selecting a Target Market 354 Distribution Strategy 385
Developing a Marketing Mix 357 Marketing Channels 385
Marketing Research and Information Systems 359 Responding to Business Challenges
Embrace Technology Changes in American Eating Habits Create Opportunities
Look-Look.com 360 for Retailers 386

Solve the Dilemma Intensity of Market Coverage 389

Will It Go? 362 Physical Distribution 390
Buying Behavior 362 Solve the Dilemma
Psychological Variables of Buying Behavior 362 Better Health with Snacks 391
Social Variables of Buying Behavior 363 Importance of Distribution in a Marketing
Strategy 391
Understanding Buying Behavior 364
Promotion Strategy 391
The Marketing Environment 364
The Promotion Mix 392
Responding to Business Challenges
Low-Carb Diets Create Opportunities and Threats for the Responding to Business Challenges
Food Industry 365 The Perils of Using Celebrities in Advertising 394
Explore Your Career Options: Customer Service Promotion Strategies: To Push or To Pull 397
in a Service Economy 366 Objectives of Promotion 398
Review Your Understanding 366 Promotional Positioning 399
Revisit the World of Business 367 Explore Your Career Options: Diverse Opportunities
Learn the Terms 367 in Marketing 399
Check Your Progress 367 Review Your Understanding 399
Get Involved 367 Revisit the World of Business 400
Build Your Skills: The Marketing Mix 368 Learn the Terms 400
e-Xtreme Surfing 368 Check Your Progress 401
See for Yourself Videocase: Fishing for Success: Get Involved 401
The Pike Place Fish Market 369 Build Your Skills: Analyzing Motel 6s Strategy 401
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e-Xtreme Surfing 402 CHAPTER 15

See for Yourself Videocase: Hotel Monaco 402 Accounting and Financial Statements 432
PART 5 ROLE-PLAY EXERCISE Enter the World of Business
RedRiverShops.com 404 The Public Company Accounting Oversight Board 433
Introduction 434
The Nature of Accounting 434
PART 6
Consider Ethics and Responsibility
Financing the Enterprise 405 Lessons from the Enron Scandal 435
Accountants 435
CHAPTER 14
Accounting or Bookkeeping? 437
Money and the Financial System 406
The Uses of Accounting Information 437
Enter the World of Business
The Iraqi Dinar in Crisis 407
Think Globally
Parmalat: An Italian Enron? 440
Introduction 408
The Accounting Process 440
Money in the Financial System 408 The Accounting Equation 441
Functions of Money 409
Double-Entry Bookkeeping 441
Characteristics of Money 409
The Accounting Cycle 442
Types of Money 411
Financial Statements 444
Embrace Technology The Income Statement 444
413
Check Cashing for the Unbanked
The Balance Sheet 448
The American Financial System 414
The Statement of Cash Flow 450
The Federal Reserve System 415
Ratio Analysis: Analyzing Financial Statements 454
Banking Institutions 418
Profitability Ratios 455
Embrace Technology
ING Direct Wants to Be Your Bank 420 Asset Utilization Ratios 455
Nonbanking Institutions 421 Liquidity Ratios 456
Solve the Dilemma Solve the Dilemma
Seeing the Financial Side of Business 422 Exploring the Secrets of Accounting 457
Electronic Banking 424 Debt Utilization Ratios 457
Challenge and Change in the Commercial Banking Per Share Data 458
Industry 426 Industry Analysis 458
Explore Your Career Options: What Do Economists Explore Your Career Options: More Power
Do? 427 to the Accountants 459
Review Your Understanding 427 Review Your Understanding 459
Revisit the World of Business 428 Revisit the World of Business 460
Learn the Terms 428 Learn the Terms 460
Check Your Progress 428 Check Your Progress 461
Get Involved 429 Get Involved 461
Build Your Skills: Managing Money 429 Build Your Skills: Financial Analysis 461
e-Xtreme Surfing 429 e-Xtreme Surfing 462
See for Yourself Videocase: Bank One: Keeping Up See for Yourself Videocase: AON Manages a Diverse
With Global Trends 430 Array of Goods and Services 462
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CHAPTER 16 Investment Banking 479

Financial Management and Securities The Securities Markets 480
Markets 464 Organized Exchanges 481
Enter the World of Business Embrace Technology
Hershey Foods Corporation Stock Provides a Social Googles Dutch Auction 482
Contribution 465 The Over-the-Counter Market 482
Introduction 466 Measuring Market Performance 483
Managing Current Assets and Liabilities 466 Explore Your Career Options: Financial
Enhancing Business Productivity Management 485
Working Capital Problems in a Small Business 467 Review Your Understanding 486
Managing Current Assets 467 Revisit the World of Business 486
Managing Current Liabilities 470
Learn the Terms 487
Managing Fixed Assets 472
Check Your Progress 487
Capital Budgeting and Project Selection 473
Get Involved 487
Assessing Risk 473
Build Your Skills: Choosing among Projects 487
Pricing Long-Term Money 474
e-Xtreme Surfing 488
Solve the Dilemma
Surviving Rapid Growth 475 See for Yourself Videocase: The New York Stock
Financing with Long-Term Liabilities 475 Exchange Undergoes Governance Reform 489
Bonds: Corporate IOUs 476 PART 6 ROLE-PLAY EXERCISE
Types of Bonds 477 Dana Fashion Designs, Inc. 491
Financing with Owners Equity 477 APPENDIX D: Personal Financial Planning 492