BusinessA Changing World

fer73587_fm.qxd 11/16/04 12:39 PM Page i

fer73587_fm.qxd 11/16/04 12:39 PM Page ii

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

fer73587_fm.qxd 11/16/04 12:39 PM Page iii

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

fer73587_fm.qxd 11/16/04 12:39 PM Page iv

To Kathlene Ferrell

To Linda Hirt

To Norlan and Phyllis Nafziger

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

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

fer73587_fm.qxd 11/19/04 10:50 AM Page vi

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

fer73587_fm.qxd 11/19/04 10:50 AM Page vii

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

fer73587_fm.qxd 11/19/04 10:50 AM Page viii

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

fer73587_fm.qxd 11/19/04 10:50 AM Page ix

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.

x

fer73587_fm.qxd 11/19/04 10:50 AM Page x

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

fer73587_fm.qxd 11/19/04 10:51 AM Page xi

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.

xii

fer73587_fm.qxd 11/19/04 10:51 AM Page xii

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

xiii

fer73587_fm.qxd 11/19/04 10:51 AM Page xiii

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.

xiv

fer73587_fm.qxd 11/19/04 10:51 AM Page xiv

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

xv

fer73587_fm.qxd 11/19/04 10:51 AM Page xv

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.

xvi

fer73587_fm.qxd 11/19/04 10:51 AM Page xvi

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.

xvii

fer73587_fm.qxd 11/19/04 10:51 AM Page xvii

Create an Online Course

For the instructor needing to educate students online, we offer Business: A Changing

World content for complete online courses. To make this possible, we have joined

forces with the most popular delivery platforms currently available. These platforms

are designed for instructors who want complete control over course content and how

it is presented to students. You can customize the Business: A Changing World Online

Learning Center content and author your own course materials. It’s entirely up to

you.

Products like WebCT, Blackboard, and eCollege all expand the reach of your course.

Online discussion and message boards will now complement your office hours.

Thanks to a sophisticated tracking system, you will know which students need more

attention—even if they don’t ask for help. That’s because online testing scores are

recorded and automatically placed in your grade book, and if a student is struggling

with coursework, a special alert message lets you know.

Remember, Business: A Changing World’s content is flexible enough to use with any

platform currently available. If your department or school is already using a platform,

we can help. For information on McGraw-Hill/Irwin’s course management

supplements, including PageOut, Instructor Advantage, and Knowledge Gateway, see

“Knowledge Gateway” on the next page.

xviii

fer73587_fm.qxd 11/24/04 5:23 AM Page xviii

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

course, as well as run and maintain the software.

Knowledge Gateway offers an online library full of

articles and insights that focus on how online learning

differs from a traditional class environment.

The First Level of Knowledge Gateway is available to all

professors browsing the McGraw-Hill Higher Education

Web site, and consists of an introduction to OLC content,

access to the first level of the Resource Library, technical

support, and information on Instructional Design Services

available through Eduprise.

The Second Level is password-protected and provides access

to the expanded Resource Library; technical and

pedagogical support for WebCT, Blackboard, and TopClass;

the online Instructional Design helpdesk; and an online

discussion forum for users. The Knowledge Gateway

provides a considerable advantage for teaching online—and

it’s only available through McGraw-Hill.

To learn how these platforms can assist your online course,

contact your McGraw-Hill/Irwin representative.

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

templates. And if none of our ideas suit you, we’ll be happy

to work with your ideas.

If you want a custom site but don’t have time to build it

yourself, we offer a team of product specialists ready to help.

Just call 1-800-634-3963 and ask to speak with a PageOut

specialist. You will be asked to send in your course materials

and then participate in a brief telephone consultation. Once

we have your information, we build your Web site for you,

from scratch. Best of all, PageOut is free when you adopt

Business: A Changing World! To learn more, please visit

www.pageout.net.

Instructor Advantage 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

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).

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.

xix

fer73587_fm.qxd 11/19/04 10:51 AM Page xix

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

xx

fer73587_fm.qxd 11/19/04 10:51 AM Page xx

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:

xxi

fer73587_fm.qxd 11/19/04 10:51 AM Page xxi

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

xxii

fer73587_fm.qxd 11/16/04 12:41 PM Page xxii

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.

fer73587_fm.qxd 11/16/04 12:41 PM Page xxiii

fer73587_fm.qxd 11/16/04 12:41 PM Page xxiv

xxv

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxv

xxvi

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxvi

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxvii

xxviii CONTENTS

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxviii

CONTENTS xxix

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxix

xxx CONTENTS

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxx

CONTENTS xxxi

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxxi

xxxii CONTENTS

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxxii

CONTENTS xxxiii

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

fer73587_fm.qxd 11/16/04 12:41 PM Page xxxiii

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

xxxiv CONTENTS

fer73587_fm.qxd 11/16/04 12:41 PM Page xxxiv