Dr bonaminio oak lawn il

Understanding Business

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Understanding Business ELEVENTH EDITION William G. Nickels University of Maryland

James M. McHugh St. Louis Community College at Forest Park

Susan M. McHugh Applied Learning Systems

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UNDERSTANDING BUSINESS, ELEVENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2016 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous edition © 2013, 2010, and 2008. 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 con- sent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broad- cast 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 1 0 9 8 7 6 5

ISBN 978-0-07-802316-3 MHID 0-07-802316-5

Senior Vice President, Products & Markets: Kurt L. Strand Vice President, General Manager, Products & Markets: Michael Ryan Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Susan Gouijnstook Brand Manager: Anke Weekes Director, Product Development: Meghan Campbell Marketing Manager: Michael Gedatus Marketing Specialist: Liz Steiner Associate Market Development Manager: Andrea Scheive Product Developer: Kelly Delso Digital Product Analyst: Kerry Shanahan Director, Content Design & Delivery: Terri Schiesl Program Manager: Mary Conzachi Content Project Managers: Christine Vaughan , Danielle Clement, and Judi David Buyer: Carol A. Bielski Design: Srdjan Savanovic Content Licensing Specialist: Carrie Burger Cover Image: © Maureen McCutcheon Compositor: Laserwords Private Limited Typeface: 10/12 New Aster Printer: R. R. Donnelley

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data Nickels, William G. Understanding business / William G. Nickels, James M. McHugh, Susan M. McHugh. —Eleventh edition. pages cm ISBN 978-0-07-802316-3 (alk. paper) 1. Industrial management. 2. Business. 3. Business—Vocational guidance. I. McHugh, James M. II. McHugh, Susan M. III. Title. HD31.N4897 2016 658—dc23 2014030245

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

www.mhhe.com

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To our families—Marsha, Joel, Carrie, Claire, Casey, Dan, Molly, Michael, Patrick, and Quinn. Thank you for making everything worth doing and giving us the support to do it well!

and To the team that made this edition possible, especially the instructors and students who gave us such valuable guidance as we developed the text and package.

dedication

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Bill Nickels is emeritus professor of business at the University of Maryland, College Park. He has over 30 years’ experience teaching graduate and undergraduate business courses, including introduction to business, marketing, and promotion. He has won the Outstanding Teacher on Campus Award four times and was nominated for the award many other times. He received his M.B.A. degree from Western Reserve University and his Ph.D. from The Ohio State University. He has written a marketing communications text and two marketing principles texts in addition to many articles in business publications. He has taught many seminars to businesspeople on subjects such as power communications, marketing, non-business marketing, and stress and life management. His son, Joel, is a professor of English at the University of Miami (Florida).

Jim McHugh holds an M.B.A. degree from Lindenwood University and has had broad experience in education, business, and government. As chairman of the Business and Economics Department of St. Louis Community College–Forest Park, Jim coordinated and directed the development of the business curriculum. In addition to teaching sev- eral sections of Introduction to Business each semester for nearly 30 years, Jim taught in the marketing and management areas at both the undergraduate and graduate levels. Jim enjoys conducting business seminars and consulting with small and large businesses. He is actively involved in the public service sector and served as chief of staff to the St. Louis County Executive.

Susan McHugh is a learning specialist with extensive training and experience in adult learning and curriculum development. She holds an M.Ed. degree from the Uni- versity of Missouri and completed her course work for a Ph.D. in education administra- tion with a specialty in adult learning theory. As a professional curriculum developer, she has directed numerous curriculum projects and educator training programs. She has worked in the public and private sectors as a consultant in training and employee development. While Jim and Susan treasure their participation in writing projects, their greatest accomplishment is their collaboration on their three children. Casey is carrying on the family’s teaching tradition as an adjunct professor at Washington Uni- versity. Molly and Michael are carrying on the family writing tradition by contributing to the development of several supplementary materials for this text.

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The Platinum Experience

W A

L K

T H

R O

U G

H

Understanding Business has long been the MARKET LEADER. We’ve listened to you and your students and that’s helped us offer you:

Resources that were developed based directly on your feedback—all geared to make the most of your time and to help students succeed in this course. All the supplemental resources for Understanding Business are carefully reviewed by Bill, Jim, and Susan to ensure cohesion with the text.

Technology that leads the way and is consistently being updated to keep up with you and your students. Connect Business offers students a truly interactive and adaptive study arena. Interactive Presentations, Interactive Applications, SmartBook, and LearnSmart are designed to engage students and have been proven to increase grades by a full letter.

Support that is always available to help you in planning your course, working with technology, and meeting the needs of you and your students.

KEEPING UP WITH WHAT’S NEW Users of Understanding Business have always appreciated the currency of the material and the large number of examples from companies of all sizes and industries (e.g., service, manufacturing, nonprofit, and profit) in the United States and around the world. A glance at the Chapter Notes will show you that almost all of them are from 2013 or 2014. Accord- ingly, this edition features the latest business practices and other developments affecting business including:

• U.S. economic status post-financial crisis and recession

• Growing income inequality

• Gross output (GO)

• Core inflation

• Trans-Pacific Partnership

• Types of social commerce

• JOBS Act of 2012

• Crowdinvesting vs. crowdfunding

• Big data

• Nanomanufacturing

• Generation Z

• Alpha Generation

• Affordable Care Act (Obamacare)

• Ethnographic segmentation

• Mobile/social/on-demand marketing

• Bitcoin and other cryptocurrencies

• Net neutrality

• Internet of Things (IoT)

• And much, much more

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RESULTS-DRIVEN TECHNOLOGY FOR STUDENTS Across the country, instructors and students continue to raise an important question: How can introduction to business courses further support students throughout the learning process to shape future business leaders? While there is no one solution, we see the impact of new learning technologies and innovative study tools that not only fully engage students in course material but also inform instructors of the students’ skill and comprehension levels.

Interactive learning tools, including those offered through McGraw-Hill Connect, are being implemented to increase teaching effectiveness and learning efficiency in thousands of colleges and universities. By facilitating a stronger connec- tion with the course and incorporating the latest technologies—such as McGraw-Hill LearnSmart, an adaptive learning program—these tools enable students to succeed in their college careers, which will ultimately increase the percentage of students completing their postsecondary degrees and create the business leaders of the future.

Connect McGraw-Hill Con- nect is the leading online assignment

and assessment solution that connects students with the tools and resources they need to achieve success while providing instructors with tools to quickly pick content and assignments according to the learning objectives they want to emphasize.

Connect improves student learning and retention by adapting to the individual student, reinforcing concepts with engaging presenta- tions and activities that prepare students for class, help them master concepts, and review for exams. You can learn more about what is in Connect on the next page.

Grade Distribution

Without LearnSmart

A 30.5%

B 33.5%

C 22.6%

A 19.3%

B 38.6%

C 28.0%

With LearnSmart

58% more As with LearnSmart

With LearnSmart

Without LearnSmart

Student Pass Rate

25% more students passed with LearnSmart

SmartBook Achieve A revolution in reading Fueled by LearnSmart, SmartBook Achieve is the first and only adaptive reading experi- ence available today. SmartBook per- sonalizes content for each student in a continuously adapting reading experi- ence. Reading is no longer a passive and linear experience, but an engaging and dynamic one where students are more likely to master and retain impor- tant concepts, coming to class better prepared.

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Leveraging a continuously adaptive learning path, the program adjusts to each stu- dent individually as he or she progresses through the program, creating just-in-time learn- ing experiences by presenting interactive content that is tailored to each student’s needs. This model is proven to accelerate learning and strengthen memory recall. A convenient time-management feature and turnkey reports for instructors also ensure student’s stay on track.

Interactive Presentations Aid for Visual Learners These visual pre- sentations within Connect are designed to rein- force learning by offering a visual presentation of the learning objectives highlighted in every chapter of the text. Interactive presentations are engaging, online, professional presentations (fully Section 508 compliant) covering the same core concepts directly from the chapter, while offer- ing additional examples and graphics. Interactive Presentations teach students learning objectives in a multimedia format, bringing the course and the book to life. Interactive Presentations are a great prep tool for students—when the students are bet- ter prepared, they are more engaged and better able to participate in class.

Click and Drag exercises allow students to reinforce key models/processes by requiring stu- dents to label key illustrations and models from the text or build a process, and then demonstrate application-level knowledge.

Interactive Applications A higher level of learning These exercises require students to APPLY what they have learned in a real-world scenario. These online exercises will help students assess their understanding of the concepts.

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Decision generators require students to make real business decisions based on specific real- world scenarios and cases.

Comprehensive Cases encourage students to read a case and answer open-ended discussion questions to demonstrate writing and critical- thinking skills.

Manager’s Hotseat ( Connect Library)— short video cases that show 15 real managers applying their years of experience in confronting certain management and organizational behavior issues. Students assume the role of the manager as they watch the video and answer multiple-choice questions that pop up during the segment, forc- ing them to make decisions on the spot. Students learn from the managers’ unscripted mistakes

and successes, and then do a report critiquing the managers’ approach by defending their reasoning.

Video Cases Real-world assignments Industry-leading video support helps students understand concepts and see how real companies and professionals implement business principles in the workplace. The video cases highlight companies from a broad range of industries, sizes, and geographic locations, giving students a perspective from a variety of businesses.

Video cases give students the opportunity to watch case videos and apply chapter concepts to a real-world business scenario as the scenario unfolds.

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PLATINUM EXPERIENCE STUDENT-FRIENDLY FEATURES Learning Objectives Everything in the text and supplements package ties back to the chapter learning objectives. The learning objectives listed throughout the chapter help students preview what they should know after reading the chapter. Chapter summaries test students’ knowledge by asking ques- tions related to the learning objectives. The Test Bank, Instructor’s Manual, PowerPoints, Online Course, and Connect are all organized according to the learning objectives.

Getting to Know Business Professionals Every chapter in the text opens with the pro- file of a business professional whose career relates closely to the material in the chapter. These business professionals work for a vari- ety of businesses from small businesses and nonprofit organizations to large corporations. These career profiles are an engaging way to open the chapter and to introduce students to a variety of business career paths.

name that company

This Swiss-based company has many foreign subsidiaries including Jenny Craig (weight management), Ralston Purina, Chef America (maker of Hot Pockets), and Dreyer’s Ice Cream in the United States, as well as Perrier in France. The company employs over 328,000 people and has operations in almost every country in the world. Name that company. (Find the answer in the chapter.)

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Name That Company Every text chapter opens with a Name That Company challenge. The answer for the challenge can be found somewhere in the chapter.

Test Prep Questions help students understand and retain the material in the chapters. These questions stop them at important points in the chapter to assess what they’ve learned before they continue reading and help them prep for exams.

• What are the advantages to a firm of using licensing as a method of entry in global markets? What are the disadvantages?

• What services are usually provided by an export-trading company?

• What is the key difference between a joint venture and a strategic alliance?

• What makes a company a multinational corporation?

• What are the advanta

test prep ges to aa firm ofges

Use LearnSmart t o help retain

what you have lear ned. Access

your instructor's C onnect course

to check out Learn Smart, or go to

learnsmartadvanta ge.com for help.

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Seeking Sustainability boxes highlight corporate responsibility and help students understand the various ways business activities affect the environment.

seeking sustainability

When it comes to sustainable products, making sure an item is environmentally sound is just the first step. After all, the word “sustainability” implies that something will last for a long time. A shoddy product that needs to be replaced often takes a hefty toll on resources, which can cancel out the envi- ronmental benefits of even the greenest production methods.

That’s why Rickshaw Bagworks in San Francisco makes sustainable accessories designed to last for the long term. For instance, at first the com- pany began producing bags using expensive Italian wool herring- bone tweed. Although the fabric was beautiful and environmentally friendly, the prototypes wore out in a manner of weeks. So Rickshaw teamed up with an

upholstery mill to create its own fabric, Rickshaw Performance Tweed. Made from recycled plas- tic bottles, this synthetic fabric ended up being stronger and more eco-friendly while still look- ing gorgeous as a handbag.

Rickshaw employees and executives abide by the compa- ny’s “three Fs” of sustainable design: form, function and foot- print. Not only must a product make as small a carbon footprint as possible, it must also serve a long-term practical function and look great doing it. That’s why Rickshaw’s messenger bags are designed in a way that ensures every piece of fabric cut by the

company makes it into the bag. The company’s dedication to sustainability is even incorpo-

rated in its name, which means “human powered vehicle” in Japanese. Do you think more com- panies should be as dedicated to sustainability as Rickshaw?

Sources: Mark Dwight, “How to Build a Sustainable Business,” Inc., November 2013; and http://blog.rickshawbags.com/the-rickshaw-story/ , accessed February 2014.

www.rickshawbags.com

Sustainability’s in the Bag

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ex ny de pr m as lo lo Ri de ev

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Media-Rich E-Book Connect provides students with a cost-saving alternative to the traditional textbook. A seamless integration of a media-rich e-book features the following:

• A web-optimized e-book, allowing for anytime, anywhere online access to the textbook.

• Our iSee It! animated video explanations of the most often confused topics can be accessed within this e-book.

• Highlighting and note-taking capabilities.

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Human Resource Management: Finding and Keeping the

Best Employees

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Learning Objectives AFTER YOU HAVE READ AND STUDIED THIS CHAPTER, YOU SHOULD BE ABLE TO

LO 11-1 Explain the importance of human resource management, and describe current issues in managing human resources.

LO 11-2 Illustrate the effects of legislation on human resource management.

LO 11-3 Summarize the five steps in human resource planning.

LO 11-4 Describe methods that companies use to recruit new employees, and explain some of the issues that make recruitment challenging.

LO 11-5 Outline the six steps in selecting employees.

LO 11-6 Illustrate employee training and development methods.

LO 11-7 Trace the six steps in appraising employee performance.

LO 11-8 Summarize the objectives of employee compensation programs, and evaluate pay systems and fringe benefits.

LO 11-9 Demonstrate how managers use scheduling plans to adapt to workers’ needs.

LO 11-10 Describe how employees can move through a company: promotion, reassignment, termination, and retirement.

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Tony Hsieh

• CEO of Zappos

• Created an offbea t but efficient

workplace

• Empowers staffers to wow

customers

www.zappos.com

@zappos

A lthough online shopping sites are becoming the dominant force in the retail world, they often fall short of their brick- and-mortar rivals in terms of customer service. At the online shoe vendor Zap- pos, however, a unique company culture ensures customers don’t have to sacri- fice quality service for convenience.

When Tony Hsieh joined Zappos as CEO, he wanted to change the corporate work environment for the better. After sell- ing his first company to Microsoft for a whopping $265 million, Hsieh didn’t want a job in a gray, cubicle-filled office. “For me, I didn’t want to be part of a company where I dreaded going into the office,” said Hsieh. To set Zappos apart from other online retailers, he wanted his ser- vice representatives to wow customers with their energy and expertise. To do that Hsieh needed upbeat employees who were motivated by the love of their work. He gave his call center staffers remark- able freedom, allowing them to talk to customers for hours at a time or send flowers and thank-you notes on the com- pany’s dime.

Not only does this strategy do won- ders for customer satisfaction, it also keeps employee morale sky high. In order to succeed at this job, Zappos’s service reps must be creative, energetic, generous, and understanding. But this commitment to excellence doesn’t end with the company’s spirited call center employees. When candidates for depart- ments like marketing or management reach the interview stage, Hsieh starts testing them before they even set foot in the company’s Las Vegas headquarters. “A lot of our job candidates are from out of town, and we’ll pick them up from the airport in a Zappos shuttle, give them a tour, and then they’ll spend the rest of the day interviewing,” said Hsieh. “At the end of the day of interviews, the recruiter will circle back to the shuttle driver and ask how he or she was treated. It doesn’t matter how well the

day of interviews went, if our shuttle driver wasn’t treated well, then we won’t hire that person.” The examination doesn’t end once the person lands the job. Regardless of their position, new hires must spend their first month help- ing customers in the call center. If they can’t thrive, they’re gone.

A long with creating open and acces- sible work environments, Hsieh also tries to break down as many barriers between employees and management as possi- ble. Zappos executives are affectionately referred to as “monkeys,” and the best view from the company’s 10-story Vegas high-rise is reserved for the call center workers. In fact, Hsieh puts so much faith in his staff that in 2014 he announced Zappos would be eliminating most of its traditional managers, corporate titles, and hierarchy entirely. Instead, the com- pany will be replacing its standard chain of command with a “hol- acracy.” This new company structure splits employees into overlapping but mostly self- ruling “circles” that allow them to have a greater voice in how the company is run. Although time will tell whether or not this radical system works, Tony Hsieh’s commitment to an offbeat but efficient workplace has already grown Zappos into a $2 billion company. If anybody can pull off such an unorthodox office structure, it’s Hsieh.

In this chapter, you’ll learn how businesses that succeed like Zappos recruit, manage, and make the most of their employees.

Sources: Jena McGregor, “Zappos Says Goodbye to Bosses,” The Washington Post, January 3, 2014; Edward Lewine, “Tony Hsieh’s Office: Welcome to the Rain Forest,” The New York Times, December 28, 2013; Max Nisen, “Tony Hsieh’s Brilliant Strategy for Hiring Kind People,” Business Insider, November 22, 2013; Kim Bhasin, “Tony Hsieh: Here’s Why I Don’t Want My Employees to Work From Home,” Business Insider, March 6, 2013; and Adam Bryant, “On a Scale of 1 to 10, How Weird Are You?” The New York Times, January 9, 2010.

Getting to know Tony Hsieh

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reaching beyond our borders

For decades McDonald’s has been the undisputed king of global food fran- chising. With more than 34,000 restaurants in over 118 countries, Mickey D’s serves more than 69 mil- lion customers every day.

So how did McDonald’s become such a global powerhouse? It certainly didn’t get there through hamburgers alone. Since it first began expanding overseas, McDonald’s has been careful to include regional tastes on its menus along with the usual Big Mac and French fries. For instance, in Thailand patrons can order the Samurai Burger, a pork-patty sandwich marinated in teriyaki sauce and topped with mayon- naise and a pickle. If fish is more your taste, try the Ebi Filet-o shrimp sandwich from Japan.

McDonald’s is also careful to adapt its menus to local customs and culture. In Israel, all meat served in the chain’s restaurants is 100 percent kosher beef. The com- pany also closes many of its restau- rants on the Sabbath and religious holidays. McDonald’s pays respect

to religious sentiments in India as well by not including any beef or pork on its menu. For more exam- ples, go to www.mcdonalds.com and explore the various McDonald’s international franchises websites. Notice how the company blends the culture of each country into the restaurant’s image.

McDonald’s main global market concern as of late has been Asia. So far McDonald’s strategy seems to be working. In Shanghai the company’s Hamburger University attracts top-level college graduates to be trained for management posi- tions. Only about eight out of every 1,000 applicants makes it into the

program, an acceptance rate even lower than Harvard’s! McDonald’s is reaching out further in Asia and in 2014 opened its first store in Vietnam. The Vietnamese location in Ho Chi Minh City is the coun- try’s very first drive-thru restaurant. Bringing McDonald’s to Vietnam is a dream come true for Henry Nguyen, founder of Good Day Hospitality, who has been wanting to introduce

the brand to Vietnam for over a decade. Nguyen brought in 20 top McDonald’s employees from Australia to help aid in the opening while also sending pro- spective Vietnamese employees to Queensland to learn the ropes in a real-life restaurant setting. In the end, one can only hope that McDonald’s remains dedicated to quality as it continues adapting and expanding into the global market.

Sources: Erin Smith, “Some McSkills to Share,” The Warwick Daily News, February 4, 2014; Kate Taylor, “New Year, New Expansion: McDonald’s to Open First Restaurant in Vietnam,” Entrepreneur, December 23, 2013; Vivian Giang, “McDonald’s Hamburger University: Step inside the Most Exclusive School in the World,” Business Insider, April 7, 2012; and McDonald’s, www.mcdonalds .com , accessed February 2014.

www.mcdonalds.com

McDonald’s: Over 100 Cultures Served

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Reaching Beyond Our Borders boxes focus on global issues surrounding business.

Making Ethical Decisions boxes offer students eth- ical dilemmas to consider.

making ethical decisions

The Affordable Care Act (ACA) may bring some relief to astro- nomical insurance costs. But as premiums continue to rise at home, overseas in countries like Thailand, Colombia, and India, health care is not only affordable, it’s also high quality. For instance, in the United States it would cost Patrick Follett, an avid skier, at least $65,000 for his hip replace- ment surgery. Unlike some Americans, Follett had medical insurance and would have part of the procedure covered. However, it would have still cost him at least

$10,000 out-of-pocket. Follett, like 1.6 million other Americans, started looking for treatment else- where. In March of 2012, he underwent surgery in Mexico and was back on the California ski slopes in March of 2013. His total bill: $10,000, all of which was cov- ered by his company.

Right now, few American com- panies include medical tourism in their health care plans, but some of the larger companies like Aetna and WellPoint are working with companies to include inter- national coverage. It’s even

expected to become a booming industry with worldwide annual growth estimated between 20 and 30 percent. Would it be ethi- cal to force patients to travel thousands of miles and be sepa- rated from friends and family in a time of crisis in order to save money?

Sources: Medical Tourism Association, “Medical Tourism Sample Surgery Cost Chart,” www .medicaltourismassociation.com/en/for-patients. html , accessed March 2014; Kevin Gray, “Medical Tourism: Overseas and Under the Knife,” Men’s Journal, November 2013; and Elisabeth Rosenthal “The Growing Popularity of Having Surgery Overseas,” The New York Times, August 6, 2013.

www.medicaltourism.com

Making Your Operation Your Vacation

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PLATINUM EXPERIENCE INSTRUCTOR RESOURCES Connect offers instructors autogradable material in an effort to facilitate learning and to save time.

Student Progress Tracking

spotlight on small business

Although Americans love to watch sports, professional athletes often receive criticism for collecting enormous paychecks. After all, some sports stars make more money in a single season than many educators or nurses would see in a lifetime. But matters can change drastically for athletes once their playing days end. Suddenly skills that you’ve spent your entire life honing are obso- lete, often leading to confusion over what to do next.

When faced with this problem, the groundbreaking former NBA center Yao Ming opted to use his resources to start a business. Although this is a common post- retirement tactic for many ath- letes, Yao didn’t unveil a line of

athletic wear or open a chain of sports bars. Instead, he estab- lished a high-end winery in California’s famous Napa Valley. Although many wealthy Chinese celebrities have bought vine- yards, Yao has set himself apart by building a brand from scratch

rather than investing in an exist- ing operation. A national hero in China, Yao Family Wines uses the name recognition of its seven- and-half-foot founder to appeal to the nation’s growing consumer class. Yao’s wines are intention- ally expensive: the cheapest vin- tage goes for about $87 while the priciest bottle, Yao Ming Family Reserve, lists for more than $1,000. With premium brands still a rarity in China, Yao could end up being just as influential in the Chinese business world as he was on the basketball court.

Sources: Jason Chow, “Yao Ming’s Napa Winery Stoops to Conquer China’s Middle Class,” The Wall Street Journal, September 5, 2013; and Michelle FlorCruz, “Yao Ming’s Wine Company Sets Sights on China’s Growing Middle Class,” International Business Times, September 6, 2013.

www.yaofamilywines.com

From Setting Picks to Picking Grapes

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Spotlight on Small Business boxes feature how the concepts in the chapter relate to small businesses.

Connect Insight is a powerful data analytics tool that allows instructors to leverage aggregated information about their courses and students to provide a more personalized teach- ing and learning experience.

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Connect’s Instructor Library Connect’s Instructor Library serves as a one-stop, secure site for essential course materi- als, allowing you to save prep time before class. The instructor site resources found in the library include:

• Instructor’s Manual

• PowerPoint Presentations

• Test Bank/EZ Test

• Monthly Bonus Activities

• Videos

• Video Guide

• Connect Instructor’s Manual

Instructor’s Manual: The authors have carefully reviewed all resources provided in the Instructor’s Manual to ensure cohesion with the text. It includes everything an instruc- tor needs to prepare a lecture, including lecture outlines, discussion questions, and teaching notes. More than 900 PowerPoint slides offer material from the text, as well as expanded coverage to supplement discussion.

PowerPoint Presentations: More than 900 PowerPoint slides offer material from the text, as well as expanded coverage to supplement discussion.

Test Bank and EZ Test Online: The Test Bank and Computerized Test Bank offer over 8,000 multiple-choice, true/false, short answer, essay, and application questions. ISBN: 0077474376

Monthly Bonus Activities: Monthly Bonus Activities contain a variety of tools to help freshen your classes: (1) links to interesting new videos; (2) abstracts of recent articles with accompanying critical-thinking questions to spark class discussion (sample answers included); and (3) a PowerPoint file that integrates these elements in an easy-to-use pack- age. If you’re a current adopter of the text, then we are already sending you the Monthly Bonus Activities. If you are not receiving them and would like to, please contact your McGraw-Hill Sales Representative.

Videos: Chapter-specific videos are provided to complement each chapter of the text. Eleven of the 20 videos have been updated to include interesting companies that students will identify with such as SXSW, Sonic, and Whole Foods.

Video Guide: The Video Guide offers additional detailed teaching notes to accompany the chapter videos, and provides essay-style and multiple-choice questions.

Connect Instructor’s Manual: This Instructor’s Manual offers instructors what they need to set up Connect for their courses. It explains everything from how to get started to suggestions of what to assign and ideas about assigning credit. This tool was developed by instructors who have used and continue to use Connect successfully in their course.

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PLATINUM EXPERIENCE TEACHING OPTIONS AND SOLUTIONS

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AACSB Tagging McGraw-Hill Education is a proud corporate member of AACSB International. Under- standing the importance and value of AACSB accreditation, Understanding Business recognizes the curricula guidelines detailed in the AACSB standards for business accred- itation by connecting selected questions in the text and the test bank to the six general knowledge and skill guidelines in the AACSB standards. The statements contained in Understanding Business are provided only as a guide for the users of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While the Understanding Business teaching package makes no claim of any specific AACSB qualification or evaluation, we have within Understanding Business labeled selected questions according to the six general knowledge and skills areas.

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xvii

Ashraf Almurdaah, Los Angeles City College

Lydia Anderson, Fresno City College

Chi Anyasi-Archibong, North Carolina A&T

Maria Aria, Camden County College

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A C

K N

O W

L E

D G

M E

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O ur Senior Brand Manager, Anke Weekes, led the talented team at McGraw-Hill Educa- tion. We appreciate her dedication to the success of the project and her responsiveness to the demands of the market. Kelly Delso served as our product developer and kept everyone on task and on schedule. Molly and Michael McHugh contributed the new boxes and pro- files. Srdjan Savanovic created the new fresh, open interior design and extraordinary cover. Carrie Burger and Jen Blankenship carried out the extensive research for photos that was necessary to effectively reflect the concepts presented in the text. Lead project manager, Christine Vaughan, did a splendid job of keeping the production of the text on schedule. Danielle Clement expertly supervised Connect production.

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REVIEWERS We would like to thank the following instructors for sharing their opinions with us in an effort to improve this and previous editions:

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ACKNOWLEDGMENTSxviii

Ross Gittell, University of New Hampshire

Constance Golden, Lakeland Community College

Doug Greiner, University of Toledo–Scott Park

John Guess, Delgado Community College

Lisa E. Hadley, Southwest Tennessee Community College

Nancy Hernandez, Howard College

Maryanne Holcomb, Oakland Community College

Russell E. Holmes, Des Moines Area Community College

Janice Karlen, La Guardia Community College

James W. Marco, Wake Technical Community College

Theresa Mastrianni, Kingsborough Community College

Michelle Meyer, Joliet Junior College

Catherine Milburn, University of Colorado–Denver

Mihai Nica, University of Central Oklahoma

David Oliver, Edison Community College

Dyan Pease, Sacramento City College

Vincent Quan, Fashion Institute of Technology

David Robinson, University of California–Berkeley

Rieann Spence-Gale, Nova Community College

Kurt Stanberry, University of Houston

Marguerite Teubner, Nassau Community College

Rod Thirion, Pikes Peak Community College

William J. Wardrope, University of Central Oklahoma

David Washington, North Carolina State University

Ruby Barker, Tarleton State University

Rosalia (Lia) Barone, Norwalk Community College

Barbara Barrett, St. Louis Commu- nity College–Meramec

Barry Barrett, University of Wisconsin–Milwaukee

Lorraine Bassette, Prince George’s Community College

Robb Bay, College of Southern Nevada–West Charle

Charles Beavin, Miami Dade College North

Charles Beem, Bucks County Community College

Cathleen Behan, Northern Virginia Community College

Lori Bennett, Moorpark College

Ellen Benowitz, Mercer Commu- nity College

Patricia Bernson, County College of Morris

William Bettencourt, Edmonds Community College

Robert Blanchard, Salem State College

Nikolas Adamou, Borough of Manhattan Community College

Cathy Adamson, Southern Union State Community College

Gary Amundson, Montana State University–Billings

Kenneth Anderson, Borough of Manhattan Community College

Kenneth Anderson, Mott Community College

Lydia Anderson, Fresno City College

Narita Anderson, University of Central Oklahoma

Roanne Angiello, Bergen Community College

Chi Anyansi-Archibong, North Carolina A&T University

Michael Atchison, University of Virginia–Charlottesville

Andrea Bailey, Moraine Valley Community College

Sandra Bailey, Ivy Tech Commu- nity College of Indiana

Scott Bailey, Troy University

Wayne Ballantine, Prairie View A&M University

Mary Jo Boehms, Jackson State Community College

James Borden, Villanova University

Michael Bravo, Bentley College

Dennis Brode, Sinclair Community College

Harvey Bronstein, Oakland Com- munity College–Farmington Hills

Deborah Brown, North Carolina State University–Raleigh

Aaron A. Buchko, Bradley University

Laura Bulas, Central Community College–Hastings

Judy Bulin, Monroe Community College

Barry Bunn, Valencia Community College–West Campus

Bill Burton, Indiana Wesleyan University

Paul Callahan, Cincinnati State Technical and Community College

William Candley, Lemoyne Owen College

We would like to thank the following instructors and students who generously provided the input and advice that contrib- uted to the development of this text.

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xixACKNOWLEDGMENTS

Nancy Carr, Community College of Philadelphia

Ron Cereola, James Madison University

Bonnie Chavez, Santa Barbara City College

Susan Cisco, Oakton Community College

Margaret (Meg) Clark, Cincinnati State Technical and Community College

David Clifton, Ivy Tech Community College of Indiana

C. Cloud, Phoenix College

Doug Cobbs, JS Reynolds Com- munity College

Brooks Colin, University of New Orleans

Debbie Collins, Anne Arundel Community College

Andrew Cook, Limestone College

Bob Cox, Salt Lake Community College

Susan Cremins, Westchester Com- munity College

Julie Cross, Chippewa Valley Tech College

Geoffrey Crosslin, Kalamazoo Valley Community College

Douglas Crowe, Bradley University

John David, Stark State College of Technology

Peter Dawson, Collin County Community College

Joseph Defilippe, Suffolk County Community College–Brentwood

Tim DeGroot, Midwestern State University

Len Denault, Bentley College

Frances Depaul, Westmoreland County Community College

Donna Devault, Fayetteville Tech Community College

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George Dollar, St. Petersburg College

Glenn Doolittle, Santa Ana College

Ron Dougherty, Ivy Tech Community College of Indiana

Michael Drafke, College of DuPage

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Brenda Eichelberger, Portland State University

Kelvin Elston, Nashville State Tech Community College

Robert Ettl, Stony Brook University

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Michael Ewens, Ventura College

Hyacinth Ezeka, Coppin State University

Bob Farris, Mt. San Antonio College

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Gil Feiertag, Columbus State Community College

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Lucinda Fleming, Orange County Community College

Jackie Flom, University of Toledo

Andrea Foster, John Tyler Community College

Michael Foster, Bentley College

Leatrice Freer, Pitt Community College

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Stacy Horner, Southwestern Michigan College

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ACKNOWLEDGMENTSxx

Jo Ann Hunter, Community College Allegheny County in Pittsburgh

Kimberly Hurns, Washtenaw Community College

Victor Isbell, University of Nevada–Las Vegas

Deloris James, University of Maryland–University College

Pam Janson, Stark State College of Technology

William Jedlicka, Harper College

Carol Johnson, University of Denver

Gwendolyn Jones, University of Akron

Kenneth Jones, Ivy Tech Commu- nity College of Indiana

Marilyn Jones, Friends University

Michael Jones, Delgado Commu- nity College

Dmitriy Kalyagin, Chabot College

Jack Kant, San Juan College

Jimmy Kelsey, Seattle Central Community College

Robert Kemp, University of Virginia–Charlottesville

David Kendall, Fashion Institute of Technology

Kristine Kinard, Shelton State Community College

Sandra King, Minnesota State University–Mankato

John Kurnik, Saint Petersburg College

Jeff LaVake, University of Wisconsin–Oshkosh

Robert Lewis, Davenport University

Byron Lilly, DeAnza College

Beverly Loach, Central Piedmont Community College

Boone Londrigan, Mott Commu- nity College

Ladonna Love, Fashion Institute of Technology

Ivan Lowe, York Technical College

Yvonne Lucas, Southwestern College

Robert Lupton, Central Washington University

Megan Luttenton, Grand Valley State University

Elaine Madden, Anne Arundel Community College

Lawrence Maes, Davenport University

Niki Maglaris, Northwestern College

James Maniki, Northwestern College

Martin Markowitz, College of Charleston

Fred Mayerson, Kingsborough Community College

Stacy McCaskill, Rock Valley College

Vershun L. McClain, Jackson State University

Gina McConoughey, Illinois Central College

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Faviana Olivier, Bentley College

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xxiACKNOWLEDGMENTS

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Carol Rowey, Community College of Rhode Island

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Pat Setlik, Harper College

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Bob Trewartha, Minnesota School of Business

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Dan Vetter, Central Michigan University

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Greg Witkowski, Northwestern College

Colette Wolfson, Ivy Tech Community College of Indiana

Deborah Yancey, Virginia Western Community College

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This edition continues to be the market’s gold standard due to the involvement of these committed instructors and stu- dents. We thank them all for their help, support, and friendship.

Bill Nickels Jim McHugh Susan McHugh

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PART 3

PART 1

PART 4

PART 5

PART 6

PART 2

xxii

Prologue P-1

Business Trends: Cultivating a Business in Diverse, Global Environments 2 1 Taking Risks and Making Profits within the Dynamic Business Environment 2 2 Understanding Economics and How It Affects Business 28 3 Doing Business in Global Markets 60 4 Demanding Ethical and Socially Responsible Behavior 92

Business Ownership: Starting a Small Business 118 5 How to Form a Business 118 6 Entrepreneurship and Starting a Small Business 150

Business Management: Empowering Employees to Satisfy Customers 184 7 Management and Leadership 184 8 Structuring Organizations for Today’s Challenges 210 9 Production and Operations Management 240

Management of Human Resources: Motivating Employees to Produce Quality Goods and Services 268 10 Motivating Employees 268 11 Human Resource Management: Finding and Keeping the Best Employees 298 12 Dealing with Union and Employee–Management Issues 332

Marketing: Developing and Implementing Customer-Oriented Marketing Plans 360 13 Marketing: Helping Buyers Buy 360 14 Developing and Pricing Goods and Services 388 15 Distributing Products 416 16 Using Effective Promotions 446

Managing Financial Resources 472 17 Understanding Accounting and Financial Information 472 18 Financial Management 502 19 Using Securities Markets for Financing and Investing Opportunities 530 20 Money, Financial Institutions, and the Federal Reserve 564

Bonus Chapters Bonus Chapter A: Working within the Legal Environment A Bonus Chapter B: Using Technology to Manage Information B Bonus Chapter C: Managing Risk C Bonus Chapter D: Managing Personal Finances D

Epilogue E

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xxiii

Prologue: Getting Ready for This Course and Your Career P-1

Top 10 Reasons to Read This Introduction P-1 Learning the Skills You Need to Succeed Today and Tomorrow P-2 Using This Course to Prepare for Your Career P-3 Assessing Your Skills and Personality P-4 Using Professional Business Strategies Right Now P-4 Learning to Behave Like a Professional P-5 Doing Your Best in College P-7

Study Hints P-7 Test-Taking Hints P-9 Time Management Hints P-10

Making the Most of the Resources for This Course P-1 1

Getting the Most from This Text P-1 2

PART 1

Business Trends: Cultivating a Business in Diverse, Global Environments 2

CHAPTER 1 Taking Risks and Making Profits within the

Dynamic Business Environment 2 Getting to Know: Sammy Hagar, Entrepreneur and Rock Star 3 Entrepreneurship and Wealth Building 4

Revenues, Profits, and Losses 4 Matching Risk with Profit 5 Standard of Living and Quality of Life 5 Responding to the Various Business Stakeholders 6 Using Business Principles in Nonprofit Organizations 7

Entrepreneurship versus Working for Others 8 Opportunities for Entrepreneurs 8

Spotlight on Small Business: How a Food Truck Helped Rebuild a Storm-Struck Community 9

The Importance of Entrepreneurs to the Creation of Wealth 9

The Business Environment 11 The Economic and Legal Environment 11

Making Ethical Decisions: Ethics Begins with You 14 The Technological Environment 14

Reaching Beyond Our Borders: Connecting Companies with Global Freelancers 15

The Competitive Environment 16 The Social Environment 17 The Global Environment 18

Adapting to Change: Gourmet Airport Eateries Take Flight 19 The Evolution of U.S. Business 20

Progress in the Agricultural and Manufacturing Industries 20

Progress in Service Industries 20 Your Future in Business 22 Summary 22

Key Terms 24

Critical Thinking 24

Developing Workplace Skills 25

Taking It to the Net 25

Video Case: Thomas Lennon 26

Notes 27

Photo Credits 27

CHAPTER 2 Understanding Economics and How It Affects

Business 28 Getting to Know: Matt Flannery, Co-Founder and CEO of Kiva.org 29 How Economic Conditions Affect Businesses 30

What Is Economics? 30 The Secret to Creating a Wealthy Economy 32 Adam Smith and the Creation of Wealth 32 How Businesses Benefit the Community 33

Making Ethical Decisions: How Corruption Harms the Economy 34 Understanding Free-Market Capitalism 34

The Foundations of Capitalism 35 How Free Markets Work 36 How Prices Are Determined 37 The Economic Concept of Supply 37 The Economic Concept of Demand 37 The Equilibrium Point, or Market Price 37 Competition within Free Markets 38

Spotlight on Small Business: Bugs Bug Orange Farmers and Drive Prices Up 39

Benefits and Limitations of Free Markets 40 Understanding Socialism 41

The Benefits of Socialism 41 The Negative Consequences of Socialism 41

Understanding Communism 42 The Trend Toward Mixed Economies 42 Reaching Beyond Our Borders: Economic Expansion in Africa 44 Understanding the U.S. Economic System 44

Key Economic Indicators 44 Productivity in the United States 48 Productivity in the Service Sector 48 The Business Cycle 49 Stabilizing the Economy through Fiscal Policy 49 Fiscal Policy in Action during an Economic Crisis 51 Using Monetary Policy to Keep the Economy Growing 51 Summary 52

Key Terms 54

Critical Thinking 54

C O

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CONTENTSxxiv

Developing Workplace Skills 55

Taking It to the Net 56

Video Case: Opportunities International 56

Notes 57

Photo Credits 58

CHAPTER 3 Doing Business in Global Markets 60 Getting to Know: Leila Janah, Founder and CEO of Samasource 61 The Dynamic Global Market 62 Why Trade with Other Nations? 63

The Theories of Comparative and Absolute Advantage 64

Getting Involved in Global Trade 64 Importing Goods and Services 65 Exporting Goods and Services 65 Measuring Global Trade 66

Strategies for Reaching Global Markets 67 Licensing 68 Exporting 68 Franchising 69 Contract Manufacturing 69

Reaching Beyond Our Borders: McDonald’s: Over 100 Cultures Served 70

International Joint Ventures and Strategic Alliances 70 Foreign Direct Investment 71

Forces Affecting Trading in Global Markets 73 Sociocultural Forces 73

Spotlight on Small Business: From Setting Picks to Picking Grapes 74

Economic and Financial Forces 74 Legal and Regulatory Forces 76 Physical and Environmental Forces 77

Trade Protectionism 77 The World Trade Organization 79 Common Markets 79 The North American and Central American Free Trade Agreements 80

The Future of Global Trade 81 The Challenge of Offshore Outsourcing 83 Globalization and Your Future 84

Making Ethical Decisions: Making Your Operation Your Vacation 85

Summary 85

Key Terms 87

Critical Thinking 87

Developing Workplace Skills 87

Taking It to the Net 88

Video Case: Electra Bicycle Company 88

Notes 89

Photo Credits 91

CHAPTER 4 Demanding Ethical and Socially Responsible

Behavior 92 Getting to Know: Patty Stonesifer, CEO of Martha’s Table 93 Ethics Is More Than Legality 94 Making Ethical Decisions: Bernie Madoff’s Ponzi Scheme 95

Ethical Standards Are Fundamental 96 Ethics Begins with Each of Us 96

Spotlight on Small Business: Turning Ex-Convicts into Entrepreneurs 97 Managing Businesses Ethically and Responsibly 98

Setting Corporate Ethical Standards 100 Corporate Social Responsibility 102

Responsibility to Customers 104 Responsibility to Investors 105 Responsibility to Employees 106 Responsibility to Society and the Environment 107 Social Auditing 108

Seeking Sustainability: Sustainability’s in the Bag 109 International Ethics and Social Responsibility 110 Reaching Beyond Our Borders: Going by a Different Standard 112

Summary 113

Key Terms 114

Critical Thinking 115

Developing Workplace Skills 115

Taking It to the Net 115

Video Case: Warby Parker/VisionSpring 116

Notes 117

Photo Credits 117

PART 2

Business Ownership: Starting a Small Business 118

CHAPTER 5 How to Form a Business 118 Getting to Know: Anne Beiler, Founder of Auntie Anne’s 119 Basic Forms of Business Ownership 120 Sole Proprietorships 121

Advantages of Sole Proprietorships 121 Disadvantages of Sole Proprietorships 121

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xxvCONTENTS

Partnerships 123 Advantages of Partnerships 124 Disadvantages of Partnerships 125

Making Ethical Decisions: Good Business, Bad Karma? 127 Corporations 127

Advantages of Corporations 127 Disadvantages of Corporations 129

Seeking Sustainability: B Corporations Let Sustainability Set Sail 130

Individuals Can Incorporate 131 S Corporations 132 Limited Liability Companies 132

Corporate Expansion: Mergers and Acquisitions 135 Franchises 136

Advantages of Franchises 137 Spotlight on Small Business: The Building Blocks of Franchising 139

Disadvantages of Franchises 139 Diversity in Franchising 140 Home-Based Franchises 141 E-Commerce in Franchising 141 Using Technology in Franchising 141

Adapting to Change: Giving Entrepreneurs Options with Digital Franchising 142

Franchising in Global Markets 142 Cooperatives 143 Which Form of Ownership Is for You? 144

Summary 144

Key Terms 146

Critical Thinking 147

Developing Workplace Skills 147

Taking It to the Net 148

Video Case: Sonic 148

Notes 149

Photo Credits 149

CHAPTER 6 Entrepreneurship and Starting a Small

Business 150 Getting to Know: Prudencio Unanue, Founder of Goya Foods 151 The Age of the Entrepreneur 152 The Job-Creating Power of Entrepreneurs in the United States 152 Spotlight on Small Business: Earning while Learning 153 Why People Take the Entrepreneurial Challenge 153

What Does It Take to Be an Entrepreneur? 154

Turning Your Passions and Problems into Opportunities 155 Entrepreneurial Teams 157 Micropreneurs and Home-Based Businesses 157 Web-Based Businesses 159 Entrepreneurship within Firms 160 Encouraging Entrepreneurship: What Government Can Do 161

Getting Started in Small Business 162 Small versus Big Business 162 Importance of Small Businesses 163 Small-Business Success and Failure 163

Learning about Small-Business Operations 165 Learn from Others 165 Get Some Experience 165

Making Ethical Decisions: Should You Stay or Should You Go? 166

Take Over a Successful Firm 166 Managing a Small Business 167

Begin with Planning 167 Getting Money to Fund a Small Business 168

Adapting to Change: States Test New Crowdinvesting Rules 171

The Small Business Administration (SBA) 171 Knowing Your Customers 172 Managing Employees 173 Keeping Records 173

Reaching Beyond Our Borders: Beyond Knowing What Your Customers Need 174

Looking for Help 174 Going Global: Small-Business Prospects 176

Summary 177

Key Terms 179

Critical Thinking 179

Developing Workplace Skills 179

Taking It to the Net 180

Video Case: Launching a Business: Pillow Pets 180

Notes 181

Photo Credits 182

PART 3

Business Management: Empowering Employees to Satisfy Customers 184

CHAPTER 7 Management and Leadership 184 Getting to Know: Sheryl Sandberg, COO of Facebook 185

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Managers’ Roles Are Evolving 186 The Four Functions of Management 187 Planning and Decision Making 189

Decision Making: Finding the Best Alternative 192 Organizing: Creating a Unified System 193

Tasks and Skills at Different Levels of Management 194

Reaching Beyond Our Borders: Back to School for Top Managers 195

Staffing: Getting and Keeping the Right People 195 Leading: Providing Continuous Vision and Values 196 Making Ethical Decisions: What Do You Tell the Team? 197

Leadership Styles 197 Empowering Workers 198 Managing Knowledge 199

Adapting to Change: Using Social Media during the Worst of Times 200 Controlling: Making Sure It Works 201

A Key Criterion for Measurement: Customer Satisfaction 202 Summary 203

Key Terms 205

Critical Thinking 205

Developing Workplace Skills 205

Taking It to the Net 206

Video Case: Zappos’s Team Approach 207

Notes 207

Photo Credits 208

CHAPTER 8 Structuring Organizations for Today’s

Challenges 210 Getting to Know: Jenna Lyons, President and Creative Director of J. Crew 211 Everyone’s Reorganizing 212

Building an Organization from the Bottom Up 212 Making Ethical Decisions: Would You Sacrifice Safety for Profits? 213 The Changing Organization 214

The Development of Organization Design 214 Turning Principles into Organization Design 216

Decisions to Make in Structuring Organizations 218

Choosing Centralized or Decentralized Authority 218 Choosing the Appropriate Span of Control 219 Choosing between Tall and Flat Organization Structures 219 Weighing the Advantages and Disadvantages of Departmentalization 220

Organizational Models 222 Line Organizations 223 Line-and-Staff Organizations 223 Matrix-Style Organizations 223 Cross-Functional Self-Managed Teams 225 Going Beyond Organizational Boundaries 226

Managing the Interactions among Firms 226 Transparency and Virtual Organizations 227

Spotlight on Small Business: Cutting Back while Cutting Costs 228

Benchmarking and Core Competencies 228 Adapting to Change 229 Adapting to Change: When Open Communication Should Not Be So Open 230

Restructuring for Empowerment 230 Creating a Change-Oriented Organizational Culture 231 Managing the Informal Organization 232 Summary 233

Key Terms 235

Critical Thinking 235

Developing Workplace Skills 236

Taking It to the Net 237

Video Case: Whole Foods 237

Notes 238

Photo Credits 238

CHAPTER 9

Production and Operations Management 240

Getting to Know: Shahid Khan, CEO of Flex-N-Gate 241 Manufacturing and Services in Perspective 242 Seeking Sustainability: Your Own Farm in a Box 243 Reaching Beyond Our Borders: Nobody Does It Better 244

Manufacturers and Service Organizations Become More Competitive 244

From Production to Operations Management 245 Operations Management in the Service Sector 246

Production Processes 247 The Need to Improve Production Techniques and Cut Costs 248 Computer-Aided Design and Manufacturing 248 Flexible Manufacturing 249 Lean Manufacturing 249 Mass Customization 250 Robotics 250

Spotlight on Small Business: Make Your Own Kind of Music 251

Using Sensing, Measurement, and Process Control 251

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Operations Management Planning 252 Facility Location 252 Facility Location for Manufacturers 253

Making Ethical Decisions: Do We Stay or Do We Go? 254

Taking Operations Management to the Internet 254 Facility Location in the Future 254 Facility Layout 254 Materials Requirement Planning 255 Purchasing 257 Just-in-Time Inventory Control 257 Quality Control 257 The Baldrige Awards 258 ISO 9000 and ISO 14000 Standards 258

Control Procedures: Pert and Gantt Charts 259 Preparing for the Future 261

Summary 262

Key Terms 264

Critical Thinking 264

Developing Workplace Skills 265

Taking It to the Net 265

Video Case: Keeping Your Eye on the Ball 266

Notes 267

Photo Credits 267

PART 4

Management of Human Resources: Motivating Employees to Produce Quality Goods and Services 268

CHAPTER 10 Motivating Employees 268 Getting to Know: David Novak, CEO of Yum! Brands 269 The Value of Motivation 270

Frederick Taylor: The Father of Scientific Management 271 Elton Mayo and the Hawthorne Studies 272

Motivation and Maslow’s Hierarchy of Needs 273 Herzberg’s Motivating Factors 274 McGregor’s Theory X and Theory Y 276

Theory X 276 Theory Y 277

Ouchi’s Theory Z 278 Goal-Setting Theory and Management by Objectives 280 Meeting Employee Expectations: Expectancy Theory 280

Reinforcing Employee Performance: Reinforcement Theory 281 Treating Employees Fairly: Equity Theory 282 Putting Theory into Action 282

Motivation through Job Enrichment 283 Motivating through Open Communication 283 Applying Open Communication in Self-Managed Teams 284

Adapting to Change: When Is Social Media Too Social? 285

Recognizing a Job Well Done 285 Personalizing Motivation 286 Spotlight on Small Business: Going Up against the Heavyweights 287

Motivating Employees across the Globe 287 Reaching Beyond Our Borders: Beyond Just Knowing Cross-Cultural Differences 288

Motivating Employees across Generations 288 Summary 291

Key Terms 293

Critical Thinking 294

Developing Workplace Skills 294

Taking It to the Net 294

Video Case: Appletree Answers 295

Notes 296

Photo Credits 296

CHAPTER 11 Human Resource Management: Finding and

Keeping the Best Employees 298 Getting to Know: Tony Hsieh, CEO of Zappos 299 Working with People Is Just the Beginning 300

Developing the Ultimate Resource 300 The Human Resource Challenge 301

Laws Affecting Human Resource Management 302

Laws Protecting Employees with Disabilities and Older Employees 304 Effects of Legislation 305

Determining a Firm’s Human Resource Needs 305 Recruiting Employees from a Diverse Population 307 Spotlight on Small Business: Competing for the Cream of the Crop 309 Selecting Employees Who Will Be Productive 309 Adapting to Change: Keeping the Right Face on Facebook 311

Hiring Contingent Workers 311 Training and Developing Employees for Optimum Performance 312

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Making Ethical Decisions: Intern or Indentured Servant? 313

Management Development 314 Networking 315 Diversity in Management Development 316

Appraising Employee Performance to Get Optimum Results 316 Compensating Employees: Attracting and Keeping the Best 318

Pay Systems 318 Compensating Teams 319 Fringe Benefits 320

Reaching Beyond Our Borders: Cultural Challenges without Conflict 321 Scheduling Employees to Meet Organizational and Employee Needs 322

Flextime Plans 322 Home-Based Work 323 Job-Sharing Plans 323

Moving Employees Up, Over, and Out 324 Promoting and Reassigning Employees 325 Terminating Employees 325 Retiring Employees 326 Losing Valued Employees 326 Summary 326

Key Terms 328

Critical Thinking 329

Developing Workplace Skills 329

Taking It to the Net 329

Video Case: Teach for America 330

Notes 331

Photo Credits 331

CHAPTER 12 Dealing with Union and Employee—

Management Issues 332 Getting to Know: DeMaurice Smith, Executive Director of the NFL Players Association 333 Employee–Management Issues 334 Labor Unions Yesterday and Today 335

The History of Organized Labor 335 Public Sector Union Membership 336

Spotlight on Small Business: The Factory Blaze That Fired Up a Movement 337 Labor Legislation and Collective Bargaining 337

Union Organizing Campaigns 338 Objectives of Organized Labor over Time 340 Resolving Labor–Management Disagreements 342 Mediation and Arbitration 343

Tactics Used in Labor–Management Conflicts 343

Union Tactics 343 Management Tactics 344

Making Ethical Decisions: To Cross or Not to Cross 345

The Future of Unions and Labor–Management Relations 345

Controversial Employee–Management Issues 347 Executive Compensation 347

Adapting to Change: College Athletes: What Are They Worth? 348

Pay Equity 349 Sexual Harassment 350 Child Care 351 Elder Care 352 Drug Testing 353 Violence in the Workplace 353 Summary 354

Key Terms 356

Critical Thinking 356

Developing Workplace Skills 356

Taking It to the Net 357

Video Case: United We Stand 357

Notes 358

Photo Credits 359

PART 5 Marketing: Developing and Implementing Customer-Oriented Marketing Plans 360

CHAPTER 13 Marketing: Helping Buyers Buy 360 Getting to Know: Daymond John, Founder of FUBU 361 What Is Marketing? 362

The Evolution of Marketing 363 Seeking Sustainability: Making Sustainability Just Peachy 365

Nonprofit Organizations and Marketing 366 The Marketing Mix 366

Applying the Marketing Process 367 Designing a Product to Meet Consumer Needs 368 Setting an Appropriate Price 369 Getting the Product to the Right Place 369 Developing an Effective Promotional Strategy 369

Providing Marketers with Information 370 The Marketing Research Process 370

The Marketing Environment 372 Global Factors 373 Technological Factors 373 Sociocultural Factors 373

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xxixCONTENTS

Reaching Beyond Our Borders: Two Is Better than One 374

Competitive Factors 374 Economic Factors 374

Two Different Markets: Consumer and Business-to- Business (B2B) 375 The Consumer Market 375

Segmenting the Consumer Market 376 Reaching Smaller Market Segments 377 Building Marketing Relationships 378 The Consumer Decision-Making Process 378

Adapting to Change: Turning Negatives to Positive 379 The Business-to-Business Market 380 Your Prospects in Marketing 380

Summary 381

Key Terms 383

Critical Thinking 383

Developing Workplace Skills 384

Taking It to the Net 384

Video Case: Using the 4 Ps at Energizer 385

Notes 385

Photo Credits 386

CHAPTER 14 Developing and Pricing Goods and

Services 388 Getting to Know: Kathy Ireland, CEO of Kathy Ireland Worldwide 389 Product Development and the Total Product Offer 390 Adapting to Change: Bellying Up to Social Media 391

Distributed Product Development 392 Product Lines and the Product Mix 393

Spotlight on Small Business: Sealing the Deal 394 Product Differentiation 394

Marketing Different Classes of Consumer Goods and Services 395 Marketing Industrial Goods and Services 396

Packaging Changes the Product 397 The Growing Importance of Packaging 398

Branding and Brand Equity 398 Brand Categories 399

Reaching Beyond Our Borders: Playing the Name Game 400

Generating Brand Equity and Loyalty 400 Creating Brand Associations 401 Brand Management 401

The New-Product Development Process 402 Generating New-Product Ideas 402 Product Screening 402 Product Analysis 402 Product Development and Testing 402 Commercialization 403

Adapting to Change: Making the Right Cut 404 The Product Life Cycle 404

Example of the Product Life Cycle 405 Using the Product Life Cycle 405

Competitive Pricing 407 Pricing Objectives 407 Cost-Based Pricing 408 Demand-Based Pricing 408 Competition-Based Pricing 408 Break-Even Analysis 408 Other Pricing Strategies 409 How Market Forces Affect Pricing 409

Nonprice Competition 410 Summary 410

Key Terms 412

Critical Thinking 413

Developing Workplace Skills 413

Taking It to the Net 414

Video Case: Dream Dinners Food-to-Go 414

Notes 415

Photo Credits 415

CHAPTER 15 Distributing Products 416 Getting to Know: Reed Hastings, CEO of Netflix 417 The Emergence of Marketing Intermediaries 418 Seeking Sustainability: Answer May Be Blowing in the Wind 419

Why Marketing Needs Intermediaries 419 How Intermediaries Create Exchange Efficiency 420 The Value versus the Cost of Intermediaries 421

The Utilities Created by Intermediaries 423 Form Utility 423 Time Utility 423 Place Utility 423 Possession Utility 424 Information Utility 424 Service Utility 424

Wholesale Intermediaries 425 Merchant Wholesalers 425 Agents and Brokers 426

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Retail Intermediaries 426 Retail Distribution Strategy 427

Adapting to Change: Truckin’ On with Social Media 428 Nonstore Retailing 428

Electronic Retailing 428 Telemarketing 430 Vending Machines, Kiosks, and Carts 430 Direct Selling 430 Multilevel Marketing 430 Direct Marketing 431

Building Cooperation in Channel Systems 431 Corporate Distribution Systems 432 Contractual Distribution Systems 432 Administered Distribution Systems 432 Supply Chains 432

Reaching Beyond Our Borders: Weak Links Can Break a Chain 434 Logistics: Getting Goods to Consumers Efficiently 434

Trains Are Great for Large Shipments 436 Trucks Are Good for Small Shipments to Remote Locations 437 Water Transportation Is Inexpensive but Slow 437 Pipelines Are Fast and Efficient 437 Air Transportation Is Fast but Expensive 437 Intermodal Shipping 438 The Storage Function 438 Tracking Goods 439

What All This Means to You 439 Summary 440

Key Terms 442

Critical Thinking 442

Developing Workplace Skills 443

Taking It to the Net 443

Video Case: FedEx 444

Notes 445

Photo Credits 445

CHAPTER 16 Using Effective Promotions 446 Getting to Know: Chris Hardwick, Co-Founder of Nerdist Industries 447 Promotion and the Promotion Mix 448 Advertising: Informing, Persuading, and Reminding 449

Television Advertising 452 Product Placement 453 Infomercials 453 Online Advertising 453

Making Ethical Decisions: Pay-per-Tweet 454

Using Social Media to Monitor Ad Effectiveness 455 Global Advertising 455

Reaching Beyond Our Borders: What’s in Your Oreo? 456 Personal Selling: Providing Personal Attention 456

Steps in the Selling Process 457 The Business-to-Consumer Sales Process 458

Public Relations: Building Relationships 460 Publicity: The Talking Arm of PR 460

Sales Promotion: Giving Buyers Incentives 461 Word of Mouth and Other Promotional Tools 463 Adapting to Change: What Are Companies Yelping About? 464

Blogging 464 Podcasting 465 E-Mail Promotions 465 Mobile Marketing 465

Managing the Promotion Mix: Putting It All Together 465

Promotional Strategies 466 Summary 467

Key Terms 468

Critical Thinking 469

Developing Workplace Skills 469

Taking It to the Net 470

Video Case: SXSW 470

Notes 471

Photo Credits 471

PART 6

Managing Financial Resources 472

CHAPTER 17 Understanding Accounting and Financial

Information 472 Getting to Know: John Raftery, Founder of Patriot Contractors 473 The Role of Accounting Information 474

What Is Accounting? 474 Accounting Disciplines 475

Managerial Accounting 475 Financial Accounting 476 Auditing 477

Adapting to Change: Elementary, Mr. Auditor, Elementary 478

Tax Accounting 478 Government and Not-for-Profit Accounting 478

The Accounting Cycle 479 Using Technology in Accounting 480

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Understanding Key Financial Statements 481 The Fundamental Accounting Equation 482 The Balance Sheet 482 Classifying Assets 483 Liabilities and Owners’ Equity Accounts 484 The Income Statement 485 Revenue 487 Cost of Goods Sold 487 Operating Expenses 487

Spotlight on Small Business: The Ins and Outs of Valuing Inventory 488

Net Profit or Loss 488 The Statement of Cash Flows 489

Making Ethical Decisions: Would You Cook the Books? 490

The Need for Cash Flow Analysis 490 Analyzing Financial Performance Using Ratios 491

Liquidity Ratios 491 Leverage (Debt) Ratios 492 Profitability (Performance) Ratios 493 Activity Ratios 494

Reaching Beyond Our Borders: Speaking a Universal Accounting Language 495

Summary 496

Key Terms 497

Critical Thinking 498

Developing Workplace Skills 498

Taking It to the Net 499

Video Case: The Accounting Function at Goodwill Industries 499

Notes 500

Photo Credits 500

CHAPTER 18 Financial Management 502 Getting to Know: Sabrina Simmons, CFO of Gap 503 The Role of Finance and Financial Managers 504

The Value of Understanding Finance 505 What Is Financial Management? 506

Financial Planning 507 Forecasting Financial Needs 507 Working with the Budget Process 508 Establishing Financial Controls 508

The Need for Operating Funds 510 Managing Day-by-Day Needs of the Business 511 Controlling Credit Operations 511

Making Ethical Decisions: Good Finance or Bad Medicine? 512

Acquiring Needed Inventory 512

Making Capital Expenditures 512 Alternative Sources of Funds 513

Obtaining Short-Term Financing 514 Trade Credit 514 Family and Friends 514 Commercial Banks 515

Adapting to Change: Threading the Financial Needle 516

Different Forms of Short-Term Loans 516 Factoring Accounts Receivable 517 Commercial Paper 518 Credit Cards 518

Obtaining Long-Term Financing 519 Debt Financing 519

Reaching Beyond Our Borders: Are They Heroes or Hustlers? 520

Equity Financing 521 Comparing Debt and Equity Financing 523 Lessons Learned from the Recent Financial Crisis 524 Summary 525

Key Terms 526

Critical Thinking 527

Developing Workplace Skills 527

Taking It to the Net 527

Video Case: Starting Up: Tom and Eddie’s 528

Notes 529

Photo Credits 529

CHAPTER 19 Using Securities Markets for Financing and

Investing Opportunities 530 Getting to Know: Mellody Hobson, President of Ariel Investments 531 The Function of Securities Markets 532

The Role of Investment Bankers 533 Stock Exchanges 533

Securities Regulations and the Securities and Exchange Commission 534

Spotlight on Small Business: Giving Small Business a Jump on Funding 535

Foreign Stock Exchanges 536 How Businesses Raise Capital by Selling Stock 537

Advantages and Disadvantages of Issuing Stock 537 Issuing Shares of Common Stock 537 Issuing Shares of Preferred Stock 538

How Businesses Raise Capital by Issuing Bonds 539

Learning the Language of Bonds 539 Advantages and Disadvantages of Issuing Bonds 540

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Different Classes of Bonds 540 Special Bond Features 541

How Investors Buy Securities 542 Making Ethical Decisions: Money Going Up in Smoke 543

Investing through Online Brokers 543 Choosing the Right Investment Strategy 543

Reaching Beyond Our Borders: Global Stocks: Love Them or Leave Them 544

Reducing Risk by Diversifying Investments 544 Investing in Stocks 545

Stock Splits 546 Buying Stock on Margin 546 Understanding Stock Quotations 547

Investing in Bonds 548 Investing in High-Risk (Junk) Bonds 548 Understanding Bond Quotations 548

Investing in Mutual Funds and Exchange-Traded Funds 549

Understanding Mutual Fund Quotations 550 Understanding Stock Market Indicators 551

Riding the Market’s Roller Coaster 553 Investing Challenges in the 21st-Century Market 555 Summary 555

Key Terms 558

Critical Thinking 558

Developing Workplace Skills 559

Taking It to the Net 560

Video Case: Where Did All My Money Go? 560

Notes 561

Photo Credits 562

CHAPTER 20 Money, Financial Institutions, and the Federal

Reserve 564 Getting to Know: Janet Yellen, First Female Chair of the Federal Reserve 565 Why Money Is Important 566

What Is Money? 566 Adapting to Change: The Bitcoin Is in the Mail 568

What Is the Money Supply? 569 Managing Inflation and the Money Supply 569 The Global Exchange of Money 570

Control of the Money Supply 570 Basics about the Federal Reserve 570 The Reserve Requirement 572 Open-Market Operations 572 The Discount Rate 572 The Federal Reserve’s Check-Clearing Role 572

The History of Banking and the Need for the Fed 574

Banking and the Great Depression 575 The U.S. Banking System 575

Commercial Banks 576 Services Provided by Commercial Banks 576 Services to Borrowers 576

Making Ethical Decisions: Would You Tell the Teller? 577

Savings and Loan Associations (S&Ls) 577 Credit Unions 577 Other Financial Institutions (Nonbanks) 578

Spotlight on Small Business: Taking a Bite Out of the Sharks 579 The Banking Crisis and How the Government Protects Your Money 580

Protecting Your Funds 581 The Federal Deposit Insurance Corporation (FDIC) 581 The Savings Association Insurance Fund (SAIF) 581 The National Credit Union Administration (NCUA) 581