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The reaching beyond our borders box titled “playing the name game” explains:

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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.


A B


O U


T T


H E


A U


T H


O R


S


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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


y


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.


298


Human Resource Management: Finding and Keeping the


Best Employees


11


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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299


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


r


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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 …


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