Building Skills for Career Success Case 1.2

Building Skills for Career Success Case 1.2
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The Walt Disney Company
Entertains the World
Case 1.2
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Questions
1.How is the Walt Disney Company combining human, informational, material, and financial resources for business success?
2. What is Disney’s competitive situation, and what are the
implications for its future expansion and profitability?
3. Which of the factors in the business environment seem to be
exerting the most influence on Disney’s ability to grow? Explain.
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­ isposable income than ever before and more opportunities
d
to exercise their higher buying power. Box-office receipts from
Chinese movie theaters are growing at double-digit rates, and
many of Disney’s Hollywood blockbusters have also been big
hits in China. At the same time, competition to get movies into
Chinese theaters is enormous, because the government limits the
number of foreign movies that can be distributed nationwide.
With an eye toward the future, Disney worked with a local partner to ­co-produce Iron Man 3 with a Chinese plot twist. It has
also been lending its movie-making expertise to help develop the
Chinese animation industry.
All these years of serving customers with a smile have given
Disney considerable insight into how to meet the needs of people
of all ages. The company set up the Disney Institute in 1986 to
teach businesses, schools, hospitals, and other organizations how
to deliver good customer service with the famous Disney touch.
Its experts have trained National Football League staff members
in preparation for Super Bowl events and given Chevrolet dealer
employees tips about working with car buyers. When Florida
Hospital asked for help in improving patient satisfaction, Disney
experts conducted studies and recommended a number of steps,
such as having a friendly greeter to put young patients at ease
and replacing the glare of fluorescent bulbs with recessed lighting.
These and other changes helped push the hospital’s patient satisfaction scores into the top 10 percent across America. The Disney
Institute’s revenues have doubled over the past few years and are
yet another reason for the company’s profit momentum.20
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The company that brought Mickey and Minnie Mouse into the
public eye has been entertaining families for 90 years. Although
animation was the Walt Disney Company’s original focus, its entertainment empire now spans four main business groups: studio
entertainment (including movies, stage shows, and recorded music),
parks and resorts (such as Disney World and the Disney Cruise
Line), consumer products (toys, books, and other merchandise),
and media (including broadcast television, cable television, and
online media). Disney has its headquarters in Burbank, California,
but its operations are spread around the world, with $41 billion in
annual revenues and a workforce of 156,000 employees.
Over the years, Disney has acquired other businesses and started
new businesses to further strengthen its competitive position and
its profits. It owns Pixar, the movie studio responsible for Toy Story
and many other animated films, and it established Touchstone
Pictures to produce and distribute movies for wider audiences. It
acquired the ABC television networks and the ESPN sports channels as part of its drive for global growth in multiple media. To
expand into interactive media for children, Disney bought the popular Club Penguin site and began creating online and video games,
many featuring its popular movie and television characters.
Founder Walt Disney didn’t invent the theme park, but he
did transform the industry with the 1955 opening of Disneyland
in California. The magic continued with the 1971 opening
of Disney World in Florida. Both theme parks were drawing
crowds from every continent when the company opened Tokyo
Disneyland in 1983, at the height of the Japanese economic
boom. Later, it worked with international partners to create
Disneyland Paris and Hong Kong Disneyland. Shanghai Disney
Resort will be the next to open, the result of a $3.7 billion joint
business venture with a Chinese company. In all, more than
120 million people visit Disney theme parks and resorts over the
course of one year.
Disney sees great growth potential in China. Thanks to
­economic and political changes, Chinese consumers have more
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1 SOCIAL
MEDIA EXERCISE
Today, many companies have a social media presence on
Facebook, Twitter, Flickr, and other sites beyond their corporate
Web site. Think of three of your favorite car companies and conduct a quick search using a search engine like Google or Yahoo!
Answer the following:
1.Name the social networks for each company.
2. Compare each of their Facebook pages. How many “likes”
does each company have? Are there multiple pages for the
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company? How much interaction (or engagement) is on each
Facebook page?
3. What business goals do you think each company is trying to
reach through their Facebook presence?
2 Journaling
for Success
Much of the information in this chapter was designed to get you
to think about what it takes to be a successful employee in the
competitive business world.
Part 1 The Environment of Business
Assignment
Assume that you are now 25 years old and are interviewing for
a position as a management trainee in a large corporation. Also
assume that this position pays $45,000 a year.
1. Describe what steps you would take to prepare for this interview.
2.Assuming that you get the management trainee position,
describe the personal traits or skills that you have that will
help you to become successful.
3. Describe the one personal skill or trait that you feel needs
improvement. How would you go about improving your
­weakness?
3 Developing Critical-Thinking Skills
With capitalism, competition is a driving force that allows the
market economy to work. Let’s see how competition works by
pretending that you want to buy a new car.
Assignment
1.Brainstorm the following questions:
a. Where would you go to get information about
new cars?
b.How will you decide on the make and model of car you
want to buy, where to buy the car, and how to finance it?
c.How is competition at work in this scenario?
d. What are the pros and cons of competition as it affects
the buyer?
2.Record your ideas.
3. Write a summary of the key points you learned about how
competition works in the marketplace.
4 Building Team Skills
Over the past few years, employees have been expected to
­function as productive team members instead of working alone.
People often believe that they can work effectively in teams,
but many people find working with a group of people to be a
­challenge.
College classes that function as teams are more interesting
and more fun to attend, and students generally learn more about
the topics in the course. One way to begin creating a team is to
learn something about each student in the class. This helps team
members to feel comfortable with each other and fosters a sense
of trust.
Assignment
1. Find a partner, preferably someone you do not know.
2.Each partner has two to three minutes to answer the following questions:
a. What is your name, and where do you work?
b. What interesting or unusual thing have you done in your
life? (Do not talk about work or college; rather, focus on
such things as hobbies, travel, family, and sports.)
c. Why are you taking this course, and what do you expect to
learn? (Satisfying a degree requirement is not an acceptable answer.)
3.Introduce your partner to the class. Use one to two minutes,
depending on the size of the class.
5 Researching Different Careers
In this chapter, entrepreneurship is defined as the willingness to take
risks and the knowledge and ability to use the other factors of
production efficiently. An entrepreneur is a person who risks time,
effort, and money to start and operate a business. Often, people
believe that these terms apply only to small business. However,
employees with entrepreneurial attitudes have recently advanced
more rapidly in large companies as well.
Assignment
1.Go to the local library or use the Internet to research how
large firms, especially corporations, are rewarding employees
who have entrepreneurial skills.
2. Find answers to the following questions:
a. Why is an entrepreneurial attitude important in large
­corporations today?
b. What makes an entrepreneurial employee different from
other employees?
c.How are these employees being rewarded, and are the
rewards worth the effort?
3. Write a two-page report that summarizes your findings.
Endnotes
1.Sources: Based on information from the Zynga Web site at www.zynga.com
accessed January 12, 2012; Jon Swartz, “CEO Calls Zynga His ‘Crowning
Achievement,’” USA Today, December 18, 2011, www.usatoday.com; Evelyn M.
Rusli, “Zynga’s Tough Culture Risks a Talent Drain,” New York Times, November
27, 2011, www.nytimes.com; Miguel Helft, “Check Out Zynga’s Zany New
Offices,” Fortune, November 7, 2011, pp. 59–60; “The World’s 50 Most Innovative
Companies: #9, Zynga,” Fast Company, n.d., www.fastcompany.com.
2.The Horatio Alger Web site at www.horatioalger.org (accessed January 5, 2012).
3.Ibid.
4.The 66Apps Web site at www.66apps.com (accessed January 11, 2012).
5.Idy Fernandez, “Julie Stav,” Hispanic, June–July 2005, 204.
6.The Walmart stores Web site at www.walmartstores.com (accessed January 9,
2012).
7.The General Mills Web site at www.generalmills.com (accessed January 9, 2012).
8.The Bureau of Economic Analysis Web site at www.bea.gov (accessed January 9,
2012).
Chapter 1 Exploring the World of Business and Economics
9.The Bureau of Economic Analysis Web site at www.bea.gov (accessed January 30,
2012).
10.The Bureau of Labor Statistics Web site at www.bls.gov (accessed January 9, 2011).
11.The Bureau of Economic Analysis Web site at www.bea.gov (accessed January 30,
2012).
12.The Bureau of Labor Statistics Web site at www.bls.gov (accessed January 8,
2012).
13.The Treasury Direct Web site at www.treasurydirect.gov (accessed January 9, 2012)
and the U.S. Census Bureau Web site at www.census.gov (accessed January 9,
2012).
14.The Investopedia Web site at www.investopedia.com (accessed January 9, 2012).
15.The Bureau of Labor Statistics Web site at www.bls.gov (accessed January 12,
2011).
16.Bill Weir, “Made in China: Your Job, Your Future, Your Fortune,” ABC News Web site
at www.abcnews.com (accessed September 20, 2005).
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Unilever’s Plan for Green and
Clean Growth
Case 2.2
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Questions
1.Every year, Unilever posts on its web site and distributes to the
media a report detailing its progress toward the 2020 sustainability goals. Why would the public be interested in such a
report?
2.Is Unilever applying the economic or the socioeconomic model of
social responsibility? How do you know?
3. Do you agree with Unilever’s approach of promoting its Lifebuoy
soap brand in programs to teach consumers about handwashing? Explain your answer.
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needs in earth-friendly ways. For example, for areas where water is
scarce, they developed a shampoo to be used without water and
laundry products that clean with a single rinse.
Unilever’s research also pointed to the need for educating consumers about simple steps they can take to stay healthy, such as
washing their hands. The company found that the first step is to
explain why people should take a particular action (wash with soap
to stop disease from spreading). Next, show them how easy it is to
take action (by buying and using soap), outline the benefits (keeping families safe from germs), and make them feel good about
taking action (to keep family members healthy). Finally, encourage
people to continue this action over and over again (for example,
by reminding children to wash before meals). Following these five
steps, Unilever has already educated 35 million people in developing
nations about the benefits of washing hands—while promoting the
company’s Lifebuoy soap brand at the same time.
In the process of moving toward its sustainability goals, Unilever
has developed tools and techniques that it is now sharing with other
companies and with suppliers. Its free, downloadable Cool Farm Tool,
for instance, enables farmers to calculate the level of greenhouse gas
emissions from their farming and livestock activities. Using this calculation as a baseline, farmers can then experiment with different ways
of reducing emissions while improving agricultural yield. This is yet
another way that the company’s plan “can unleash innovation which
will help us grow,” says the head of Unilever’s business in India.18
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Can a corporate giant build its business on the basis of being
green and clean? By 2020, Unilever aims to double its revenues
while cutting its environmental footprint in half and educating
one billion people about how to live healthier lives. Although
these are aggressive goals, the Anglo-Dutch company has considerable resources available to implement its plans. Unilever rings
up $62 billion in annual sales of a wide range of foods, household cleaners, and personal care products under such well-known
brands as Axe, Ben & Jerry’s, Dove, Lipton, Lifebuoy, Skippy,
Suave, and Surf. It has 170,000 employees and operates in 100
countries, with more than half of its revenues coming from developing nations. Every day, all over the world, 2 billion people use
one (or more) of its products.
Unilever’s managers see great profit potential in actively managing the environmental and social impacts of its products to
meet the needs of consumers in all markets and at all income
levels. “We are advocating a business model that gives to the environment and society,” explains CEO Paul Polman. “That is the
essence of sustainable growth.”
Before setting specific green and clean goals, Unilever’s managers
spent years studying the eco-effects of its products and talking with
customers, suppliers, government officials, and non-profit specialists about population growth, natural resources, and human health.
They set up programs to develop and test efficient, eco-friendly ways
of manufacturing products and obtaining raw materials. They also
took a close look at how they might address challenges such as providing clean drinking water for billions of people and preventing the
spread of disease.
Out of this research came a comprehensive plan called the
Unilever Sustainable Living Plan. It included a detailed timeline for
dramatically reducing Unilever’s energy and water usage, getting
raw materials from sustainable sources, and slashing emissions and
waste. As one example, the company set a deadline for obtaining all
of its palm oil from certified sustainable sources (and achieved that
goal three years early). Meanwhile, Unilever’s product development
experts began devising new products to address common consumer
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1 SOCIAL
MEDIA EXERCISE
In 2010, Pepsi decided to develop a new social media–based project, called Pepsi Refresh Project, aimed at Millennials and allowing consumers to post ideas for improving their communities. This
replaced the $20 million they spent on Superbowl advertising. The
project received more than 57 million votes. However, the general
consensus was this was not a successful program for Pepsi. Using
the Internet for research, answer the following questions:
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1.Why do you think the Pepsi Refresh Project was not as successful as the company hoped?
2. Do you think this is a good example of corporate social
responsibility (CSR)? Why or why not?
3.How does this CSR example for Pepsi compare with that of its
main rival Coca-Cola (see www.thecoca-colacompany.com/
citizenship/index.html)?
Part 1 The Environment of Business
2 JOURNALING
FOR SUCCESS
Discovery statement: This chapter was devoted mostly to business ethics, ethical concerns that arise in the business world, personal ethics, and social responsibility of business.
Assume that you are an accountant at ABC Corporation,
where you question the company’s accounting practices. What
legal and managerial changes would you suggest to prevent the
use of accounting tricks to manipulate corporate earnings?
Assignment
1.Assume that your manager refuses to incorporate any of your
suggestions. Would you blow the whistle? Why or why not?
2.Suppose that you blow the whistle and get fired. Which law
might protect your rights, and how would you proceed to
protect yourself?
3 DEVELOPING CRITICAL-THINKING SKILLS
Recently, an article entitled “Employees Coming to Terms with
Moral Issues on the Job” appeared in a big-city newspaper. It
posed the following situations:
●●
●●
●●
You are asked to work on a project you find morally wrong.
Important tasks are left undone because a co-worker spends
more time planning a social event than working on a proposal.
Your company is knowingly selling defective merchandise to
customers.
Unfortunately, many employees currently are struggling with
such issues. The moral dilemmas that arise when employees find
their own ethical values incompatible with the work they do every
day are causing a lot of stress in the workplace, and furthermore,
these dilemmas are not being discussed. There exists an ethics gap. You already may have faced a similar situation in your
­workplace.
Assignment
1.In small groups with your classmates, discuss your answers to
the following questions:
a.If you were faced with any of the preceding situations,
what would you do?
b.Would you complete work you found morally unacceptable, or would you leave it undone and say nothing?
c.If you spoke up, what would happen to you or your
career? What would be the risk?
d.What are your options?
e.If you were a manager rather than a lower-level employee,
would you feel differently and take a different approach to
the issue? Why?
2.In a written report, summarize what you learned from this
­discussion.
4 BUILDING TEAM SKILLS
A firm’s code of ethics outlines the kinds of behaviors expected
within the organization and serves as a guideline for encouraging ethical behavior in the workplace. It reflects the rights of the
firm’s workers, shareholders, and consumers.
Assignment
1.Working in a team of four, find a code of ethics for a business
firm. Start the search by asking firms in your community for a
copy of their codes, by visiting the library, or by searching and
downloading information from the Internet.
2.Analyze the code of ethics you have chosen, and answer the
following questions:
a.What does the company’s code of ethics say about the
rights of its workers, shareholders, consumers, and suppliers? How does the code reflect the company’s attitude
toward competitors?
b.How does this code of ethics resemble the information
discussed in this chapter? How does it differ?
c.As an employee of this company, how would you personally
interpret the code of ethics? How might the code influence
your behavior within the workplace? Give several examples.
5 RESEARCHING DIFFERENT CAREERS
Business ethics has been at the heart of many discussions over
the years and continues to trouble employees and shareholders.
Stories about dishonesty and wrongful behavior in the workplace
appear on a regular basis in newspapers and on the national news.
Assignment
Prepare a written report on the following:
1.Why can it be so difficult for people to do what is right?
2.What is your personal code of ethics? Prepare a code outlining what you believe is morally right. The document should
include guidelines for your personal behavior.
3.How will your code of ethics affect your decisions about:
a.The types of questions you should ask in a job interview?
b.Selecting a company in which to work?
Endnotes
1. Sources: Based on information in Peter Korn, “A Gentle Nudge Helps Panera
Cares Fulfill Mission, Get Paid,” Portland Tribune (OR), December 29, 2011, www.­
portlandtribune.com; Peter Korn, “Panera Lets People Pay What They Can,” Portland
Tribune (OR), April 21, 2011, www.portlandtribune.com; Sarah Skidmore, “Panera
Opens Pay-What-You-Wish Location in Oregon,” Associated Press, January 12, 2011,
http://abcnews.go.com; “Year Later, Pay-What-You-Want Panera a Success,”
Cleveland Plain Dealer, May 16, 2011, www.cleveland.com.
2.Official John Rigas Web site, johnrigas.com/AdelphiaLitigation.html (accessed
April 24, 2012), www.time.com/time/specials/packages/articles/0,288 (accessed
Chapter 2 Being Ethical and Socially Responsible
April 24, 2012), and the U.S. Department of Justice Web site at www.justice.gov/
usao/pam/news/2012/Rigas_01_25 (accessed April 24, 2012).
3.The U.S. Department of Justice Web site at www.justice.gov/opa/pr/2001/
October/513civ.htm, and www.justice.gov/opa/pr/2003/June/03_civ_371.htm
(accessed April 24, 2012).
4.The U.S. Department of Justice Web site at www.usdoj.gov (accessed April 20,
2012).
5. Frontlines (Washington, DC: U.S. Agency for International Development, September
2005), 16.
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in industries hardest hit by imports. To further ease the nation’s
growing pains, Brazil’s development bank, BDM, will subsidize
business loans to boost the production of many products, including tablets and off-shore oil rigs. The goal is to stimulate technological innovations that will enable manufacturers to produce
higher-value products so Brazil doesn’t have to rely on natural
resources to fuel its growth. “Look, a government isn’t made on
the second or third day,” Rousseff has said about her administra-
Case 3.2
Few U.S. businesses are as international as McDonald’s, the
Illinois-based fast-food giant that began as an all-American hamburger place. With $22 billion in annual revenue, McDonald’s
now rings the world with 32,400 restaurants and serves 60 million customers every day. Although the United States accounts for
35 percent of McDonald’s global revenue, Europe accounts for
41 percent and the Asia/Pacific, Middle East, and Africa regions
account for 19 percent.
Hamburgers are, of course, the main attraction in many
McDonald’s restaurants: Worldwide, the company sells
more than four million burgers every day. However, one of
McDonald’s key strengths is its ability to adapt to local tastes.
In Japan, McDonald’s sells Cheese Katsu sandwiches, featuring
fried pork and cheese. In the Middle East, it sells McArabia pita
sandwiches filled with grilled chicken or spiced beef. In France,
it sells Croque McDo sandwiches with melted cheese and ham.
In India, it sells vegetarian McAloo Tikki burgers. In Mexico,
it sells McMolletes sandwiches made with refried beans and
cheese.
Being a global business also helps McDonald’s weather the
economic ups and downs of different regions. At one point during the recent recession, its Asian revenue grew almost twice as
quickly as its European revenue, both of which balanced the
smaller increase in U.S. sales. Worldwide, McDonald’s owns some
of its restaurants and also sells franchise licenses to firms that
open restaurants under the McDonald’s brand name. In some
markets, the company operates restaurants in joint ventures with
local firms. For example, in India, it has one joint venture with a
local firm to operate restaurants in the west and south and a second joint venture with a different company to operate restaurants
in the east and the north.
The company is also building its global business by attracting
more customers during different “dayparts,” such as at breakfast time and in the late-night hours. A growing number of its
global units stay open 24 hours a day for customer convenience.
McDonald’s has introduced a steady stream of breakfast, beverage, snack, and sandwich items to encourage repeat visits from
customers at all income levels.
On the high end, McDonald’s is doing well with its McCafés,
which serve mochas and other gourmet coffees in a separate
Chapter 3 Exploring Global Business
tion’s incremental efforts to keep Brazil’s emerging economy moving forward. “It’s made over time. Things mature.”11
Questions
1.Do you think the efforts of Brazil’s government to keep the
economy growing will be successful? Why or why not?
2. What downsides might Brazil experience by implementing
quotas, tariffs, and measures to devalue its currency?
Global Profits Are a Menu
Mainstay at McDonald’s
area of selected McDonald’s units. As the company opens new
restaurants and remodels existing restaurants, it is adding more
McCafés in U.S. and European markets. The Angus Burger is
another popular premium menu item. Both McCafé coffees
and Angus Burgers appeal to customers willing to pay a little
more to splurge on high quality. At the same time, the items on
McDonald’s budget menus are priced to appeal to customers
who keep a close rein on their wallets.
Being a major power in global business means McDonald’s
must think carefully about the value of the different currencies its
restaurants take in. Outside the United States, much of its revenue is rung up in euros, British pounds, Australian dollars, and
Canadian dollars. As a result, McDonald’s pays close attention
to swings in foreign-exchange rates as it manages its financial
affairs.
McDonald’s is stepping up its involvement in sustainability
all around the world. It has increased its use of packaging made
from renewable materials and boosted recycling efforts to keep
waste out of landfills. It has also been building eco-friendly
restaurants in North and South America as well as in Europe to
test green construction methods and cut back on energy and
water usage. The company’s social responsibility menu includes
­supporting the Ronald McDonald House charities and offering a range of organic foods and beverages plus healthy snack
choices.
From India to Ireland, Argentina to Australia, McDonald’s is
poised for continued growth in sales and profits as it expands its
restaurant empire and cooks up new products for customers to
enjoy around the clock and around the world.12
Questions
1. What are the advantages and disadvantages of McDonald’s
ringing up sales in so many foreign currencies worldwide?
2. Why would McDonald’s use two joint ventures to operate restaurants in different regions of India?
3.Discuss how being a multinational enterprise, with a presence in more than 170 countries, helps McDonald’s build
its business regardless of the short-term global economic
outlook.
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SOCIAL MEDIA EXERCISE
Although Nike was founded in the Pacific Northwest and still has
its corporate headquarters near Beaverton, Oregon, the company
has become a multinational enterprise. The firm employs more
than 35,000 people across six continents and is now a global
marketer of footwear, apparel, and athletic equipment.
Because it operates in 160 countries around the globe and
manufactures products in over 900 factories in 47 different countries, sustainability is a big initiative for Nike. Today, Nike uses the
YouTube social media site to share its sustainability message with
consumers, employees, investors, politicians, and other interested
stakeholders. To learn about the company’s efforts to sustain the
planet, follow these steps:
●●
●●
Make an Internet connection and go to the YouTube Web site
(www.youtube.com).
Enter the words “Nike” and “Sustainability” in the search window and click the search button.
1.View at least 3 different YouTube videos about Nike’s
­sustainability efforts.
2. Based on the information in the videos you watched, do you
believe that Nike is a good corporate citizen because of its
efforts to sustain the planet? Why or why not?
3. Prepare a one to two page report that describes how Nike is
taking steps to reduce waste, improve the environment, and
reduce its carbon footprint while manufacturing products
around the globe.
2
JOURNALING FOR SUCCESS
Discovery statement: This chapter was designed to excite you
about international business and how trade among nations affects
our daily lives.
Assignment
1.Assume that your friend, who recently lost his job in the automobile
industry, is critical of imported Toyotas, Hondas, and Volkswagens.
How would you respond to his resentment of imported goods?
2. What specific reasons will you offer to your friend in support of
the fact that international trade is beneficial to society as a whole?
3.Ask your friend what might be some consequences if the trade
among nations was banned.
3
DEVELOPING CRITICAL-THINKING SKILLS
Suppose that you own and operate an electronics firm that manufactures transistors and integrated circuits. As foreign competitors enter the market and undercut your prices, you realize that
your high labor costs are hindering your ability to compete. You
are concerned about what to do and are open for suggestions.
Recently, you have been trying to decide whether to move your
plant to Mexico, where labor is cheaper.
Assignment
1.Questions you should consider in making this decision include
the following:
a. Would you be better off to build a new plant in Mexico or
to buy an existing building?
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b. If you could find a Mexican electronics firm similar to
yours, would it be wiser to try to buy it than to start your
own operation?
c. What are the risks involved in directly investing in your
own facility in a foreign country?
d. If you did decide to move your plant to Mexico, how
would you go about it? Are there any government agencies
that might offer you advice?
2. Prepare a two-page summary of your answers to these ­questions.
4
BUILDING TEAM SKILLS
The North American Free Trade Agreement among the United
States, Mexico, and Canada went into effect on January 1, 1994.
It has made a difference in trade among the countries and has
affected the lives of many people.
Assignment
1. Working in teams and using the resources of your library,
investigate NAFTA. Answer the following questions:
a. What are NAFTA’s objectives?
b. What are its benefits?
c. What impact has NAFTA had on trade, jobs, and travel?
d. Some Americans were opposed to the implementation of
NAFTA. What were their objections? Have any of these
objections been justified?
e.Has NAFTA influenced your life? How?
2. Summarize your answers in a written report. Your team also
should be prepared to give a class presentation.
5
RESEARCHING DIFFERENT CAREERS
Today, firms around the world need employees with special skills. In
some countries, such employees are not always available, and firms
then must search abroad for qualified applicants. One way they
can do this is through global workforce databases. As business and
trade operations continue to grow globally, you may one day find
yourself working in a foreign country, perhaps for an American company doing business there or for a foreign company. In what foreign
country would you like to work? What problems might you face?
Assignment
1.Choose a country in which you might like to work.
2.Research the country. The National Trade Data Bank is a
good place to start. Find answers to the following questions:
a. What language is spoken in this country? Are you proficient in it? What would you need to do if you are not
­proficient?
b. What are the economic, social, and legal systems like in
this nation?
c. What is its history?
d. What are its culture and social traditions like? How might
they affect your work or your living arrangements?
3.Describe what you have found out about this country in a written report. Include an assessment of whether you would want
to work there and the problems you might face if you did.
Part 1 The Environment of Business
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Let’s Go Get a Graeter’s!
Only a tiny fraction of family-owned businesses are still growing
four generations after their founding, but happily for lovers of
premium-quality ice cream, Graeter’s is one of them.
Now a $30 million firm with national distribution, Graeter’s was
founded in Cincinnati in 1870 by Louis Charles Graeter and his
wife, Regina Graeter. The young couple made ice cream and chocolate candies in the back room of their shop, sold them in the front
room, and lived upstairs. Ice cream was a special treat in this era
before refrigeration, and the Graeters started from scratch every
day to make theirs from the freshest, finest ingredients. Even after
freezers were invented, the Graeters continued to make ice cream in
small batches to preserve the quality, texture, and rich flavor.
After her husband’s death, Regina’s entrepreneurial leadership
became the driving force behind Graeter’s expansion from 1920
until well into the 1950s. At a time when few women owned or
operated a business, Regina opened 20 new Graeter’s stores in
the Cincinnati area and added manufacturing capacity to support
this ambitious—and successful—growth strategy. Her sons and
grandchildren followed her into the business and continued to
open ice-cream shops all around Ohio and beyond. Today, three
of Regina’s great-grandsons run Graeter’s with the same attention
to quality that made the firm famous. In her honor, the street in
front of the company’s ultramodern Cincinnati factory is named
Regina Graeter Way.
THE SCOOP ON GRAETER’S SUCCESS
Graeter’s fourth-generation owners are Richard Graeter II (CEO),
Robert (Bob) Graeter (vice president of operations), and Chip
Graeter (vice president of retail operations). They grew up in the
business, learning through hands-on experience how to do everything from packing a pint of ice cream to locking up the store
at night. They also absorbed the family’s dedication to product
quality, a key reason for the company’s enduring success. “Our
family has always been contented to make a little less profit in
order to ensure our long-term survival,” explains the CEO.
Throughout its history, Graeter’s has used a unique, timeconsuming manufacturing process to produce its signature ice
creams in small batches. “Our competition is making thousands
and thousands of gallons a day,” says Chip Graeter. “We are making hundreds of gallons a day at the most. All of our ice cream
is packed by hand, so it’s a very laborious process.” Graeter’s
“French pot” manufacturing method ensures that very little air
gets into the product. As a result, the company’s ice cream is
dense and creamy, not light and fluffy—so dense, in fact, that
each pint weighs nearly a pound.
Another success factor is the use of simple, fresh ingredients
like high-grade chocolate, choice seasonal fruits, and farm-fresh
cream. Graeter’s imports some ingredients, such as vanilla from
Madagascar, and buys other ingredients from U.S. producers
known for their quality. “We use a really great grade of chocolate,” says Bob Graeter. “We don’t cut corners on that . . .
Specially selected great black raspberries, strawberries, blueberChapter 3 Exploring Global Business
ries, and cherries go into our ice cream because we feel that we
want to provide flavor not from artificial or unnatural ingredients
but from really quality, ripe, rich fruits.” Instead of tiny chocolate
chips, Graeter’s products contain giant chunks formed when liquid chocolate is poured into the ice-cream base just before the
mixture is frozen and packed into pints.
MAINTAINING THE CORE OF SUCCESS
Graeter’s “fanatical devotion to product quality” and its timetested recipes have not changed over the years. The current generation of owners is maintaining this core of the company’s success
while mixing in a generous dash of innovation. “If you just preserve the core,” Bob Graeter says, “ultimately you stagnate. And
if you are constantly stimulating progress and looking for new
ideas, well, then you risk losing what was important. . . . Part of
your secret to long-term success is knowing what your core is and
holding to that. Once you know what you’re really all about and
what is most important to you, you can change everything else.”
One of those “important” things is giving back to the community and its families via local charities and other initiatives.
“Community involvement is just part of being a good corporate
citizen,” observes Richard Graeter. When Graeter’s celebrated a
recent new store opening, for example, it made a cash donation
to the neighborhood public library. It is also a major sponsor of
The Cure Starts Now Foundation, a research foundation seeking
a cure for pediatric brain cancer. In line with its focus on natural
goodness, Graeter’s has been doing its part to preserve the environment by recycling and by boosting production efficiency to
conserve water, energy, and other resources.
GRAETER’S LOOKS TO THE FUTURE
Even though Graeter’s recipes reflect its 19th-century heritage,
the company is clearly a 21st-century operation. It has 150,000
Facebook “likes,” connects with brand fans on Twitter, and invites
customers to subscribe to its e-mail newsletter. The company sells
its products online and ships orders via United Parcel Service to icecream lovers across the continental United States. Its newly-opened
production facility uses state-of-the-art refrigeration, storage, and
sanitation—yet the ice cream is still mixed by hand rather than by
automated equipment. With an eye toward future growth, Graeter’s
is refining its information system to provide managers with all the
details they need to make timely decisions in today’s fast-paced business environment.
Graeter’s competition ranges from small, local businesses to
international giants such as Unilever, which owns Ben & Jerry’s,
and Nestle, which owns Haagen-Dazs. Throughout the economic
ups and downs of recent years, Graeter’s has continued to expand,
and its ice creams are now distributed through 6,200 stores in 43
states. Oprah Winfrey and other celebrities have praised its products in public. But the owners are just as proud of their home-town
success. “Graeter’s in Cincinnati is synonymous with ice cream,”
says Bob Graeter. “People will say, ‘Let’s go get a Graeter’s.’”13
99
Questions
.c o m
us
Part 1
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Building a Business Plan
to
3.Knowing that Graeter’s competes with multinational corporations as well as small businesses, would you recommend
that Graeter’s expand by licensing its brand to a company in
another country? Why or why not?
_ b /S h u t te
rs
1.How have Graeter’s owners used the four factors of production to build the business over time?
2. Which of Graeter’s stakeholders are most affected by the family’s decision to take a long-term view of the business rather
than aiming for short-term profit? Explain your answer.
©g
ie
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A business plan is a carefully constructed guide for a person starting a business. The purpose of a well-prepared business plan is to
show how practical and attainable the entrepreneur’s goals are.
It also serves as a concise document that potential investors can
examine to see if they would like to invest or assist in financing a
new venture. A business plan should include the following
12 components:
●●
●●
●●
●●
●●
●●
●●
●●
●●
●●
●●
●●
Introduction
Executive summary
Benefits to the community
Company and industry
Management team
Manufacturing and operations plan
Labor force
Marketing plan
Financial plan
Exit strategy
Critical risks and assumptions
Appendix
A brief description of each of these sections is provided in
Chapter 5 (see also Table 5.3 on page 145).
This is the first of seven exercises that appear at the ends of
each of the seven major parts in this textbook. The goal of these
exercises is to help you work through the preceding components
to create your own business plan. For example, in the exercise for
this part, you will make decisions and complete the research that
will help you to develop the introduction for your business plan
and the benefits to the community that your business will provide.
In the exercises for Parts 2 through 7, you will add more components to your plan and eventually build a plan that actually could
be used to start a business. The flowchart shown in Figure 3.6
gives an overview of the steps you will be taking to prepare your
business plan.
THE FIRST STEP: CHOOSING YOUR BUSINESS
One of the first steps for starting your own business is to decide
what type of business you want to start. Take some time to think
about this decision. Before proceeding, answer the following
questions:
●●
●●
●●
Why did you choose this type of business?
Why do you think this business will be successful?
Would you enjoy owning and operating this type of business?
100
Warning: Do not rush this step. This step often requires much
thought, but it is well worth the time and effort. As an added
bonus, you are more likely to develop a quality business plan if
you really want to open this type of business.
Now that you have decided on a specific type of business, it
is time to begin the planning process. The goal for this part is to
complete the introduction and benefits-to-the-community components of your business plan.
Before you begin, it is important to note that the business plan
is not a document that is written and then set aside. It is a living
document that an entrepreneur should refer to continuously in
order to ensure that plans are being carried through appropriately. As the entrepreneur begins to execute the plan, he or she
should monitor the business environment continuously and make
changes to the plan to address any challenges or opportunities
that were not foreseen originally.
Throughout this course, you will, of course, be building your
knowledge about business. Therefore, it will be appropriate for
you to continually revisit parts of the plan that you have already
written in order to refine them based on your more comprehensive knowledge. You will find that writing your plan is not a simple
matter of starting at the beginning and moving chronologically
through to the end. Instead, you probably will find yourself jumping around the various components, making refinements as you
go. In fact, the second component—the executive summary—
should be written last, but because of its comprehensive nature
and its importance to potential investors, it appears after the
introduction in the final business plan. By the end of this course,
you should be able to put the finishing touches on your plan,
making sure that all the parts create a comprehensive and sound
whole so that you can present it for evaluation.
THE INTRODUCTION COMPONENT
1.1. Start with the cover page. Provide the business name, street
address, telephone number, Web address (if any), name(s)
of owner(s) of the business, and the date the plan is issued.
1.2.Next, provide background information on the company and
include the general nature of the business: retailing, manufacturing, or service; what your product or service is; what
is unique about it; and why you believe that your business
will be successful.
1.3. Then include a summary statement of the business’s financial needs, if any. You probably will need to revise your
Part 1 The Environment of Business
Figure 3.6
Business Plan
Steps in Creating a Business Plan
3
Develop marketing strategy.
7
Identify marketing mix
components (product, place,
price, promotion).
Determine beginning
inventory and project your
seasonal inventory for the
next three years.
Identify critical risks and
13 assumptions to develop
alternate plans.
16
Identify product/service/
concept opportunity
(The Big Idea).
2
Determine market feasibility/
potential.
Determine market size (in
units and dollars).
6
8
1
4
5
Go/no go decision (proceed or
look for another opportunity).
9
Determine location, size,
type, and layout of necessary
physical facilities.
11
Estimate the initial capital
requirements for the business.
Establish administrative
10 organization and personnel
requirements.
12
14
List possible sources of
startup capital and the
amount you expect from each.
15
Prepare an opening balance
sheet for the business, based
on figures from steps 11
and 14.
Prepare pro forma profit and
loss statements for the first
three years of operation.
18
Prepare pro forma balance
sheets for the first three years
of operation.
19
Compute financial ratios for
each year projected in the
financial statements; compare
ratios to industry averages.
20
Prepare executive summary
of plan.
21
Present plan to lenders or
investors.
Complete competitive analysis.
Choose the legal form of your
organization.
Estimate monthly (or seasonal)
17 cash flows for each of the first
three years of operation.
Source: Hatten, Timothy, Small Business Management, Fifth Edition. Copyright © 2012 Cengage Learning.
Chapter 3 Exploring Global Business
101
financial needs summary after you complete a detailed
financial plan later in Part 6.
1.4. Finally, include a statement of confidentiality to keep
important information away from potential competitors.
THE BENEFITS-TO-THE-COMMUNITY
COMPONENT
In this section, describe the potential benefits to the community that
your business could provide. Chapter 2 in your textbook, “Being
Ethical and Socially Responsible,” can help you in answering some
of these questions. At the very least, address the following issues:
1.5.Describe the number of skilled and nonskilled jobs the business will create, and indicate how purchases of supplies and
other materials can help local businesses.
1.6.Next, describe how providing needed goods or services will
improve the community and its standard of living.
1.7. Finally, state how your business can develop new technical,
management, or leadership skills; offer attractive wages;
and provide other types of individual growth.
REVIEW OF BUSINESS PLAN ACTIVITIES
Read over the information that you have gathered. Because the
Building a Business Plan exercises at the end of Parts 2 through 7
are built on the work you do in Part 1, make sure that any weaknesses or problem areas are resolved before continuing. Finally,
write a brief statement that summarizes all the information for
this part of the business plan.
Endnotes
1. Sources: Based on information in Jens Meiners, “Volkswagen’s Big Game of Risk:
The Ambitious Plan for World Domination,” Car and Driver, December 2011, www.
caranddriver.com; Chris Reiter, “VW Plans Biggest Tech Overhaul in Nearly 2 Decades
to Drive Profits,” Automotive News, December 19, 2011, www.autonews.com; Chris
Bryant and John Reed, “VW’s Path to the Top Lies in East and West,” Financial Times,
December 19, 2011, www.ft.com; Andreas Cremer and Tim Higgins, “Volkswagen
Rediscovers America,” Bloomberg BusinessWeek, May 19, 2011, www.businessweek.
com.
2. The White House, Office of the Press Secretary, Press Release, August 6, 2002.
3. The Census Bureau Web site at http://census.gov/foreign-trade/Press-Release/
current_press_release/ft900 (accessed March 7, 2012).
4. This section draws heavily from the World Economic Outlook Update, January 24, 2012,
International Monetary Fund Web site at imf.org/external/pubs/ft/weo/2012/
update/01/index.htm (accessed March 13, 2012).
5. The International Monetary Fund Web site at www.imf.org/external/pubs/ft/
weo/2012/update/01/index.htm (accessed March 7, 2012).
6. U.S. Department of Commerce, International Trade Administration, “Jobs Supported
by Exports: An Update,” March 12, 2012, www.trade.gov/mas/ian/index.asp
(accessed March 13, 2012).
7. The World Trade Organization Web site at www.wto.org/english/news_e/pres11_e/
pres11_e.htm (accessed March 12, 2012).
8.Office of the United States Trade Representative Web site at www.ustr.gov/tpp
(accessed March 14, 2012).
9. The World Trade Organization at www.wto.org/english/news_e/sppl_e/spp1220_htm,
(accessed March 12, 2012).
102
0. Ibid.
1
11. Sources: Andre Soliani, “Surge,” Bloomberg BusinessWeek, April 3, 2012, www.businessweek.com; “Invigorated Roussef Shifts Focus to ‘Brazil Cost,’” Reuters, April 2,
2012, www.reuters.com; Komal Sri-Kumar, “Brazil Should Embrace a Freer Market,”
Financial Times, March 6, 2012, www.ft.com; “Multinationals Choose Brazilian
Investment,” Obelisk Investment News, May 4, 2011, www.obeliskinternational.com.
12. Based on information from “Jamie Oliver Praises McDonald’s,” The Telegraph (UK),
April 25, 2010, www.telegraph.co.uk; Bob O’Brien, “McDonald’s Is Where the
Beef Is,” Barron’s, April 21, 2010, http://online.barrons.com; Melanie Lindner,
“McDonald’s Hits the Spot,” Forbes, March 8, 2010, www.forbes.com; www.mcdonalds.com; www.aboutmcdonalds.com.
13. Sources: Based on information from Kimberly L. Jackson, “Graeter’s Premium
Chocolate Chip Ice Cream Lands at Stop & Shop,” Newark Star-Ledger (NJ), April 4,
2012, www.nj.com; “Graeter’s Ice Cream Debuts in Bay Area,” Tampa Bay Times (St.
Petersburg, FL), January 10, 2012, p. 4B; Jim Carper, “Graeter’s Runs a Hands-on Ice
Cream Plant,” Dairy Foods, August 2011, pp. 36+; Jim Carper, “The Greater Good,”
Dairy Foods, August 2011, pp. 95+; “Graeter’s Unveils New ‘Mystery Flavor,’” Dayton
Daily News, March 29, 2012, www.daytondailynews.com; Bob Driehaus, “A Cincinnati
Ice Cream Maker Aims Big,” New York Times, September 11, 2010, www.nytimes.
com; Lucy May, “Graeter’s Northern Kentucky Franchisee Puts Stores on the Block,”
Business Courier, August 6, 2010, http://cincinnati.bizjournals.com; www.graeters.
com; interviews with company staff and Cengage videos about Graeter’s.
Part 1 The Environment of Business
© sergey rusakov/
Shutterstock
the market. Competing against a combined AT&T and T-Mobile
would make it too difficult.
What would the merger have meant for consumers? Dan
Gillmor, the director of the Knight Center for Digital Media
Entrepreneurship at Arizona State University, said he thought the
deal would be bad for consumers. They would have fewer wireless providers to choose from, Gillmor said. He also predicted
consumers could end up paying higher prices. “T-Mobile is the
only company that’s now competing seriously on price,” he
explained.
Researchers at the magazine Consumer Reports also concluded
that T-Mobile charged less than many of its competitors for
different types of plans. What firm would keep AT&T and its
prices in check if it were to swallow up T-Mobile? Another issue
was that a number of surveys had found that AT&T’s service
quality was uneven. Would it get worse following the merger?
Or better?
As you learned earlier in the chapter, the Department of
Justice ultimately filed a lawsuit to block the merger. “The combination of AT&T and T-Mobile would result in tens of millions
of consumers all across the United States facing higher prices,
fewer choices, and lower-quality products for mobile wireless
services,” said Department of Justice Deputy Attorney General
James M. Cole. And even though AT&T and T-Mobile claimed
Case 4.2
When Warren Buffett started his first partnership more than 50
years ago, he never dreamed he would wind up putting together
a wildly diverse collection of businesses under one corporate
umbrella. Originally, Buffett set up a series of partnerships with
family and friends to pool cash for buying big blocks of stock
in companies he had researched. Not all of Buffett’s stock picks
paid off, but many were so successful that Buffett quickly earned
a worldwide reputation for savvy investing.
Always looking for a good investment, Buffett turned his attention to the prospects of Berkshire Hathaway, a struggling textile
manufacturer based in New Bedford, Massachusetts. Seeing
value in the company’s heritage and its plans for making synthetic fibers, Buffett began buying its stock. Once he controlled
the mills, Buffett put one of Berkshire Hathaway’s executives in
charge. This was Buffett’s pattern over and over as he built a conglomerate by adding to his company’s portfolio of businesses. He
provided the financial backing, but he didn’t meddle in the dayto-day management decisions of the corporations he purchased.
Berkshire Hathaway became the corporate vehicle through
which Buffett acquired a variety of companies. In the early days,
he pursued insurance firms, banks, and publishing companies.
He continued buying year after year, adding See’s Candies to
his conglomerate and, later, GEICO insurance, sticking to his
tried-and-true formula of investing in companies with long-term
profit potential and strong competitive positions.
130
the merger would produce more jobs, an investigation by the
FCC came to a different conclusion. The internal records of
the two companies showed that the firms planned to lay off
personnel by combining duplicate functions in their organizations such as their sales, management, and customer service
departments. The FCC also disputed the companies’ claim that
the merger would immediately expand wireless service to rural
areas. Why? Because T-Mobile serviced mostly urban areas—not
rural ones.
Acquiring T-Mobile became such an upward battle that AT&T
eventually abandoned the effort and paid T-Mobile the $4 billion
breakup fee. A few months later, T-Mobile announced it was spending $4 billion to expand and upgrade its network to 4G.17
Questions
1.Did the Department of Justice make the right decision when it
blocked the merger of T-Mobile and AT&T? Why or why not?
2.What do you think the pros and cons of acquiring a competing company are? Create a list of each.
3.Name some other examples of horizontal, vertical, and conglomerate mergers you’re aware of. Considering the impact of
mergers on competition, what are the advantages and disadvantages of each type of merger?
The Conglomerate Success of
Berkshire Hathaway
Living in Omaha, Buffett couldn’t help but notice the success of the Nebraska Furniture Mart, a superstore that annually
sold $100 million worth of furniture. The family-owned business
was a fierce competitor and a major regional power in furniture
retailing. Although Buffett had tried, unsuccessfully, to buy the
store, he never gave up. During the 1980s, he again approached
the retailer. This time he pointed out all the financial benefits of
being part of Berkshire Hathaway and emphasized his hands-off
approach to ownership. Berkshire Hathaway won the deal.
Today Berkshire Hathaway has more than six dozen companies in its diverse portfolio. Although it still owns some of the
companies it acquired decades ago, the portfolio has changed
a bit over the years. GEICO, the third-largest U.S. auto insurance firm, has been a member of the conglomerate since 1996.
Berkshire Hathaway also owns the General Re insurance firm.
Among the retailing businesses it owns are Jordan Furniture,
Star Furniture, Helzberg Diamonds, and the Pampered Chef
direct-seller of kitchen tools. In addition, it owns the ice-cream
franchising company Dairy Queen; Benjamin Moore paint;
Johns Manville building products; and Shaw Industries, which
makes tufted broadloom carpeting and distributes other flooring products.
Berkshire Hathaway has expanded into transportation, as
well. Its NetJets was a pioneer in offering companies and individuals the opportunity to own a fraction of a private jet, so they
Part 2 Business Ownership and Entrepreneurship
oc
Questions
1.Why would Berkshire Hathaway own a number of furniture
retailers? Outline the possible advantages and disadvantages.
2.Do you think Berkshire Hathaway should allow stockholders
to suggest or vote on potential acquisitions via proxy or at the
annual meeting? Why or why not?
3.How much influence are Berkshire Hathaway’s stockholders likely
to have (or want) over the management of the conglomerate
or one of the conglomerate’s companies? Explain.
k
pir
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as
Building Skills for Career Success
st
as do other Berkshire Hathaway-owned retailers in the area. The
annual meeting is such a high-profile event that it merits coverage
by the New York Times, CNBC, and Fortune magazine, among many
other major media outlets. What will Berkshire Hathaway’s next
acquisition target be?18
it/S h utt
er
can enjoy the convenience of flying whenever and wherever they
want. In 2010, the conglomerate paid $26 billion for Burlington
Northern Santa Fe Corp., a railroad that serves western and
southwestern states. This acquisition, labeled “brilliant” by a
railway competitor because it was completed just as the industry
began to rebound from recession, gave Buffett access to years
of details about the size, volume, and destination of train shipments. By analyzing this information, Buffett spotted clues that
helped him fine-tune his investments.
The annual meeting held by Berkshire Hathaway is unlike any
stockholder gathering on Earth. The more-than-35,000 people in
attendance spend hours browsing and buying from exhibits set up
by the conglomerate’s companies. Stockholders are encouraged
to bring the details of their car insurance and let GEICO give them
quotes on the spot, including a small ownership discount. Nebraska
Furniture Mart promotes a special stockholders’ weekend of sales,
© a
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p
1 Social
Media Exercise
Not-for-profit organizations have used social media to redefine
how they can get funding for their missions. There are even a few
that exist totally online. Check out www.donorschoose.org and
www.kiva.org. Both of these depend on crowds (called crowdfunding) to either fund educational projects (Donors Choose) or
lend money to support projects all over the world (Kiva) using the
microfinancing model.
a.Take a minute to explore these sites and view some of the
projects up for funding. How are these projects organized? Do
you think these models are effective? Why or why not?
b. Both Donors Choose and Kiva are for not-for-profits; do you
think these models are useful for “for-profit” businesses? Why
or why not?
2
JOURNALING FOR SUCCESS
Today, many people work for a sole proprietorship, partnership,
or corporation. Still others decide to become entrepreneurs and
start their own business.
Assignment
Assume that you are now age 25 and have graduated from college. Would you prefer to work in someone else’s business or one
that you would start? Explain your answer.
Assuming that you have decided to start your own small business, what type of business will you start? What special skills and
experience will you need to be successful? (Note: You may want
to talk with someone who owns a business before answering this
question.)
Now describe where and how you could obtain the skills and
experience you need to be successful.
Chapter 4 Choosing a Form of Business Ownership
What type of business ownership would you choose for your
business? Record your ideas and responses to the preceding
questions.
3 DEVELOPING CRITICAL-THINKING SKILLS
Suppose that you are a person who has always dreamed of
owning a business but never had the money to open one. Since
you were old enough to read a recipe, your mother allowed
you to help in the kitchen. Most of all, you enjoyed baking
and decorating cakes. You liked using your imagination to create cakes for special occasions. By the time you were in high
school, you were baking and decorating wedding cakes for a
fee. Also assume that after high school you started working full
time as an adjuster for an insurance company. Your schedule
now allows little time for baking and decorating cakes. Finally,
assume that you inherited $250,000 and that changes at your
job have created undue stress in your life. What should you
do?
Assignment
Discuss the following points:
a.What career options are available to you?
b.If you decide to open your own business, what form of ownership would be best for your business?
c.What advantages and disadvantages apply to your preferred
form of business ownership?
Prepare a two-page report summarizing your findings.
4 BUILDING TEAM SKILLS
Using the scenario in Exercise 3, suppose that you have decided
to quit your job as an insurance adjuster and open a bakery. Your
131
business is now growing, and you have decided to add a full line
of catering services. This means more work and responsibility.
You will need someone to help you, but you are undecided about
what to do. Should you hire an employee or find a partner? If you
add a partner, what type of decisions should be made to create a
partnership agreement?
How can you avoid having this happen to you? First, you should
determine your “personal profile” by identifying and analyzing
your own strengths, weaknesses, things you enjoy, and things you
dislike. Second, you should identify the types of jobs that fit your
profile. Third, you should identify and research the companies
that offer those jobs.
Assignment
Assignment
In a group, discuss the following questions:
a.What are the advantages and disadvantages of adding a
­partner versus hiring an employee?
b. Assume that you have decided to form a partnership. What
articles should be included in a partnership agreement?
c.How would you go about finding a partner?
Summarize your group’s answers to these questions, and present
them to your class. As a group, prepare an articles-of-partnership
agreement. Be prepared to discuss the pros and cons of your
group’s agreement with other groups from your class, as well as
to examine their agreements.
a.Take two sheets of paper and draw a line down the middle of
each sheet, forming two columns on each page. Label column
1 “Things I Enjoy or Like to Do,” column 2 “Things I Do Not
Like Doing,” column 3 “My Strengths,” and column 4 “My
Weaknesses.”
b.Record data in each column over a period of at least one
week. You may find it helpful to have a relative or friend give
you input.
c. Summarize the data, and write a profile of yourself.
d.Take your profile to a career counselor at your college or to
the public library and ask for help in identifying jobs that fit
your profile. Your college may offer testing to assess your skills
and personality. The Internet is another resource.
e.Research the companies that offer the types of jobs that fit
your profile.
f.Write a report on your findings.
5 RESEARCHING DIFFERENT CAREERS
Many people spend their entire lives working in jobs that they do
not enjoy. Why is this so? Often, it is because they have taken
the first job they were offered without giving it much thought.
Endnotes
1. Sources: Based on information from the Kimpton Hotel and Restaurant Group, LLC
Web site at www.kimptonhotels.com (accessed February 9, 2012); Tim McKeough,
“Putting Nemo to Work,” New York Times, November 17, 2011, p. D4; Robert
Klara, “Boutique Chic,” Adweek, September 26, 2011, p. 32; “5 Questions for Niki
Leondakis,” Hospitality Design, July 2011, p. 76; Len Vermillion, “Kimpton’s 30-Year
Journey,” Lodging, April 13, 2011, www.lodgingmagazine.com; Paris Wolfe, “Kimpton
Reaches 51 Hotels in 30 Years,” Lodging Hospitality Online, June 15, 2011, http://lhonline.com; Lisa Fickenscher, “Crain’s 2011 Best Places to Work in NYC,” Crain’s New
York Business, December 5, 2011, p. 22.
2.The IVY Planning Group Web site at www.ivygroupllc.com (accessed February 2,
2012).
3.The National Association of Publicly Traded Partnerships Web site at www.naptp.
com (accessed February 5, 2012).
4.The Procter & Gamble Web site at www.pg.com (accessed February 5, 2012).
5.Ibid.
6.The Mars Corporate Web site at www.mars.com (accessed February 5, 2012).
7.The My New Company Web site at www.mynewcompany.com (accessed February 2,
2012).
8.The Hispanic PR Wire Web site at www.hispanicprwire.com (accessed February 3,
2012).
9.The Internal Revenue Service Web site at www.irs.gov (accessed February 2, 2012).
10.The Ocean Spray Cranberries, Inc. Web site at www.oceanspray.com (accessed
January 30, 2012).
11.The Walmart Corporate Web site at www.walmartstores.com (accessed
December 31, 2011).
132
12. "Facebook, Banks Sued Over Pre-IPO Analyst Calls," The Reuters Web site at
www.reuters.com (accessed May 23, 2012).
13.The Walmart Corporate Web site at www.walmartstores.com (accessed February 4,
2012).
14.The Oracle Web site at www.oracle.com (accessed June 23, 2011).
15. “Twitter Acquires Social Media Feed Condenser Summify,” The Tech World Web site
at www.techworld.com (accessed February 4, 2012).
16.Maria Aspen, “Berkshire Hathaway to Buy Rest of Wesco,” The Thomson Reuters
Web site at www.reuters.com (accessed February 4, 2012).
17. Based on information from Amy Schatz and Greg Bensinger, “FCC Blasts AT&T
Deal,” Wall Street Journal, November 30, 2011; http://online.wsj.com; David
Goldman, “DOJ Files Antitrust Suit to Block AT&T Merger with T-Mobile, CNNMoney,
August 31, 2011, http://money.cnn.com; Russ Wiles, “AT&T Merger with T-Mobile
May Cut Competition,” Arizona Republic, March 11, 2011, www.azcentral.com/
arizonarepublic.
18. Based on information from the Berkshire Hathaway Corporate Web site at www.
berkshirehathaway.com (accessed February 6, 2012); Becky Quick, “Who Says
the Economy Is Rebounding?” Fortune, May 3, 2010, www.fortune.com; Angela
Greiling Keane and Ed Dufner, “CSX’s Ward Calls Buffett’s Rail Purchase ‘Brilliant,’”
BusinessWeek, April 14, 2010, www.businessweek.com; Alice Schroeder, The Snowball:
Warren Buffett and the Business of Life (New York: Bantam Dell, 2008), Chapters 22 and
44, www.BerkshireHathaway.com.
Part 2 Business Ownership and Entrepreneurship
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satisfy their needs. Their efforts often succeed in getting customers to purchase more and to make repeat buys.
All customers get to taste free samples of cheese before they
buy it. “We like knowing the folks who walk in our door and having everyone taste the cheese,” said the managing director. “It’s
part of the shopping experience. That said, we are getting more
sophisticated about how we communicate with people. E-mail
marketing continues to be really critical, and we’re starting to
take advantage of social networking outlets like Twitter. For
people who are into cheese and into Murray’s, it’s a great way for
them to be directly tapped into knowing what’s going on right
this second.”
What continues to appeal to sophisticated shoppers about
Murray’s is that cheese is an affordable luxury. A wine and cheese
party for a dozen people, for instance, can fit almost any budget,
and Murray’s salespeople are happy to provide suggestions and
Case 5.2
Fashionable, affordable prescription eyeglasses sold directly to
customers—that’s the business vision of Warby Parker, a fastgrowing small firm based in New York City. Founded by four
friends from the Wharton business school, Warby Parker uses
easy-on-the-eyes styling and easy-on-the-budget pricing to compete with national chains such as LensCrafters as well as with
neighborhood optical shops. Its exclusive retro-style prescription
glasses are priced under $100, with prescription sunglasses priced
at $150. Warby Parker’s affordable prices include extras such
as free shipping, free in-home frame try-ons, and a money-back
guarantee. Just as important is that, for every pair of glasses purchased, the company donates one pair to someone in need.
Rather than pay to license famous brand names for its frames,
Warby Parker designs its own, inspired by styles from the 1950s
and 1960s and manufactured in China. Based on each customer’s
individual prescription, the company has the optical lenses
made to order by a U.S. lab. After the lenses are set in place, the
­f inished product is inspected twice before glasses are shipped to
customers.
Because Warby Parker’s prices are significantly lower than
those of traditional eyeglass providers, customers can afford to
buy frames as fashion accessories, not just for vision correction.
Co-founder David Gilboa points out that while U.S. consumers
typically buy new eyeglasses every other year, many Warby Parker
customers “are buying six, seven, eight pairs at a time.” They
choose different frames for different occasions, such as one pair
for going to work and another pair for going out with friends,
and they buy frames to fit with particular outfits. The largest
single order Warby Parker ever received was from a customer who
ordered 14 pairs at once.
Warby Parker operates a showroom at its headquarters in the
hip SoHo section of New York, plus seven other showrooms inside
Chapter 5 Small Business, Entrepreneurship, and Franchises
samples to assist in the selection. Murray’s manager also credits
popular media like the Food Network with helping to popularize food in general, and cheese in particular. After all, he says,
cheeses “don’t have to be improved upon or fortified. They are
naturally good for you.”25
Questions
1.How does Murray’s overcome one of the most common limitations facing small companies: its nonexistent advertising
budget?
2. What are some of the advantages of being a small business
that Murray’s can (or does) take advantage of? What disadvantages might it face as a small firm?
3. Do you think the partnership with Kroger will have a negative
or a positive effect on the unique experience customers expect
from Murray’s? Why?
Warby Parker’s Business Vision
fashion boutiques across the country. It also invites customers to
call a toll-free number for information and ordering. The main
focus, however, is on the interactive Web site, where customers can browse more than two dozen frames, narrow down the
choice by color, shape, and size, and upload a digital headshot
for a virtual “try on” before ordering. Customers can order up to
five frames and try them on at home for five days—enough time
to post photos on Warby Parker’s Facebook page, if they choose,
and ask for feedback on which frames are the most flattering.
Shipping and returns are paid by the company, which takes the
risk out of trying and buying.
Customers feel good about buying from Warby Parker because
they save money and they know each purchase covers a donation
of eyeglasses. The company’s “buy one, give one” policy allows it
to donate more than 100,000 pairs of eyeglasses a year to people
in need worldwide through a connection with the nonprofit organization VisionSpring. Now, with the help of venture capital funding, Warby Parker is expanding. It has more than 50 employees
and uses social media such as Twitter, Tumblr, and Pinterest to
publicize its business vision. Because satisfied customers tell friends
and relatives about their experiences, “over 50 percent of our sales
are driven by word of mouth,” says co-founder Neil Blumenthal.26
Questions
1.If you were writing a business plan for Warby Parker, what critical risks and challenges would you mention? What are the business implications of each risk or challenge?
2. Why would Warby Parker have eyeglass frames made in China
but optical lenses made in America?
3. Do you agree with Warby Parker’s decision to open showrooms inside trendy boutiques in addition to operating on the
Internet? Explain your answer.
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1 Social Media Exercise
American Express’s “Open Forum” is a Web site that is designed
for small business owners (www.openforum.com). Do a search
using a search engine like Google or Bing and you will also find
its presence on Tumblr and Pinterest. Take a look at the Open
Forum Web site and answer the following questions.
1. What questions can Open Forum answer for business owners?
2. Develop a list of five issues or topics that you feel illustrates
how American Express does an effective job of presenting
information on this Web site.
2 JOURNALING
FOR SUCCESS
Discovery statement: One of the objectives in this chapter was to
make you aware of the advantages and disadvantages of owning
a franchise.
Assignment
1.Assume that after evaluating your skills, experience, and financial situation, you have decided to purchase a franchise in your
community. Identify and describe sources where you can obtain
information on what the franchise package should contain.
2.List at least five reasons why you should choose franchising
rather than starting a new, independent business.
3.Identify issues you need to be aware of as a franchisee.
4. Make a list of possible advantages and disadvantages of the
franchise you are considering. What are your rights and your
obligations as a franchisee?
3 DEVELOPING CRITICAL-THINKING SKILLS
Small businesses play a vital role in our economy. They not only
contribute to technological innovation and to the creation of
many new jobs but also ensure that customers have an alternative
to the products and services offered by large firms. In addition,
by making parts for large firms at a lower cost than the large
firms could make the parts themselves, they help to keep the lid
on consumer prices. Regardless of our need for them, many small
businesses fail within their first five years. Why is this so?
Assignment
1.Identify several successful small businesses in your community.
2.Identify one small business that has failed.
3.Gather enough information about those businesses to answer
the following questions:
a. What role do small businesses play in your community?
b. Why are they important?
c. Why did the business fail?
d. What was the most important reason for its failure?
e.How might the business have survived?
4.Summarize what you have learned about the impact of small
businesses on your community. Give the summary to your
instructor.
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4 BUILDING TEAM SKILLS
A business plan is a written statement that documents the nature
of a business and how that business intends to achieve its goals.
Although entrepreneurs should prepare a business plan before
starting a business, the plan also serves as an effective guide later
on. The plan should concisely describe the business’s mission,
the amount of capital it requires, its target market, competition,
resources, production plan, marketing plan, organizational plan,
assessment of risk, and financial plan.
Assignment
1. Working in a team of four students, identify a company in
your community that would benefit from using a business
plan, or create a scenario in which a hypothetical entrepreneur wants to start a business.
2.Using the resources of the library or the Internet and/or interviews with business owners, write a business plan incorporating the information in Table 5.3.
3. Present your business plan to the class.
5 RESEARCHING DIFFERENT CAREERS
Many people dream of opening and operating their own businesses. Are you one of them? To be successful, entrepreneurs
must have certain characteristics; their profiles generally differ
from those of people who work for someone else. Do you know
which personal characteristics make some entrepreneurs succeed
and others fail? Do you fit the successful entrepreneur’s profile?
What is your potential for opening and operating a successful
small business?
Assignment
1.Use the resources of the library or the Internet to establish
what a successful entrepreneur’s profile is and to determine
whether your personal characteristics fit that profile. Internet
addresses that can help you are www.smartbiz.com/sbs/arts/
ieb1.html and www.sba.gov (see “Start your Business” and
“FAQ”). These sites have quizzes online that can help you to
assess your personal characteristics. The SBA also has helpful
brochures.
2.Interview several small-business owners. Ask them to describe
the characteristics they think are necessary for being a successful entrepreneur.
3.Using your findings, write a report that includes the following:
a.A profile of a successful small-business owner
b.A comparison of your personal characteristics with the
profile of the successful entrepreneur
c.A discussion of your potential as a successful small-business owner
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A Fourth-Generation Family Business
Independent and family-owned for more than 140 years,
Graeter’s has successfully made the transition from a
19th-century mom-and-pop ice cream business to a 21st-century
corporation with three manufacturing facilities, dozens of ice
cream shops, and hundreds of employees. Much of the
company’s success over the years has been due to the family’s
strong and enduring entrepreneurial spirit.
SMALL BUSINESS, BIG AMBITIONS
The road to small-business success started with cofounder Louis
Charles Graeter, who developed the startup’s first flavors, insisted
on only the finest ingredients, and made all his ice cream by hand
in small batches to ensure freshness and quality. After his death,
his wife and cofounder Regina maintained the same high level of
quality as she led the company through three decades of aggressive growth. Her great-grandson, CEO Richard Graeter II, says
that “without her strength, fortitude, and foresight, there would
be no Graeter’s ice cream today.”
Richard, Bob, and Chip, great-grandsons of the founders,
are the fourth generation to own and operate Graeter’s. They
grew up in the business, and now they share responsibility for
the firm’s day-to-day management and for determining its future
direction. Bob worked his way up to vice president of operations,
starting with a management position in one of the Graeter’s icecream shops. Chip, currently vice president of retail operations,
handled all kinds of jobs in Graeter’s stores as a teenager. He uses
this first-hand knowledge of customer relations to fine-tune every
store function.
Richard Graeter became the company’s CEO in 2007. “Even
though I have the title of CEO, in a family business titles don’t
mean a whole lot,” he comments. “The functions that I am doing
now as CEO, I was doing as executive vice president for years . . .
It really was and remains a partnership with my two cousins . . .
Our fathers brought us into the business at an early age . . .
I think most important is we saw our fathers and their dedication
and the fact that, you know, they came home later, they came
home tired, they got up early and went to work before we ever got
up to go to school in the morning, and you see that dedication
and appreciate that—that is what keeps your business going.”
Graeter continues, “It can be challenging to work with your
family. My father and I didn’t always see things the same way. But
on the other hand, there is a lot of strength in the family
relationship . . . we certainly had struggles, and family businesses
do struggle, especially with transition . . . but we found people to
help us, including lawyers, accountants, and a family-business
psychologist.”
Chapter 5 Small Business, Entrepreneurship, and Franchises
GROWING BEYOND CINCINNATI
To expand beyond Cincinnati without diverting resources from
the existing stores and factory, the third generation of Graeter’s
family owners decided to license a handful of franchise operators.
One franchise operation was so successful that it even opened
its own factory. A few years ago, however, the fourth generation
switched gears on growth and repurchased all the stores of its
last remaining franchisee. “When you think about Graeter’s,” says
the CEO, “the core of Graeter’s is the quality of the product. You
can’t franchise your core. So by franchising our manufacturing,
that created substantial risk for the organization, because the
customer doesn’t know that it is a franchise. . . . They know it is
Graeter’s. . . . You really have to rely on the intention and goodwill of the individual franchisees to make the product the way you
would make it, and that is not an easy thing to guarantee.”
After working with consultants to carefully analyze the situation and evaluate alternative paths to future growth, the founder’s great-grandsons decided against further franchising. Instead,
they pursued nationwide distribution through a large network
of grocery stores and supermarket chains. They also built a new
facility to increase production capacity and hired experienced
executives to help manage the expanded business.
As a private company, Graeter’s can take actions like these without worrying about the reaction of the stock market. Specifically,
Graeter’s is an S-corporation, which allows it limited liability protection coupled with the benefit of not being taxed as a corporation. Instead, the three owners—who are the stockholders—pay only
personal income taxes on the corporation’s profits. In the event of
significant legal or tax code changes, Graeter’s owners do have the
option of choosing a different form of corporate organization.27
Questions
1.Graeter’s current management team bought the business
from their parents, who did not have a formal succession
plan in place to indicate who would do what. Do you think
the current team should have such a plan specifying who is
to step into the business, when, and with what responsibilities? Why or why not?
2.Graeter’s hired management consultants to help improve
its training procedures and expand distribution. “I think my
cousins and I all have come to realize we can’t do it alone,”
says the CEO. Why do you think the management team made
this decision? Does the involvement of outside consultants
move Graeter’s further from its roots as a family business?
3. Do you agree with Graeter’s decision to stop franchising?
Explain your answer.
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After reading Part 2, “Business Ownership and Entrepreneurship,”
you should be ready to tackle the company and industry component of your business plan. In this section, you will provide
information about the background of the company, choice of
the legal business form, information on the product or services
to be offered, and descriptions of potential customers, current
competitors, and the business’s future. Chapter 4 in your textbook, “Choosing a Form of Business Ownership,” and Chapter 5,
“Small Business, Entrepreneurship, and Franchises,” can help you
to answer some of the questions in this part of the business plan.
THE COMPANY AND INDUSTRY COMPONENT
The company and industry analysis should include the answers to
at least the following questions:
2.1. What is the legal form of your business? Is your business a
sole proprietorship, a partnership, or a corporation?
2.2. What licenses or permits will you need, if any?
2.3. Is your business a new independent business, a takeover, an
expansion, or a franchise?
2.4. If you are dealing with an existing business, how did your
company get to the point where it is today?
2.5. What does your business do, and how does it satisfy customers’ needs?
2.6. How did you choose and develop the products or services
to be sold, and how are they different from those currently
on the market?
2.7. What industry do you operate in, and what are the industry-wide trends?
2.8. Who are the major competitors in your industry?
2.9. Have any businesses recently entered or exited? Why did
they leave?
2.10. Why will your business be profitable, and what are your
growth opportunities?
2.11. Does any part of your business involve e-business?
REVIEW OF BUSINESS PLAN ACTIVITIES
Make sure to check the information you have collected, make any
changes, and correct any weaknesses before beginning Part 3.
Reminder: Review the answers to questions in the preceding part
to make sure that all your answers are consistent throughout the
business plan. Finally, write a summary statement that incorporates all the information for this part of the business plan.
ENDNOTES
1.Sources: Based on information in Elissa Gootman, “Middle School Girls Unlock a
Room of Their Own, in Miniature,” New York Times, October 10, 2011, pp. A1, A3;
Alaina Raftis, “Students Prepping to Deck Out Lockers,” Pittsburgh Tribune-Review,
August 19, 2011, www.pittsburghlive.com; Barry Shlachter, “Texas Moms Create
Hallway Hit,” Fort Worth Star Telegram, May 9, 2011, pp. 1D, 10D; Colleen Diskin,
“Dress Your Locker with the Perfect Combination of Accessories,” NorthJersey.com,
August 29, 2011, www.northjersey.com.
2.U.S. Small Business Administration Web site at www.sba.gov/content/
summary-size-standards-industry (accessed March 18, 2012).
3.U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions,
updated January 2011, www.sba.gov/advo (accessed March 19, 2012).
4.Ibid.
5.Ibid.
6.Thomas A. Garrett, “Entrepreneurs Thrive in America,” Bridges, Federal Reserve Bank
of St. Louis, Spring 2005, 2.
7.U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions,
updated January 2011, www.sba.gov/advo (accessed March 15, 2012).
8.U.S. Small Business Administration, News Release, Number 05–53, September 13,
2005, www.sba.gov/teens/brian_hendricks.html (accessed March 19, 2012).
9.U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions,
updated January 2011, www.sba.gov/advo (accessed March 19, 2012).
10.SBA Press Release, “Computer Simulation Company from Florida Is National Small
Business of the Year,” May 25, 2010, www.sba.gov/news (accessed March 15, 2012).
11.U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions,
September 2009, www.sba.gov/advo (accessed March 15, 2011).
12.U.S. Small Business Administration, Office of Advocacy, News Release, Number 10-03
ADVO, March 3, 2010, www.sba.gov/advo/press/10-03.html (accessed March 15,
2011).
13.Timothy S. Hatten, Small Business Management: Entrepreneurship and Beyond, 4th ed.,
Copyright © 2009 by Houghton Mifflin Company, 238. Reprinted with permission.
14.SCORE Web site at www.score.org/about-score (accessed March 19, 2012).
15.Ibid.
16.SBA Press Release, Fact Sheet, September 11, 2008, 2.
17.U.S. Small Business Administration, News Release, Release Number 10–33, May 26,
2010, www.sba.gov/news (accessed March 18, 2012).
18.SBIC Program Overview, Web site at http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_sbic; and Small Business Investor Alliance Web site at
www.nabic.org (accessed March 23, 2012).
19.SBA Press Release, “President Obama Proclaims National Small Business Week,” May
21, 2010, www.sba.gov/news (accessed March 7, 2012).
162
20.SBA Press Release Number 10–414, News Release, May 14, 2010, www.sba.gov/news
(accessed March 12, 2012).
21.Cindy Elmore, “Putting the Power into the Hands of Small Business Owners,”
Marketwise, Federal Reserve Bank of Richmond, Issue II, 2005, 13.
22.U.S. Small Business Administration, www.sba.gov/managing/marketing/
intlsales.html (accessed October 4, 2008).
23.SBA Press Release 12-12, “SBA Announces a New Partnership to Connect Small
Businesses With Corporate Supply Chains,” March 22, 2012, www.sba.gov/news
(accessed March 23, 2012); and International Trade Web site at www.trade.gov/CS/
(accessed March 23, 2012).
24.SBA Press Release, “SBA 2010 Small Business Exporter of the Year,” www.sba.gov/
news (accessed March 20, 2012); and NANMAC Corporation Web site at http://
nanmac.com/press-sba.html (accessed March 23, 2012).
25. Based on information from company Web site www.murrayscheese.com (accessed
April 23, 2010); www.murrayscheese.com/images_global/murrays_kroger_press_
release.pdf (accessed April 23, 2010); Kelsey Blackwell, “Liz Thorpe,” Natural Foods
Merchandiser, March 2010; Kim Severson, “Murray’s Cheese Will Open 50 Locations
in Kroger Markets,” The New York Times, November 24, 2009, http://
dinersjournal.blogs.nytimes.com/tag/murrays-cheese/; Rosalind Resnick, “Market
with Meaning,” Entrepreneur, November 6, 2009, www.entrepreneur.com/
marketing/marketingideas/article203938.html#.
26. Based on information in Shira Lazar, “Warby Parker’s Grand Vision,” Entrepreneur,
April 10, 2012, www.entrepreneur.com; Alex Williams, “On Spec: Vintage-Style
Glasses Online,” New York Times, January 18, 2012, www.nytimes.com; “Warby
Parker Revolutionizes Eyewear Market by Borrowing from Apple, Zappos,” Advertising
Age, November 27, 2011, www.adage.com; Andrew Maclean, “Warby Parker,” Inc.,
November 24, 2011, www.inc.com; www.warbyparker.com.
27.Sources: Based on information from Kimberly L. Jackson, “Graeter’s Premium
Chocolate Chip Ice Cream Lands at Stop & Shop,” Newark Star-Ledger (NJ), April 4,
2012, www.nj.com; “Graeter’s Ice Cream Debuts in Bay Area,” Tampa Bay Times
(St. Petersburg, FL), January 10, 2012, p. 4B; Jim Carper, “Graeter’s Runs a Hands-on
Ice Cream Plant,” Dairy Foods, August 2011, pp. 36+; Jim Carper, “The Greater Good,”
Dairy Foods, August 2011, pp. 95+; “Graeter’s Unveils New ‘Mystery Flavor,’” Dayton
Daily News, March 29, 2012, www.daytondailynews.com; Bob Driehaus, “A Cincinnati
Ice Cream Maker Aims Big,” New York Times, September 11, 2010, www.nytimes.com;
Lucy May, “Graeter’s Northern Kentucky Franchisee Puts Stores on the Block,” Business
Courier, August 6, 2010, http://cincinnati.bizjournals.com; www.graeters.com;
interviews with company staff and Cengage videos about Graeter’s.
Part 2 Business Ownership and Entrepreneurship
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co-workers, and your subordinates. That means everyone is
a leader to some extent. Formal management candidates are
asked to demonstrate both analytical and interpersonal skills
and to model the company’s six core values: outdoor heritage,
integrity, service, respect, perseverance, and safe and healthy
living. In the early days of the company, L.L.Bean lived above
the store and would come downstairs in the middle of the night
to help a customer who rang the bell. “A customer is the most
important person ever in this office—in person or by mail,” he
was fond of saying. So, true to his beliefs, leadership style continues to revolve around serving the customer’s needs. As one
L.L.Bean manager said, the company is all about salespeople
and customer service representatives so that they can better
serve customers.20
Case 6.2
When CEO Jeff Bezos founded the pioneering online retailer
Amazon.com in 1995, his goal was to build “Earth’s biggest
bookstore.” Amazon now rings up $48 billion in annual sales and
offers “Earth’s biggest selection” of merchandise, everything from
cameras and clothing to lamps and luggage. What began as a virtual bookstore has become a multifaceted, multinational business
serving 164 million consumers and business customers, thanks
to the founder’s visionary leadership and relentless focus on customer satisfaction.
Sitting around the conference table with his top managers,
Bezos often leaves one chair empty to represent “the most important person in the room”—the customer. Although many CEOs
keep a close eye on the earnings they must report to shareholders every three months, Bezos has always paid more attention to
long-term customer needs than to short-term financial results.
Amazon’s strategic plans look ahead a decade or more, and cover
innovations that take advantage of the company’s technology
strengths. “We are comfortable planting seeds and waiting for
them to grow into trees,” he says. Bezos and his executives have
the patience and conviction to make far-reaching decisions about
future investments and actions, watch how things unfold during
implementation, and adjust the plans as needed while the world
catches up.
The Kindle is a good example of how Amazon’s strategic
planning pays off. When electronic book readers were in their
infancy, Bezos was convinced that Amazon could upend the market by making an easy-to-use device capable of downloading and
displaying any book in one minute or less. Company engineers
invested years (and millions of dollars) inventing the original
Kindle, which immediately sold out when introduced in 2007.
Since then, newer models with additional features and functionality, including the Kindle Fire, have attracted a huge wave of
new customers as well as new “content creators”—authors who
use the Kindle platform to publish their own books. Electronic
books now outsell printed books, a development that has driven
Chapter 6 Understanding the Management Process
Questions
1. What style of leadership do you think most L.L.Bean managers probably employ?
2.To produce hot water in L.L.Bean’s flagship store, the company recently installed a solar hot water system that will offset
almost 11,000 pounds of carbon dioxide emissions every year.
Suggest some of the questions the company’s managers might
have asked at each level of planning (strategic, tactical, operational, and contingency) for this project.
3. Which managerial role or roles do you think the leaders of
L.L.Bean’s temp teams fill?
What’s Next for “Earth’s Biggest
Bookstore”?
Borders and other book stores into bankruptcy while Amazon
profits from the surge in digital downloads that its Kindle helped
to stimulate.
To ensure that Amazon is doing what it should be doing to
satisfy customers, management sets standards for hundreds of
everyday activities and constantly measures actual performance.
For example, it times how quickly its web pages load and finds
ways to speed things up, because it has learned that even a splitsecond delay can cause customers to click away. The company
maintains minimum inventory levels to avoid running out of
merchandise, presorts packages to add to its shipping partners’
efficiency, and tracks down the cause of any delivery delays so customers will know they can rely on Amazon’s delivery promises. No
wonder Amazon routinely comes out on top in customer-satisfaction surveys.
Today, the company’s Web site serves as an online marketplace where individuals and businesses can sell their products,
paying Amazon a small percentage every time they make a sale.
Major corporations like Netflix pay for access to Amazon’s
sophisticated Internet software and data storage systems. Still,
because Amazon’s roots are in retailing, Bezos continues his
habit of reading customers’ letters to see what they like and what
they don’t like, seeking clues that will lead him to the next big
opportunity.21
Questions
1.Knowing that Amazon.com’s strength is technology, which
can change rapidly and unpredictably, do you agree with Jeff
Bezos’s method of looking up to a decade ahead for strategic
planning purposes? Explain your answer.
2. Does Jeff Bezos appear to be an autocratic, a participative,
or an entrepreneurial leader? What are the implications for
Amazon.com?
3.How does Amazon.com apply total quality management, and
why?
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Crowdsourcing is a set of principles, processes, and platforms
to get things done that includes putting out an open call to a
group and managing the responses and output. Crowdsourcing
can be like outsourcing in a bigger way because instead of contracting to one known entity, you are putting a call out to a bigger group, often a global online community, to either get many
to participate or to find the person you need by casting a much
wider net.
There are crowdsourcing companies that perform specific
types of work such as translations (MyGengo, Smartling), transcription (CastingWords), keyword marketing (Trada), even
design and marketing work (Prova, 99Designs, CrowdSpring).
Each company operates differently. In the case of transcription
or translation, you give work to a company like CastingWords or
MyGengo, and they in turn put the job out to their “crowd” of
workers from around the world. They are like the middleman to
helping you get the work done, and their distributed workforce
can be less costly to them so they pass on their savings to your
organization.
1. Check out a few of these crowdsourcing companies. What are
your thoughts? Do you think they are effective? Why or why
not?
2. Which type of leadership is most likely to include the use of
crowdsourcing?
3. Can you think of other areas in businesses that can benefit
from the use of crowdsourcing? What are they?
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter discussed the critical management function of leading and motivating others to work in the
best interests of an organization. Think about your current job or
a job that you had previously.
Assignment
1. Who is the most outstanding leader with whom you have
worked?
2. What was his or her position and in what capacity did you
work with the person?
3. What are this person’s outstanding leadership qualities?
4.Select the most outstanding leadership quality from question
3 and provide an example that demonstrates this quality.
5. Do most of your co-workers view this person as being an
­outstanding leader, too? Explain.
3 DEVELOPING
CRITICAL-THINKING SKILLS
As defined in the chapter, an organization’s mission is a statement of the basic purpose that makes the organization different from others. Clearly, a mission statement, by indicating the
purpose of a business, directly affects the company’s employees,
customers, and stockholders.
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Assignment
1.Find the mission statements of three large corporations in different industries. The Internet is one source of mission statements. For example, you might search these sites:
www.apple.com
www.benjerry.com
www.walmart.com
Compare the mission statements on the basis of what each
reflects about the company’s philosophy and its concern for
employees, customers, and stockholders.
2. Which company would you like to work for and why?
3. Prepare a report on your findings.
4
BUILDING TEAM SKILLS
Over the past few years, an increasing number of employees,
stockholders, and customers have been demanding to know what
their companies are about. As a result, more companies have
been taking the time to analyze their operations and to prepare
mission statements that focus on the purpose of the company.
The mission statement is becoming a critical planning tool for
successful companies. To make effective decisions, employees
must understand the purpose of their company.
Assignment
1. Divide into teams and write a mission statement for one of
the following types of businesses:
Food service, restaurant
Banking
Airline
Auto repair
Cabinet manufacturing
2. Discuss your mission statement with other teams. How did
the other teams interpret the purpose of your company? What
is the mission statement saying about the company?
3. Write a one-page report on what you learned about developing mission statements.
5 RESEARCHING DIFFERENT CAREERS
A successful career requires planning. Without a plan, or roadmap, you will find it very difficult, if not impossible, to reach your
desired career destination. The first step in planning is to establish your career goal. You then must set objectives and develop
plans for accomplishing those objectives. This kind of planning
takes time, but it will pay off later.
Assignment
Complete the following statements:
1. My career objective is to:
●●
●●
●●
●●
Part 3 Management and Organization
This statement should encapsulate what you want to accomplish
over the long run. It may include the type of job you want and
the type of business or industry you want to work in. Examples
include the following:
●● My career goal is to work as a top manager in the food
industry.
●● My career goal is to supervise aircraft mechanics.
●● My career goal is to win the top achievement award in the
advertising industry.
2. My career objectives are to
●●
●●
●●
●●
Objectives are benchmarks along the route to a career destination. They are more specific than a career goal. A statement
about a career objective should specify what you want to accom-
plish, when you will complete it, and any other details that will
serve as criteria against which you can measure your progress.
Examples include the following:
My objective is to enroll in a management course at Main
College in the spring semester 2014.
●● My objective is to earn an A in the management course at
Main College in the spring semester 2014.
●● My objective is to be promoted to supervisor by January 1,
2016.
●● My objective is to prepare a status report by September
30 covering the last quarter’s activities by asking Charlie in
Quality Control to teach me the procedures.
3.Exchange your goal and objectives statements with another
class member. Can your partner interpret your objectives
correctly? Are the objectives concise and complete? Do they
include criteria against which you can measure your progress?
If not, discuss the problem and rewrite the objective.
●●
Endnotes
1.Based on information in “IBM Keeps Top Patent Spot for 19th Year as Asian
Rivals Gain,” Bloomberg BusinessWeek, January 11, 2012, http://news.businessweek.
com/article.asp?documentKey=1376-LXMW751A74E901-39IF2F50723L13OT62AKFA8GSQ; Nicola Leske, “IBM’s Plain Vanilla Flavor Leaves Investors
Satisfied,” Reuters, January 20, 2012, http://reuters.com/article/2012/01/21/
us-ibm-idUSTRE80K01G20120121; Spencer E. Ante and Joann S. Lublin, “IBM
Names Rometty as Next CEO,” Wall Street Journal, October 26, 2011, http://
online.wsj.com/article/SB10001424052970204777904576653512671012
304.html; Darryl K. Taft, “New IBM CEO Rometty Makes Key Management
Changes,” eWeek, January 3, 2012, http://eweek.com/c/a/IT-Management/
New-IBM-CEO-Rometty-Makes-Key-Management-Changes-296800/.
2. “Eli Lilly Made China Pharma Market a Top Priority,” Transmedia.com, January 1,
2010, http://transmedia-china.com/default.aspx?portalid5442&tabid50&mid55606
&ctl5news&iid53561.
3. Starbucks, http://starbucks.com/about-us/company-information/mission-­
statement (accessed February 15, 2012); Facebook, http://facebook.com/
facebook#!/facebook?v=info (accessed February 15, 2012).
4.Starbucks, http://starbucks.com/responsibility (accessed February 15, 2012).
5.Amy Chozick, “Gannet Pushes its Pay Wall Plan to Investors,” New York Times,
February 22, 2012, http://mediadecoder.blogs.nytimes.com/2012/02/22/
gannett-pushes-its-pay-wall-plan-to-investors.
6. Jens Hansegard, “IKEA Taking China by Storm,” The Wall Street Journal, March 20, 2012,
http://online.wsj.com/article/SB10001424052702304636404577293083481821536
.html.
7.Staff reporter, “Air Canada Uses Contingency Plan to Service Planes,”
Reuters, March 21, 2012, www.reuters.com/article/2012/03/21/
aircanada-idUSL1E8ELL3F20120321.
8. http://fastcompany.com/tag/Ecomagination (accessed February 15, 2012); http://
ge.com/company/leadership/ceo.html (accessed February 15, 2012).
9. http://quantcast.com/monster.com (accessed February 14, 2012).
10.Adam Bryant, “The Memo List: Where Everyone Has an Opinion,” New York Times,
March 10, 2012, www.nytimes.com/2012/03/11/business/jim-whitehurst-of-red-haton-merits-of-an-open-culture.html.
Chapter 6 Understanding the Management Process
11. David A. Kaplan, “The 2011 Business Person of the Year: Howard Schultz, Strong
Coffee,” Fortune, December 12, 2011, pp. 101–116.
12. http://kwikiblog.blogspot.com/2008/03/korean-management-practices-at-hyundai.
html (accessed February 5, 2012).
13. www.flatworldknowledge.com/pub/1.0/principles-management/32395;
www.google.com/intl/en/corporate/culture.html (accessed January 5, 2012).
14.Andrew J. Dubrin, Leadership: Research Findings, Practice and Skills, 7th ed. (Mason, OH:
South-Western/Cengage Learning, 2013).
15. Walter Isaacson, “The Real Leadership Lessons of Steve Jobs,” Harvard Business Review,
April 2012, http://hbr.org/2012/04/the-real-leadership-lessons-of-steve-jobs/ar/1.
16.Ricky Griffin, Management, 11th ed. (Mason, OH: South-Western Cengage, 2012), 7.
17. Deborah L. Jacobs, “McDonald’s Recipe for Success Brought New CEO to the
Table,” Forbes, March 22, 2012, www.forbes.com/sites/deborahljacobs/2012/03/22/
mcdonalds-recipe-for-success-brought-new-ceo-to-the-table/.
18.Ben Protess, “Regulators Approve New Derivatives Rules,” New York Times
Dealbook, March 20, 2012, http://dealbook.nytimes.com/2012/03/20/
regulators-approve-new-derivatives-rule.
19. Martin Murray, “Total Quality Management (TQM),” http://logistics.about.com/od/
qualityinthesupplychain/a/TQM.htm (accessed March 23, 2012).
20.Based on information on the company Web site www.llbean.com (accessed January
20, 2011); company news release, “L.L.Bean Installs a Solar Hot Water System to
Its Flagship Store in Freeport,” www.llbean.com, June 15, 2010; interviews with
L.L.Bean employees, and the video, “L.L.Bean Relies on Its Core Values and Effective
Leadership.”
21.Based on information in George Anders, “Inside Amazon’s Idea Machine,” Forbes,
April 4, 2012, www.forbes.com; James B. Stewart, “Amazon Says Long Term and
Means It,” New York Times, December 17, 2011, p. B1; Steven Levy, “CEO of the
Internet,” Wired, December 2011, p. 208.
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for domestic orders in half. In fact, sometimes the team can ship
orders the same day.
At Numi, managers who communicate well and who are out
working alongside their staff are the norm. They must also communicate well with customers and demonstrate a high level of
emotional maturity. Some meet with their teams on a regular
basis, to review project status against deadlines and due dates
and to make changes in workload and procedures where necessary. The company offers flextime to help employees retain a balance between their work and personal life, and when things get
overwhelming at the office, there’s always the tea garden and a
freshly brewed cup of organic tea.11
Case 7.2
Hewlett-Packard (HP) is the original “started in a garage” technology company, founded by Bill Hewlett and Dave Packard in
1939. Over the years, HP has grown into a market leader, with
$114 billion in annual revenue, 300,000 employees worldwide,
and tens of millions of customers on six continents. Its rivals,
multinationals such as Apple, Dell, Acer, and Lenovo, never
stop looking for the next big tech breakthrough. No wonder HP,
approaching its 75th birthday, uses its organizational structure
for competitive advantage in the 21st-century race for higher sales
and profits.
The company has seven divisions, organized according to
product or function: Services, Enterprise Storage and Servers, HP
Software, the Personal Systems Group, the Imaging and Printing
Group, HP Financial Services, and Corporate Investments.
Within each division are business units organized by product.
For example, the services division contains four main units
(infrastructure technology outsourcing, applications services,
business process outsourcing, and technology services). Each
unit hires managers and employees with the particular skills,
experience, and training appropriate for the services it offers.
Some HP business units are organized by customer and by
product within a division. The Personal Systems Group, for
example, includes one unit that focuses on commercial PCs and
one that focuses on consumer PCs. Establishing these as separate business units allows HP to address differences in products
and customers’ needs while sharing expertise within the division.
For efficiency, some functions straddle divisions and serve multiple units. The company recently consolidated its data-center
operations and now has six megacenters instead of 85 smaller
centers for data management.
Through its organizational structure, HP seeks to achieve
two key objectives. First, knowing that technological change can
occur at any time and move in unexpected directions, the company is determined to remain agile and adaptable. Its structure
leaves day-to-day planning, decisions, and implementation in
the hands of each unit’s managers, allowing them to satisfy customers, initiate projects, and respond to environmental shifts
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Questions
1.Numi’s customer service manager, Cindy Graffort, says the
company is like a “living, breathing organism.” What does she
mean? How does the company’s culture reflect this belief?
2.Numi’s distribution manager, Dannielle Oviedo, says her philosophy of management means she gets involved in what her
team is doing: “I do what I ask folks to do.” Do you think she
is a good delegator? Why or why not?
3. What can you infer about Numi’s basis for departmentalization and its chain of command?
HP’s Corporate Challenge: To Remain Agile and
Responsive in an Ever-Changing Environment
without delay. Major decisions that affect the overall organization, such as whether to acquire another company, are made at
higher levels.
Second, the company uses its structure to support growth.
Eyeing a larger share of the $1.7 trillion global market for information technology, HP has been steadily adding to its portfolio
of goods and services. Some of this expansion has occurred
through acquisition. During the past few years, HP has bought
EDS, 3Com, and Palm, among other businesses, and merged
their operations into the appropriate corporate divisions. Palm,
a pioneer of handheld computing devices and maker of smartphones, was integrated into HP’s Personal Systems Group to
enhance that division’s technical capabilities in preparation for
future growth.
Innovation has been woven into the fabric of HP’s corporate
culture since the early days. The company is famous for investing billions of dollars annually to research new technology and
develop new products. Although senior managers don’t want
to stifle innovation by imposing too many limits, they have very
clear expectations for research projects. “The key change we
made was to take our brilliant scientists and sharpen their focus
around a much smaller pool of big bets,” explains the head of
HP Labs. Researchers know that “every single [project] must
have the potential to [generate] $1 billion-plus in revenue for
HP.” As a result, instead of pursuing as many as 150 projects at
any given time, researchers now concentrate their efforts on the
most promising two dozen projects.
Top managers are also involved in coordinating the overall
efforts of employees that serve their very largest customers. For
example, HP has a $3 billion contract to handle information technology operations for Procter & Gamble on an outsourcing basis.
The head of the HP division visits with Procter & Gamble’s senior
managers six times a year to jointly evaluate performance. HP’s
CEO also joins the conversation at least twice a year. “When you
have the CEO of a company sitting across the table saying, ‘We’re
going to deliver this,’ you know they’re going to deliver,” says a
senior Procter & Gamble executive.12
Part 3 Management and Organization
Questions
3.Analyze HP’s approach to delegation and decentralization.
Are its choices appropriate for a technology company?
Why or why not?
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1.How is corporate culture likely to affect HP’s ability to integrate acquired companies into its organizational structure?
2.Analyze HP’s use of departmentalization. Why are its choices
appropriate for a technology company?
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Zappo’s is a company that embraces the notion that customers
come first. It is well known that this company is customer-centered.
One of the ways that it allows employees to communicate with
customers is through its blog www.zapposinsights.com/blog.
1.Take a look at this blog. What can you tell about the corporate culture of Zappo’s?
2.How do they approach customer service? Do you think it
works? Why or why not?
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter described the powerful influence that a corporate culture has on an organization.
Assume that after leaving school, you are hired by your “dream
company.”
Assignment
1. What are the major corporate culture dimensions of your
dream company?
2. Before accepting a job at your “dream company,” how will
you find out about the company’s corporate culture?
3. From Figure 7.7, identify the type of corporate culture that
you prefer and explain why.
4.Thinking back to previous jobs that you have had, describe
the worst corporate culture you have ever experienced.
3 DEVELOPING
CRITICAL-THINKING SKILLS
A firm’s culture is a reflection of its most basic beliefs, values,
customs, and rituals. Because it can have a powerful influence
on how employees think and act, this culture also can have a
powerful influence on a firm’s performance. The influence may
be for the better, of course, as in the case of Kraft Foods, or
it may be for the worse, as in the case of a bureaucratic organization whose employees feel hopelessly mired in red tape.
When a company is concerned about mediocre performance
and declining sales figures, its managers would do well to
examine the cultural environment to see what might be in need
of change.
Assignment
1.Analyze the cultural environment in which you work. (If you
have no job, consider your school as your workplace and
your instructor as your supervisor.) Ask yourself and your
co-workers (or classmates) the following questions and record
the answers:
Chapter 7 Creating a Flexible Organization
a. Do you feel that your supervisors welcome your ideas and
respect them even when they may disagree with them?
Do you take pride in your work? Do you feel that your
work is appreciated? Do you think that the amount of
work assigned to you is reasonable? Are you compensated
adequately for your work?
b.Are you proud to be associated with the company? Do
you believe what the company says about itself in its
advertisements? Are there any company policies or rules,
written or unwritten, that you feel are unfair? Do you
think that there is an opportunity for you to advance in
this environment?
c.How much independence do you have in carrying out your
assignments? Are you ever allowed to act on your own, or
do you feel that you have to consult with your supervisor
on every detail?
d. Do you enjoy the atmosphere in which you work? Is the
physical setting pleasant? How often do you laugh in an
average workday? How well do you get along with your
supervisor and co-workers?
e. Do you feel that the company cares about you? Will your
supervisor give you time off when you have some pressing
personal need? If the company had to downsize, how do
you think you would be treated?
2.Using the responses to these questions, write a two-page
paper describing how the culture of your workplace affects
your performance and the overall performance of the firm.
Point out the cultural factors that have the most beneficial
and negative effects. Include your thoughts on how negative
effects could be reversed.
4 BUILDING
TEAM SKILLS
An organization chart is a diagram showing how employees
and tasks are grouped and how the lines of communication
and authority flow within an organization. These charts can
look very different depending on a number of factors, including the nature and size of the business, the way it is departmentalized, its patterns of delegating authority, and its span of
management.
Assignment
1. Working in a team, use the following information to draw an
organization chart: The KDS Design Center works closely with
two home-construction companies, ACME Homebuilders and
Highmass. KDS’s role is to help customers select materials for
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their new homes and to ensure that their selections are communicated accurately to the builders. The company is also a
retailer of wallpaper, blinds, and drapery. The retail department, the ACME Homebuilders accounts, and the Highmass
accounts make up KDS’s three departments. The company
has the following positions: president, executive vice president, managers, two appointment coordinators, two ACME
Homebuilders coordinators, two Highmass coordinators, two
consultants/designers for the Amex and Highmass accounts,
15 retail positions, and four payroll and billing personnel.
2.After your team has drawn the organization chart, discuss the
following:
a. What type of organizational structure does your chart
depict? Is it a bureaucratic, matrix, cluster, or network
structure? Why?
b.How does KDS use departmentalization?
c.To what extent is authority in the company centralized or
decentralized?
d. What is the span of management within KDS?
e. Which positions are line positions and which are staff? Why?
3.Prepare a three-page report summarizing what the chart
revealed about relationships and tasks at the KDS Design
Center and what your team learned about the value of organization charts. Include your chart in your report.
5 RESEARCHING DIFFERENT CAREERS
In the past, company loyalty and the ability to assume increasing
job responsibility usually ensured advancement within an organization. While the reasons for seeking advancement (the desire for
a better-paying position, more prestige, and job satisfaction) have
not changed, the qualifications for career advancement have.
In today’s business environment, climbing the corporate ­ladder
requires packaging and marketing yourself. To be promoted
within your company or to be considered for employment with
another company, it is wise to improve your skills continually.
By taking workshops and seminars or enrolling in community
college courses, you can keep up with the changing technology
in your industry. Networking with people in your business or
community can help you to find a new job. Most jobs are filled
through personal contacts; who you know can be important.
A list of your accomplishments on the job can reveal your
strengths and weaknesses. Setting goals for improvement helps to
increase your self-confidence.
Be sure to recognize the signs of job dissatisfaction. It may be
time to move to another position or company.
Assignment
Are you prepared to climb the corporate ladder? Do a selfassessment by analyzing the following areas and summarize the
results in a two-page report.
1. Skills
●● What are your most valuable skills?
●● What skills do you lack?
●● Describe your plan for acquiring new skills and improving
your skills.
2.Networking
●● How effective are you at using a mentor?
●● Are you a member of a professional organization?
●● In which community, civic, or church groups are you
participating?
●● Whom have you added to your contact list in the last six
weeks?
3.Accomplishments
●● What achievements have you reached in your job?
●● What would you like to accomplish? What will it take for you
to reach your goal?
4.Promotion or new job
●● What is your likelihood for getting a promotion?
●● Are you ready for a change? What are you doing or willing to
do to find another job?
Endnotes
1. Based on information in “Kraft to Cut 1,600 Jobs in Split,” Reuters, January 17, 2012,
http://reuters.com/article/2012/01/17/us-kraft-idUSTRE80G1FX20120117; “Kraft,
from Roll-up to Spinoff,” New York Times, August 4, 2011, http://dealbook.nytimes.
com/2011/08/04/kraft-from-roll-up-to-spin-off/; E.J. Schultz, “Mary Beth West to
Lead Marketing at Kraft’s Snacks Spin-off,” Advertising Age, January 9, 2012, http://
adage.com/article/news/mary-beth-west-lead-marketing-kraft-s-snacks-spin/231983/;
David Welch, “Kraft’s Brazil Chocolate Seen as Template After Spinoff,” Bloomberg
BusinessWeek, January 30, 2012, http://businessweek.com/news/2012-01-31/kraft-sbrazil-chocolate-seen-as-template-after-spinoff-retail.html; Robert Smith, “Rethinking
the Oreo for Chinese Consumers,” NPR, January 27, 2012, http://npr.org/blogs/
money/2012/01/27/145918343/rethinking-the-oreo-for-chinese-consumers.
2.Lauren Weber and Leslie Kwoh, “Co-Workers Change Places,” Wall Street Journal,
February 21, 2012, http://online.wsj.com/article/SB1000142405297020405980457
7229123891255472.html.
3.PepsiCo Corporate Profile, www.pepsico.com/Investors/Corporate-Profile.html
(accessed March 21, 2012).
4. “Avon Expects Savings and Benefits Approaching $900 Million From Original
Restructuring, Product Line Simplification and Strategic Sourcing Programs—Higher
Than Anticipated,” Avon, news release, February 19, 2009, http://media.avoncompany
.com/index.php?s=10922&item=22955.
5. Dana Griffin, “Disadvantages of a Line & Staff Organization Structure,” Small
Business, http://smallbusiness.chron.com/disadvantages-line-staff-organization-structure-2762.html (accessed March 21, 2012).
210
6. “Working Together as One,” GE Works, www.ge-works.com/profile/working-togetheras-one/ (accessed March 21, 2012).
7. John Kotter, “Can Your Organization Handle Losing a Leader?” Forbes,
March 21, 2012, www.forbes.com/sites/johnkotter/2012/03/21/
can-your-organization-handle-losing-a-leader/.
8. Susan Craig and Landon Thomas Jr., “Public Rebuke of Goldman Culture
Opens Debate,” New York Times, March 14, 2012, http://dealbook.nytimes.
com/2012/03/14/public-rebuke-of-culture-at-goldman-opens-debate.
9.Rob Goffee and Gareth Jones, “The Character of a Corporation: How Your Company’s
Culture Can Make or Break Your Business,” Jones Harper Business, December 2003, 182.
10.Nelson D. Schwartz, “Public Exit from Goldman Raises Doubt Over a New Ethic,”
New York Times, March 15, 2012, www.nytimes.com/2012/03/15/business/
a-public-exit-from-goldman-sachs-hits-a-wounded-wall-street.html.
11. Based on information from www.numitea.com (accessed May 26, 2010), and information provided through interviews with Numi personnel and in the video “Turbulent
Times: Numi’s New Manager.”
12. Based on information from Kathleen Kingsbury, “HP vs. Everybody,” Time, April 26,
2010, GB4; “HP Agrees to Buy Palm for $1.2 Billion,” PC Magazine Online, April 28,
2010, www.pcmag.com; “HP Closes 3Com Deal Takes Aim at Cisco,” EWeek,
April 12, 2010, www.eweek.com; Patrick Thibodeau, “Outsourcing Deal Gives
P&G Clout with HP Execs,” Computerworld, March 22, 2010, 12; “HP to Acquire
3Com in $2.7 Billion Deal,” InformationWeek, November 11, 2009,
www.informationweek.com; www.hp.com.
Part 3 Management and Organization
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snowboard about 100 days of the year, sometimes to test new
products, but sometimes just for fun. “There are a lot of vibrant
folks [at the company] and it rubs off on you,” he says.
The company, which began as an entrepreneurial venture
housed in a barn in 1977, now manufactures and sells snowboards with prices that range from $300 to $1,500. Jake, who
says he was a failure in shop class while in school, handmade
his own boards for a sport that had few followers and was yet
unrecognized. Snowboarding has since come a long way, having made its Olympic debut during the 1998 Winter Games at
Nagano, Japan. Burton Snowboards has grown, too. With world
headquarters in Burlington, the company operates a factory in
Austria and stores in Chicago, Los Angeles, New York, Wrentham
(MA), Orlando, and of course Burlington, as well as in Tokyo and
Innsbruck (Austria). It also works with thousands of retail dealers
in more than 30 countries around the world and offers products
for sale online as well.
A major factor in the company’s success is the high-quality
standards to which it has adhered from its very beginning. These
have made Burton Snowboards a premium supplier whose name
is synonymous with quality. Its snowboards are made to exacting
specifications from wood, fiberglass, and steel (not cheaper foam
materials), and with unrelenting attention to every step of production, including the finishing details. “We don’t cut corners,”
says a company spokesperson, though that sometimes means its
products will cost a bit more than competitors’. The prevailing
philosophy at the firm is that “you get what you pay for,” and by
listening to its core customers, who fall between the ages of 12
and 35 years old, Burton remains confident that its high standards meet the expectations of those for whom snowboarding is
not just a sport but also a lifestyle. “We’ve always based our decisions around snowboarders and what’s best for them,” says Jake.
Quality is further assured by the company’s policy of redesigning every product every year in order to retain its position as
“an innovator, not an imitator” and to keep up with changing
customers’ needs and desires as well as with competitors’ efforts
Case 8.2
Chicago-based Boeing uses a combination of team-inspired innovations and cutting-edge technology to make commercial jetliners at two plants in Washington state and one in South Carolina.
The company rings up $68 billion in annual revenues and
employs more than 170,000 employees in 70 nations. Because
lives are at stake each time a plane takes off, quality is at the very
top of Boeing’s agenda when it designs, tests, and manufactures
its jetliners.
Boeing’s best-selling plane is the 737, which has been updated
numerous times since it was first introduced in the late 1960s.
More than 350 airlines now fly 737s, and the model is still in
such demand that Boeing has orders to deliver another 2,600
(priced at $59 million and up, depending on configuration). At
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to grow their own market share. One such threat comes from
ski companies that have decided to move into the snowboarding
industry. Burton’s managers credit much of the company’s success to its ability to respond well to change. According to Jake,
“As a company we’ve always thrived on opportunity.”
One new opportunity the firm faces is the need to control
its production costs without sacrificing quality. Burton recently
announced that it is closing its Burlington factory and will manufacture exclusively at the Austrian plant it has operated for the
past 25 years. “It costs us significantly more to produce a board
in Vermont than we are capable of selling it for,” a company
statement said, “and sadly, this is not sustainable in the current
economy.” Nearly 400 employees will remain at the Burlington
facility, however, which has “excelled at prototyping and developing product” in the past and will still carry that responsibility. “Here in Vermont,” said the then-CEO, “we will continue to
focus on advanced product development, which will allow us to
bring the latest snowboard technology to riders faster than ever
before.” As evidence of its commitment to maintaining its reputation as the best snowboard manufacturer in the world, Burton
opened a new state-of-the-art prototype research facility named
after world famous snowboarder Craig Kelly in 2011.26
Questions
1. About 40 people lost their jobs when Burton closed its
Burlington manufacturing facility. How do you think the
­factory closing might affect the productivity of the remaining
headquarters staff? What impact could it have on product
quality?
2. Do you think there will be an impact on quality when the
design and development staff is separated from the factory
floor by so many miles? Why or why not?
3. Can you reconcile the company’s focus on product quality
with its decision to concentrate manufacturing in a place
where it’s less expensive to operate? If so, how, and if not,
why not?
Inside Boeing’s Jet Factories
Boeing’s 737 plant in Renton, Washington, employees with varied
technical, engineering, and production backgrounds work in small
teams to tackle challenges related to a specific part of the jetliner
or the assembly process. These teams have found ingenious ways
to improve productivity without expanding the facility or increasing costs.
For example, when the jetliners are rolled along the factory
floor during the final stages of assembly, stray fasteners or bolts
occasionally poke holes in the tires. Counting materials and labor,
the replacement cost of one tire is $10,000. To reduce the number of punctures, the team tried using specially shaped sweepers
to move any fasteners out of the jetliner’s path. When that didn’t
entirely solve the problem, a team member borrowed an idea he’d
Part 3 Management and Organization
to
Despite careful planning, the fuel-efficient 787 is three years
behind schedule because of problems with parts shortages and
unforeseen design and assembly glitches. Boeing purchased some
production operations of its South Carolina suppliers to gain
direct control over this part of the supply chain. Now, with orders
in hand for more than 850 Dreamliners, Boeing is working hard
to increase monthly output to seven jetliners per month at the
Everett plant and three jetliners per month at the South Carolina
plant.27
Questions
1. Currently, Boeing has a big backlog of orders for both 737
and 787 Dreamliner aircraft. How does the backlog affect
its plans for production? What could the company do to
increase production without sacrificing quality?
2. Do you agree that a just-in-time inventory system is appropriate for Boeing’s 787 production? Explain your answer.
3. One production team suggested changing the sequence
required to paint parts and saved 10 minutes per employee
per job in the paint job. How do suggestions—even those
that result in small improvements in the production process—
improve the company’s ability to meet customer demand,
improve quality, and increase profits?
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seen at a motorcycle race: Put canvas covers on the tires, and
take them off just before the race begins. Implementing this idea
saved Boeing more than $200,000 per year in 737 tire replacement costs.
Teams have come up with creative approaches to boost productivity all over the 737 plant. One team found a way to simultaneously prepare four engines for mounting in the same space where
they formerly prepared three engines. Another team changed the
sequence of tasks involved in painting parts, which saved at least
10 minutes per employee per job. Yet another team determined
that preassembling some groups of hydraulic tubes prior to installation in the wheel well would shave 30 hours off the time that
skilled mechanics spent working on each 737. All these efficiencies
add up: The plant can now assemble an entire 737 jetliner in fewer
than 11 days, compared with 22 days just a decade ago.
Boeing’s newest jetliner, the 787 Dreamliner, is produced from
high-tech, lightweight carbon composite materials in Everett,
Washington, and North Charleston, South Carolina. When building the South Carolina factory, it used everything it had learned
from 50 years of making jets. Inside the cavernous building, one
787 jetliner at a time is assembled in the middle of five workstations. On-site factories build big sections of the fuselage as
needed for each 787, which adds to the efficiency.
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1 SOCIAL
MEDIA EXERCISE
Starbucks has taken an innovative approach to improving their
products and the customer experience in their stores. Their entire
purpose is to create a “third place” beyond home and work where
people can congregate and socialize (while having a nice cup of
coffee). To engage customers, they created a Web site called My
Starbucks Idea (http://mystarbucksidea.com) that allows customers to post their ideas and then allows customers to also vote on
them.
1. Visit the http://mystarbucksidea.com site. Do you have an
idea for Starbucks? If so, post it. Do you have a feeling about
one of the current ideas? If so, then vote for it.
2. Do you think this is an effective way to gain customer ideas
for new products? Why or why not?
3. Can you think of other ways that corporate executives at
Starbucks can gauge customer interest in their products and
experience using social media?
2 JOURNALING
FOR SUCCESS
Today, people purchase all kinds of products ranging from inexpensive, everyday items to expensive, sophisticated products including
electronics, automobiles, and even housing. In each case, customers like to think they are “getting their money’s worth” when they
purchase a product or service.
Chapter 8 Producing Quality Goods and Services
Assignment
1. Describe a recent purchase that you made. Be sure to include
the cost and why you made the purchase.
2. Given the cost of the product or service, were you satisfied?
Why?
3. Do you think that the quality of this product or service was
acceptable or unacceptable?
4. How could the manufacturer or provider of the service
improve the quality of the product or service?
3 DEVELOPING CRITICAL-THINKING SKILLS
Plant layout—the arrangement of machinery, equipment, and personnel within a production facility—is a critical ingredient in a company’s success. If the layout is inefficient, productivity—and, ultimately, profits—will suffer. The purpose of the business dictates the
type of layout that will be most efficient. There are three general
types: process layout, product layout, and fixed-position layout.
Assignment
1. For each of the following businesses, identify the best type of
layout:
One-hour dry cleaner
Health club
Auto repair shop
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2.
Fast-food restaurant
Shipyard that builds supertankers
Automobile assembly plant
Prepare a two-page report explaining why you chose these layouts and why proper plant layout is important.
4 BUILDING TEAM SKILLS
Suppose that you are planning to build a house in the country. It
will be a brick, one-story structure of approximately 2,000 square
feet, centrally heated and cooled. It will have three bedrooms,
two bathrooms, a family room, a dining room, a kitchen with a
breakfast nook, a study, a utility room, an entry foyer, a two-car
garage, a covered patio, and a fireplace. Appliances will operate on
electricity and propane fuel. You have received approval and can be
connected to the cooperative water system at any time. Public sewerage services are not available; therefore, you must rely on a septic
system. You want to know how long it will take to build the house.
Assignment
1. Using the Occupational Outlook Handbook at your local library or
on the Internet (http://stats.bls.gov/oco/home.htm), find the
following information for the jobs of quality-control inspector
and purchasing agent:
Nature of work, including main activities and responsibilities
Job outlook
Earnings
Training, qualifications, and advancement.
2. Look for other production jobs that may interest you and
compile the same sort of information about them.
3. Summarize in a two-page report the key things you learned
about jobs in production.
Graeter’s
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Running a Business
5 RESEARCHING DIFFERENT CAREERS
Because service businesses are now such a dominant part of
our economy, job seekers sometimes overlook the employment
opportunities available in production. Two positions often found
in these plants are quality-control inspector and purchasing
agent.
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1. Identify the major activities involved in the project and
sequence them in the proper order.
2. Estimate the time required for each activity.
3. Working in a group, prepare a PERT diagram to show the
steps involved in building your house.
4. Present your PERT diagram to the class and ask for comments
and suggestions.
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Graeter’s Grows through Good Management, Organization, and Quality
Graeter’s began as a tiny Cincinnati business and now enjoys
a national reputation for the quality of its premium ice cream.
Even though the $30 million company recently opened a new
factory to support its expansion plans, it still clings fiercely to its
original small-batch production method for making creamy ice
cream from fresh ingredients. CEO Richard Graeter emphasizes
that profits are important, but “staying true to who you are and
investing in your business is what makes sure that your business is
going to be here tomorrow.” That’s why Graeter’s still makes all
of its ice cream by hand, ensuring that the texture and taste meet
its high standards batch after batch, year after year.
MORE THAN A FAMILY AFFAIR
Graeter’s top-management team includes the CEO and his two
cousins, Bob and Chip Graeter. As vice president of operations,
Bob is responsible for manufacturing, as well as for developing
new products and finding suppliers to provide ingredients such
as fresh fruits, cream, eggs, and chocolates. His brother Chip
oversees all of the company’s ice cream shops. Rounding out the
management team is a chief operating officer, a controller, a vice
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president of sales and marketing, and a candy production manager.
“Every major decision, we make on a consensus basis,”
Richard says, describing the equal partnership among the
three family members. “That doesn’t mean we don’t have a
different point of view from time to time, but. . . we learn
to see each other’s view and discuss, debate, and get down
to a decision that all of us support. The other thing that we
have learned to do, something that is a little different than
our parents’ generation [did], is bring in outside people into
the. . . executive level of the management team. . . . We now
work with a couple of consultants to help us plan our strategy
to look for a new vision, to develop training programs. . . all
those systems that big companies have.” Managers stay in
close contact with employees at all levels and don’t hesitate
to ask for their input when solving problems and making decisions.
Part 3 Management and Organization
INSIDE THE ORG CHART
Graeter’s formalized its organization structure over the years as it
opened more stores and expanded beyond Cincinnati. Today, the
store managers report to a group manager, who in turn reports to
the vice president of retail operations. At the company’s recently
opened 28,000 square foot production facility, employees in each
of three shifts are supervised by a shift manager, who reports
to the vice president of operations. The first and third shifts are
responsible for ice cream production, while the second shift is in
charge of cleaning and sanitizing the facility.
Because so many Graeter’s stores are located miles from
headquarters, two managers “shop” each store every month,
checking on quality and service. These management visits are
supplemented by two monthly visits from “mystery shoppers”
who buy ice cream on different days, observing what employees are doing and taking note of what else is happening in the
store. Their written reports give Graeter’s top managers another
view of the business, this time from the customer’s perspective.
WHAT’S THE PLAN?
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Part 3
1. Based on this case and the two previous Graeter’s cases,
what are the company’s most important strengths? Can you
identify any weaknesses that might affect its ability to grow?
2. How would you describe the departmentalization and the
organizational structure at Graeter’s? Do you think Graeter’s
is centralized or decentralized, and what are the implications
for its plans for growth?
3. The newest Graeter’s plant can produce far more ice cream
than is needed today. The company also makes ice cream at
its original plant and at the plant formerly owned by a franchisee. What are the implications for Graeter’s strategy and
for its operational planning?
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Change has come quickly to Graeter’s, not all of it anticipated.
The company was constructing its second factory to support the
drive for nationwide distribution when an unexpected opportunity
arose: to buy out the last franchise company operating Graeter’s
retail stores and take over its factory as well. The management
team jumped at the chance. “A few months ago our strategy was
just operate one plant,” says Richard. “Now our strategy is, adapt
to the opportunity that came along. . . we are operating three
plants. The goal is to keep all of your assets deployed productively, so if we have these three plants, what is the most we can
do out of those plants to be generating product and profit? One
example would be supplying restaurants in other cities, which we
really weren’t considering originally because our new plant was
really geared for pints, but if we have this excess capacity, the
smart thing to do is figure out what we can do with that.”
The newest Graeter’s facility, on Regina Graeter Way in
Cincinnati, was built to produce as much as 1 million gal-
lons of ice cream per year, although the current annual output
is about 625,000 gallons. Many steps, such as putting lids
on packages and moving them into refrigerated storage, are
handled by automated equipment. Yet all of the ice cream is
still made in small batches and by hand. Experienced technicians wield a paddle to gradually mix in ingredients such as
molten chocolate, which have been pasteurized on the premises
to comply with government regulations. Once the ice cream
reaches the right temperature and texture, another employee
hand-packs it into individual packages, which are then automatically capped, stamped with a date code, sealed, and
whisked away to be kept cold until being loaded onto trucks
for delivery to supermarket customers. Ice cream samples from
every shift’s output are tested to ensure purity and quality.
Graeter’s sets weekly and monthly sales goals for its stores,
based on each unit’s location and other factors that affect
demand. If a store doesn’t meet its goals, the group manager acts quickly to find out why and help the store get back
on track. As the company explores the possibility of opening
Graeter’s stores as far away as Los Angeles and New York,
the management team is planning carefully and assessing the
potential challenges and advantages of coast-to-coast operations.28
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Now you should be ready to provide evidence that you have a management team with the necessary skills and experience to execute
your business plan successfully. Only a competent management
team can transform your vision into a successful business. You also
should be able to describe your manufacturing and operations plans.
The three chapters in Part 3 of your textbook, “Understanding the
Management Process,” “Creating a Flexible Organization,” and
“Producing Quality Goods and Services,” should help you in answering some of the questions in this part of the business plan.
THE MANAGEMENT TEAM COMPONENT
3.1 How is your team balanced in technical, conceptual, interpersonal, and other special skills needed in your business?
3.2 What will be your style of leadership?
3.3 How will your company be structured? Include a statement
of the philosophy of management and company culture.
3.4 What are the key management positions, compensation, and
key policies?
3.5 Include a job description for each management position and
specify who will fill that position. Note: Prepare an organization chart and provide the résumé of each key manager for
the appendix.
The management team component should include the answers to
at least the following questions:
Chapter 8 Producing Quality Goods and Services
241
3.6 What other professionals, such as a lawyer, an insurance
agent, a banker, and a certified public accountant, will you
need for assistance?
THE MANUFACTURING AND
OPERATIONS PLAN COMPONENT
If you are in a manufacturing business, now is a good time to
describe your manufacturing and operations plans, space requirements, equipment, labor force, inventory control, and purchasing
requirements. Even if you are in a service-oriented business, many
of these questions still may apply.
The manufacturing and operations plan component should
include the answers to at least the following questions:
3.7 What are the advantages and disadvantages of your planned
location in terms of
●● Wage rates
●● Unionization
●● Labor pool
●● Proximity to customers and suppliers
●● Types of transportation available
●● Tax rates
●●
●●
Utility costs
Zoning requirements
What facilities does your business require? Prepare a floor
plan for the appendix. Will you rent, lease, or purchase the
facilities?
3.9 Will you make or purchase component parts to be assembled into the finished product? Make sure to justify your
“make-or-buy” decision.
3.10 Who are your potential subcontractors and suppliers?
3.11 How will you control quality, inventory, and production?
How will you measure your progress?
3.12 Is there a sufficient quantity of adequately skilled people in
the local labor force to meet your needs?
3.8
REVIEW OF BUSINESS PLAN ACTIVITIES
Be sure to go over the information you have gathered. Check for
any weaknesses and resolve them before beginning Part 4. Also,
review all the answers to the questions in Parts 1, 2, and 3 to be
certain that they are consistent throughout the entire business
plan. Finally, write a brief statement that summarizes all the information for this part of the business plan.
Endnotes
1. Sources: Based on information in Rick Pendrous, “Knorr Brand Underpins Growth in
Unilever’s Savoury Business,” Food Manufacture (UK), July 26, 2012, www.foodmanufacturer.co.uk; “Supply Chain News: Unilever Says Its Supplier Partnership Program Is
Paying Big Dividends,” Supply Chain Digest, July 24, 2012, www.scdigest.com; “Teabags
Targeted for New Compost Scheme,” Guardian (UK), May 23, 2012, www.guardian.
co.uk; “Unilever Opens New, ‘Green’ SA Factory,” Africa News Service, December 13,
2011, n.p.; Simon Zekaria, “Unilever Leans on Markets Outside Europe,” Wall Street
Journal, July 26, 2012, www.wsj.com; www.unilever.com.
2. The Bureau of Labor Statistics Web site at www.bls.gov (accessed February 13,
2012).
3. Tom Raum, “Obama Call for Manufacturing Revival a Tough Goal,” the Yahoo!
Finance Web site at http://finance.yahoo.com (accessed February 10, 2012).
4. The Bureau of Labor Statistics Web site at www.bls.gov (accessed February 13,
2012).
5. Chris Farrell, “Hope for American Manufacturing—and Maybe Jobs,” Bloomberg
Businessweek, October 14, 2011, Web site at www.businessweek.com.
6. Rebecca O. Bagley, “Made In America,” Forbes, December 15, 2011, Web site at
www.forbes.com.
7. Ibid.
8. “Obama Seeks to Increase Partnerships between Community Colleges, Industry
to Train New Workers,” Washington Post, February 13, 2012, Web site at
www.washingtonpost.com.
9. Zackary Roth and Daniel Gross, “President Obama Touts ‘Onshoring’: Is Made in
America Back?” the Yahoo! Finance Web site at http://finance.yahoo.com (accessed
February 15, 2012).
10. Beth Buczynski, The Earth Techling Web site at www.earthtechling.com (accessed
February 20, 2012).
11. Thomas D. Kuczmarski, “Remanufacturing America’s Factory Sector,” BusinessWeek,
September 9, 2009, Web site at www.businessweek.com.
12. The Bureau of Labor Statistics Web site at www.bls.gov (accessed February 13,
2012).
13. Robert Kreitner and Carlene Cassidy, Management, 12th ed. (Mason, OH: Cengage
Learning, 2013).
14. The Affinia Hotel Web site at www.affinia.com (accessed February 15, 2012).
15. The 3M Corporation Web site at www.3m.com (accessed February 15, 2012).
16. The Berry Plastics Corporation Web site at www.berryplastics.com (accessed
February 13, 2012).
242
17. The AT&T Supplier Web site at www.attsuppliers.com (accessed February 13, 2012).
18. The National Institute for Standards and Technology Web site at www.nist.gov
(accessed February 16, 2012).
19. The iSixSigma Web site at www.isixsigma.com (accessed February 13, 2012).
20. The International Organization of Standardization (ISO) Web site at www.iso.org
(accessed February 19, 2012).
21. The Bureau of Labor Statistics Web site at www.bls.gov (accessed February 15,
2012).
22. Ibid.
23. Ibid.
24. The Illumina, Inc., Web site at www.illumina.com (accessed February 15, 2012).
25. The Dell Computer Corporation Web site at www.dell.com (accessed February 19,
2012).
26. Company Web site www.burton.com (accessed February 21, 2012); Mike Lewis,
“Jake Burton on Taking the Helm,” Transworld Business, May 4, 2010,
http://business.transworld.net; “Laurent Potdevin Resigns as Burton CEO,” ESPN.
com, May 3, 2010, http://sports.espn.go.com (accessed June 21, 2010); Bruce
Edwards, “Burton Moving Factory to Austria,” Rutland Herland, March 17, 2010,
www.rutlandherald.com; interviews with company staff and the video “Burton
Snowboards’ High Quality Standards.”
27. Based on information in Jon Ostrower, “Untested South Carolina Outpost Is Central
to Boeing’s Dreamliner Hopes,” Wall Street Journal, April 30, 2012, www.wsj.com; Kyle
Peterson, “Boeing Debuts First 787 Dreamliner Made in South Carolina,” Reuters,
April 27, 2012, www.reuters.com; David Kesmodel, “Boeing Teams Speed Up 737
Output,” Wall Street Journal, February 7, 2012, www.wsj.com; www.boeing.com.
28. Sources: Based on information from Kimberly L. Jackson, “Graeter’s Premium Chocolate
Chip Ice Cream Lands at Stop & Shop,” Newark Star-Ledger (NJ), April 4, 2012, www.
nj.com; “Graeter’s Ice Cream Debuts in Bay Area,” Tampa Bay Times (St. Petersburg, FL),
January 10, 2012, p. 4B; Jim Carper, “Graeter’s Runs a Hands-on Ice Cream Plant,” Dairy
Foods, August 2011, pp. 36+; Jim Carper, “The Greater Good,” Dairy Foods, August 2011,
pp. 95+; “Graeter’s Unveils New ‘Mystery Flavor,’” Dayton Daily News, March 29, 2012,
www.daytondailynews.com; Bob Driehaus, “A Cincinnati Ice Cream Maker Aims Big,”
New York Times, September 11, 2010, www.nytimes.com; Lucy May, “Graeter’s Northern
Kentucky Franchisee Puts Stores on the Block,” Business Courier, August 6, 2010, http://
cincinnati.bizjournals.com; www.graeters.com; interviews with company staff and
Cengage videos about Graeter’s.
Part 3 Management and Organization
9. Why is orientation an important HRM activity?
10.Explain how the three wage-related decisions result in a compensation system.
11.How is a job analysis used in the process of job evaluation?
12.Suppose that you have just opened a new Ford sales showroom and repair shop. Which of your employees would be
paid wages, which would receive salaries, and which would
receive commissions?
13. What is the difference between the objective of employee
training and the objective of management development?
14. Why is it so important to provide feedback after a performance appraisal?
Discussion Questions
4. As a manager, what actions would you take if an operations
employee with six years of experience on the job refused
ongoing training and ignored performance feedback?
5. Why are there so many laws relating to HRM practices?
Which are the most important laws, in your opinion?
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1.How accurately can managers plan for future human
resources needs?
2.How might an organization’s recruiting and selection practices be affected by the general level of employment?
3. Are employee benefits really necessary? Why?
Whirlpool’s Award-Winning Diversity Program
Is Facilitated Through Employee Network
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Video Case 9.1
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© sergey rusakov/
Shutterstock
In today’s global marketplace, managers interact with people
of different cultures, languages, beliefs, and values. Whirlpool
Corporation has shown that a diverse workforce can be a powerful advantage.
Since its establishment in 1911, Whirlpool, headquartered in
Michigan, has grown into a global corporation with manufacturing locations on every major continent and annual revenues in
excess of $19 billion. Approximately 60 percent of Whirlpool’s
70,000 employees work outside North America. The development
of this broad workforce is aided by the company’s award-winning
diversity program, which gathers workers into support groups
based on personal affiliations. To enter the program, workers
join a particular employee network of their choosing, such as the
Hispanic network, the young professionals network, the Asian
or African American networks, the women’s network, the Native
American network, or the Pride network, which includes gay,
lesbian, bisexual, and transgender (GLBT) employees.
These networks give employees access to a world of new career
resources and training opportunities. For instance, according to
the company’s Web site, “Our primary objective is to become the
employer of choice for GLBT and affirming employees.” Despite
the program’s obvious focus on employee well-being, leaders at
Case 9.2
When the California-based company Intel was founded in 1968,
computers were room-sized machines, and most people thought
that chips were made of chocolate. Today, Intel rings up $54 billion in annual sales from the production of chips that put computing power into all kinds of digital products for home, office,
and factory use. The company also creates cloud computing systems for banks, businesses, and educational institutions.
Chapter 9 Attracting and Retaining the Best Employees
Whirlpool say the networks also offer a competitive advantage in
global marketing. “Having diverse people making decisions and
giving input to the factors that we consider on a daily basis is
extremely important to the business,” according to the company’s
vice president of consumer and appliance care, Kathy Nelson.
“It’s important because we need to make sure that the people
who are making business decisions are reflective of who our consumers are.”
This belief is fully in keeping with the company’s Diversity
Mission Statement, expressed by Chairman and CEO Jeff Fettig:
“We best serve the unique needs of our customers through
diverse, inclusive, and engaged employees who truly reflect our
global customer base.”22
Questions
1. What are the three main objectives of Whirlpool’s diversity
networks?
2. What challenges do managers face in establishing a diverse
workplace, and how might they respond to these challenges?
3.Do you think formation of Whirlpool’s employee networks
is the best way to promote a positive culture of diversity?
Explain.
High Tech Recruiting Is a No-Brainer at Intel
To stay ahead of demand for its chips and services, Intel adds
1,000 new positions annually to its worldwide workforce, currently at 43,000 employees. It uses a variety of high-tech and inperson recruiting methods to recruit candidates who have what
it takes to succeed in Intel’s fast-paced work environment. On
campus, recruiters carry iPads with special software so that they
can input key details for each student they meet, including name,
269
Because of Intel’s global operations and the constant drive
for innovation, the work is both challenging and exciting. “Many
days start at 6 a.m. and don’t end until 10 p.m. to accommodate
the different time zones,” says one human resources manager.
To reward employees for their hard work, Intel offers a comprehensive benefits package. In addition, employees who have been
with Intel for at least seven years are eligible to take an eight-week
paid sabbatical. This allows employees to pursue personal interests and then return to the company with renewed enthusiasm.
Colleagues are cross-trained to handle an employee’s duties during sabbatical periods, creating new opportunities to hone teamwork and personal skills.
Intel regularly appears on Fortune magazine’s “100 Best
Companies to Work For” list, and it has also been recognized as
an outstanding employer by Working Mother and other publications. Not surprisingly, employee turnover is very low, and the
company receives 100 applications for every open position. No
matter how technology changes, Intel will need to attract and
retain talented employees to keep its competitive edge.23
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1.How do job candidates and Intel managers benefit when the
company accepts résumés electronically instead of using printed
résumés?
2. Why would Intel mention its policy on sabbaticals to job candidates and publicize it periodically to current employees?
3. What are the advantages and disadvantages of relying on
virtual career fairs for initial contact with students instead of
personal meetings on campus?
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grades, and courses taken, along with notes about specific job
interests. This replaces the blizzard of paper résumés that Intel
used to receive during the campus recruiting season. Because
students’ profiles appear in Intel’s companywide system almost
immediately, human resources personnel can match candidates
with appropriate job opportunities and get in touch the day after
a campus meeting, compared with a delay of a week or more
under the old paper-based process.
Intel also invites students, recent graduates, and experienced
workers to search its job database online or using a smartphone
app. Visitors to its LinkedIn career pages can network informally with recruiters in the “student lounge,” click to learn more
about current job openings, and read testimonials from current
employees. Intel’s Facebook recruiting pages list job opportunities by country. The firm also spreads the word about job openings via Twitter messages, blog posts, and periodic recruiting
podcasts. These social-media recruiting efforts add a personal
touch and cast a wide net to reach a diverse pool of potential
candidates.
Intel has been testing virtual career fairs to extend its student
contact. Instead of traveling to a campus and sitting at a recruiting table for an hour or two, Intel managers stay in the office and
exchange online messages with students who “attend” remotely
from their computers. During a two-hour virtual career fair, Intel
recruiters may exchange messages with 400 students and receive
more than 600 résumés. Also, Intel hosts webinars about how to
write a résumé, what to expect on an interview, and other careerdevelopment topics, ending with a question-and-answer session
for one-to-one communication.
©a
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1 SOCIAL
MEDIA EXERCISE
LinkedIn is the largest and best-known social network for professionals. Check out www.linkedin.com.
1.Do you have a profile? If not, the first step is to develop
a LinkedIn profile because many companies recruit from
LinkedIn.
2.If you already have a profile, determine how to make it better.
Are you participating in discussion groups? Have you reached
out and connected to people in industries where you want to
work?
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter discussed human resources
management from an organizational and business perspective.
Assignment
1. Assuming that you are currently in school and that you plan
to begin a new job when you have completed your studies, at
what point will you begin looking for a job? Explain why.
2.How will you find out about job openings?
270
3. What types of information will be important to you when considering whether to interview for a specific position?
4. What sources of information will you use to prepare for an
interview with a specific organization?
3 DEVELOPING
CRITICAL-THINKING SKILLS
Suppose that you are the manager of the six supervisors described
in the following list. They have all just completed two years of
service with you and are eligible for an annual raise. How will
you determine who will receive a raise and how much each will
receive?
•Joe Garcia has impressed you by his above-average performance on several difficult projects. Some of his subordinates,
however, do not like the way he assigns jobs. You are aware
that several family crises have left him short of cash.
•Sandy Vance meets her goals, but you feel that she could do
better. She is single, likes to socialize, and at times arrives
late for work. Several of her subordinates have low skill
levels, but Sandy feels that she has explained their duties
to them adequately. You believe that Sandy may care more
Part 4 Human Resources
•
•
•
•
about her friends than about coaching her subordinates. Her
workers never complain and appear to be satisfied with their
jobs.
Paul Steiberg is not a good performer, and his work group
does not feel that he is an effective leader. You also know that
his group is the toughest one to manage. The work is hard
and dirty. You realize that it would be very difficult to replace
him, and you therefore do not want to lose him.
Anna Chen runs a tight ship. Her subordinates like her and
feel that she is an excellent leader. She listens to them and
supports them. Recently, her group won the TOP (The
Outstanding Performance) Award. Anna’s husband is CEO of
a consulting firm, and as far as you know, she is not in financial need.
Jill Foster has completed every assignment successfully. You
are impressed by this, particularly because she has a very
difficult job. You recently learned that she spends several
hours every week on her own taking classes to improve her
skills. Jill seems to be motivated more by recognition than by
money.
Fred Hammer is a jolly person who gets along with everyone.
His subordinates like him, but you do not think that he is getting the job done to your expectations. He has missed a critical delivery date twice, and this cost the firm over $5,000 each
time. He recently divorced his wife and is having an extremely
difficult time meeting his financial obligations.
Assignment
1.You have $25,000 available for raises. As you think about how
you will allot the money, consider the following:
a. What criteria will you use in making a fair distribution?
b. Will you distribute the entire $25,000? If not, what will
you do with the remainder?
2. Prepare a four-column table in the following manner:
a.In column 1, write the name of the employee.
b.In column 2, write the amount of the raise.
c.In column 3, write the percentage of the $25,000 the
employee will receive.
d.In column 4, list the reasons for your decision.
4 BUILDING TEAM SKILLS
The New Therapy Company is soliciting a contract to provide five
nursing homes with physical, occupational, speech, and respiratory therapy. The therapists will float among the five nursing
homes. The therapists have not yet been hired, but the nursing
homes expect them to be fully trained and ready to go to work
in three months. The previous therapy company lost its contract
because of high staff turnover owing to “burnout” (a common
problem in this type of work), high costs, and low-quality care.
The nursing homes want a plan specifying how the New Therapy
Company will meet staffing needs, keep costs low, and provide
high-quality care.
Assignment
1. Working in a group, discuss how the New Therapy Company
can meet the three-month deadline and still ensure that the
care its therapists provide is of high quality. Also discuss the
following:
a.How many of each type of therapist will the company
need?
b.How will it prevent therapists from “burning out”?
c.How can it retain experienced staff and still limit costs?
d. Are promotions available for any of the staff? What is the
career ladder?
e.How will the company manage therapists at five different
locations? How will it keep in touch with them (computer,
voice mail, or monthly meetings)? Would it make more
sense to have therapists work permanently at each location rather than rotate among them?
f.How will the company justify the travel costs? What other
expenses might it expect?
2. Prepare a plan for the New Therapy Company to present to
the nursing homes.
5 RESEARCHING DIFFERENT CAREERS
A résumé provides a summary of your skills, abilities, and achievements. It also may include a description of the type of job you
want. A well-prepared résumé indicates that you know what your
career objectives are, shows that you have given serious thought
to your career, and tells a potential employer what you are qualified to do. The way a résumé is prepared can make a difference in
whether you are considered for a job.
Assignment
1. Prepare a résumé for a job that you want using the information in Appendix A (see text Web site).
a.First, determine what your skills are and decide which
skills are needed to do this particular job.
b.Decide which type of format—chronological or functional—would be most effective in presenting your skills
and experience.
c.Keep the résumé to one page, if possible (definitely no
more than two pages). (Note that portfolio items may be
attached for certain types of jobs, such as artwork.)
2.Have several people review the résumé for accuracy.
3. Ask your instructor to comment on your résumé.
Endnotes
1. Based on information in Josh Bersin, “LinkedIn Is Disrupting the Corporate
Recruiting Market,” Forbes.com, February 12, 2012, http://forbes.com/sites/joshbersin/2012/02/12/linkedin-is-disrupting-the-corporate-recruiting-market/; Wallace
Immen, “Making the Social-Media Link to a New Job,” Globe & Mail (Toronto),
December 2, 2011, p. B16; Elisabeth Geisse, “The In Crowd,” Inside Business,
Chapter 9 Attracting and Retaining the Best Employees
September–October 2011, p. NC52; “The Challenge: A Joined-Up Hiring Solution,”
Recruiter, March 23, 2011, p. 20.
2. “Human Resources Jobs at GE,” http://jobs.gecareers.com/go/Human-ResourcesJobs/236325/, accessed March 23, 2012.
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© sergey rusakov/
Shutterstock
Case 10.2
Culture of Caring Pays Off at The Container Store
st
Questions
1. Based on Herzberg’s motivation hygiene theory, how does The
Container Store reduce job dissatisfaction and increase job
satisfaction?
2. What is The Container Store doing to empower its employees? How do you think this affects job satisfaction?
3. What other steps would you suggest that The Container Store
take to motivate and satisfy its employees?
ock
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ha
Building Skills for Career Success
er
it grows, the company promotes primarily from within, giving
managers and employees plenty of opportunity for professional
development and additional responsibility. It’s not unusual for an
employee to start on the selling floor and work up to managing
the local store before transferring to a larger store or supervising
the grand opening of a store in a new market.
The Container Store has been honored 13 times with a spot
on Fortune’s annual list of the 100 best U.S. firms to work for. It
regularly appears on “best employer” lists in many cities where
it operates stores. Thanks to its great reputation, the company
receives more than 52,000 job applications every year. Many
applicants are referred by current employees or have shopped
in the stores and want to work in one. Applications also come
through The Container Store’s Facebook page, which has
100,000 “likes” and a special section featuring career information. The company is so choosy that fewer than 3 percent of the
applicants make it through the rigorous selection process and
receive a job offer.
Once hired, employees are so satisfied that fewer than 10 percent leave in any given year. This puts The Container Store in a
class of its own, because most retailers experience as much as 100
percent annual turnover. Putting employees first has clearly paid
off for The Container Store and for its employees.28
s p irit / S h u
tt
Can a company that makes employee satisfaction its top priority
achieve long-term success? Kip Tindell has been doing this since
1978, when he opened the first Container Store in Texas to sell
all kinds of containers, from bins and baskets to hooks and shelf
hardware. Today, The Container Store has grown into a $650
million company with 55 stores in 22 states and the District of
Columbia. Even with a workforce of 5,000 people, Tindell still
insists on putting his employees first. “If you really, truly take better care of your employees, they’ll take better care of the customers,” he explains. In line with this philosophy, The Container Store
refused to lay off employees during the recent recession, which
won it public praise and reinforced its employees-first reputation.
The Container Store starts by hiring outstanding, enthusiastic
employees who genuinely want to help customers solve their storage problems by selecting products to organize closets, rooms,
garages, or work spaces. To attract employees of this caliber, the
company pays higher salaries than the typical retailer. It also gives
new full-time employees 263 hours of training during their first
year on the job (part-timers receive 150 hours of training during
their first year). Managers receive an additional five weeks’ training in personnel management, operations, and leadership.
Training covers not only product knowledge but also the company’s basic principles, such as “communication is leadership”—
the idea that sharing information with employees gives them the
tools they need to make good decisions on the job. Another basic
principle is that both employees and customers benefit from the
“air of excitement” the retailer creates in every store, making every
shopping trip a fun experience for all. Instead of imposing a thick
manual of policies and procedures, The Container Store encourages its employees to apply these principles and use their good
judgment to solve problems and satisfy customers.
Following a path of gradual, deliberate expansion, The
Container Store opens only one or two new stores per year. As
©
a
1 SOCIAL
MEDIA EXERCISE
Infosys is a successful software company with more than 100,000
employees. Social media is integral to its strategy and communications approach. The company uses social media to engage
younger employees in these processes and to empower them.
In order to do this, the company created STRAP Surround as a
social platform containing blogs, discussion forums, an in-house
version of YouTube for video sharing, and a range of physical
activities such as games to engage employees. Infosys wanted
executives to teach, and employees to respond and participate.
The executives had to then react to this input from the mammoth
workforce.
Chapter 10 Motivating and Satisfying Employees and Teams
Here is one example. Employees participated in a series of live
events related to a strategy execution topic and then tens of thousand of ideas were shared on social media. The company found
that social media had more effect when fielding ideas that were
based on structured questions around topics like technologies
for future growth, digital consumer behavior and healthcare. To
keep the momentum going, discussion moderators thanked each
employee who contributed suggestions and then passed them
onto managers for future development. Some employees were
chosen to become team members.29
1.Do you think social media is an effective way to engage
employees who are in large organizations? Why or why not?
299
2.Do you think social media would work well in smaller companies? Why or why not?
3.Do you think that using social media changes the corporate
culture and the way in which teams communicate for the better or worse? Explain your answer.
2 JOURNALING FOR SUCCESS
Discovery statement: Many managers use special techniques to
foster employee motivation and satisfaction.
Assignment
1.Thinking about your current job (or your most recent job),
what types of motivation techniques are being used?
2.How well does each technique work on you and on your coworkers?
3.Thinking about the first job that you will take after completing
your studies, what types of motivation techniques will be most
effective in motivating you to truly excel in your new position?
Explain why.
4.Do you expect that most of your co-workers will be motivated
by the same techniques that motivate you? Explain.
3 DEVELOPING CRITICAL-THINKING SKILLS
This chapter has described several theories managers can use as
guidelines in motivating employees to do the best job possible
for the company. Among these theories are Maslow’s hierarchy of
needs, equity theory, expectancy theory, and goal-setting theory.
How effective would each of these theories be in motivating you
to be a more productive employee?
Assignment
1.Identify five job needs that are important to you.
2.Determine which of the theories mentioned above would work
best to satisfy your job needs.
3. Prepare a two-page report explaining how you reached these
conclusions.
4 BUILDING TEAM SKILLS
By increasing employees’ participation in decision making,
empowerment makes workers feel more involved in their jobs and
the operations of the organization. Although empowerment may
seem like a commonsense idea, it is a concept not found universally at the workplace. If you had empowerment in your job, how
would you describe it?
Assignment
1. Brainstorm to explore the concept of empowerment.
a. Write each letter of the word empowerment in a vertical
column on a sheet of paper or on the classroom chalkboard.
b.Think of several words that begin with each letter.
c. Write the words next to the appropriate letter.
2. Formulate a statement by choosing one word from each letter
that best describes what empowerment means to you.
3. Analyze the statement.
a.How relevant is the statement for you in terms of empowerment? Or empowerment in your workplace?
b. What changes must occur in your workplace for you to
have empowerment?
c.How would you describe yourself as an empowered
employee?
d. What opportunities would empowerment give to you in
your workplace?
4. Prepare a report of your findings.
5 RESEARCHING DIFFERENT CAREERS
Because a manager’s job varies from department to department
within firms, as well as among firms, it is virtually impossible to
write a generic description of a manager’s job. If you are contemplating becoming a manager, you may find it very helpful to
spend time on the job with several managers learning firsthand
what they do.
Assignment
1. Make an appointment with managers in three firms, preferably firms of different sizes. When you make the appointments,
request a tour of the facilities.
2. Ask the managers the following questions:
a. What do you do in your job?
b. What do you like most and least about your job? Why?
c. What skills do you need in your job?
d.How much education does your job require?
e. What advice do you have for someone thinking about pursuing a career in management?
3.Summarize your findings in a two-page report. Include
answers to these questions:
a.Is management a realistic field of study for you? Why?
b. What might be a better career choice? Why?
Endnotes
1.Sources: Based on information in “100 Best Companies to Work For,” Fortune,
February 6, 2012, http://money.cnn.com/magazines/fortune/best-companies/2012/
full_list/; “I Work for One of the 10 Best Companies,” Fortune, February 6, 2012,
http://money.cnn.com/galleries/2010/fortune/1001/gallery.Bestcompanies_employees.fortune/index.html; “Perfect Balance,” Human Resources Management, Issue 12
(2009), http://hrmreport.com/article/Perfect-Balance/; “REI: Going Local, Live from
Blogwell,” Social Media, August 9, 2011, http://socialmedia.org/blog/live-from-blogwell/rei-going-local-live-from-blogwell/; Stephanie Clifford, “A Retailer’s Base Camp in
Manhattan,” New York Times, November 18, 2011, http://nytimes.com/2011/11/19/
business/rei-opens-a-base-camp-in-soho-in-manhattan.html?pagewanted=all.
300
2. PR Newswire, “Job Absence Rates Down Over Year-Ago Levels,” March 14, 2012,
MarketWatch, www.marketwatch.com/story/job-absence-rates-down-over-yearago-levels-yearly-turnover-in-2011-stable-with-2010-rates-bloomberg-bna-survey-ofemployers-2012-03-14.
3. “2012 Top 100 Best Companies to Work For,” February 6, 2012, Fortune, http://
money.cnn.com/magazines/fortune/best-companies/2012/full_list/.
4.Theresa Ghirlarducci, “Don’t Cut Pensions, Expand Them,” New York Times, March
15, 2012, www.nytimes.com/2012/03/16/opinion/pension-funds-for-the-public.
html?scp=2&sq=retirement%20benefits&st=cse.
Part 4 Human Resources
oc
Questions
1.Identify the major issues that have led to disagreements
between nurses’ unions and hospitals. Which do you think
are most important for each side, and why?
2. Why would a nurses’ union choose an informational picket
instead of a strike when it wants to call attention to important contract issues?
3.Should U.S. lawmakers forbid nurses’ unions from striking
unless mediation and arbitration fail to settle their disputes
with management?
k
pir
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as
Building Skills for Career Success
st
minutes of break time every four hours to rest. Rather than call a
strike, nurses carried explanatory picket signs outside the hospital
before and after their regular shifts. This nurses’ union also set
up an informational picket line when its contract negotiations
with Tacoma General Hospital were stalled over pay increases and
changes to retirement programs.
Sometimes nurses’ unions and hospital administrators disagree
on other issues. The Pennsylvania Association of Staff Nurses and
Allied Professionals decided to strike Temple University Hospital
in Pennsylvania after working without a contract for months. One
of the key reasons was to protest a clause preventing union leaders and members from publicly criticizing hospital administration
and staff. The hospital’s CEO said the “non-disparagement” clause
would not prevent nurses from alerting administrators to concerns
about patient care. Other issues included pay, retirement programs,
and college-tuition benefits for the children of hospital workers.
The hospital hired 850 temporary nurses to maintain staffing levels
during the strike, which lasted for a month. At the end, union and
hospital negotiators bargained for days about the issues that had
divided them, reached an agreement acceptable to both sides, and
the union promptly ratified the new multiyear contract.22
it/S h utt
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Only days before the strike was scheduled to take place, however, it was called off as union negotiators and hospital administrators sat down with a federal mediator and worked to resolve
their differences. The two sides were able to reach an agreement,
and the union’s members ratified the contract, which included
extra safety precautions to protect nurses against swine flu.
This is only one example of how complex the negotiations
can be when nurses’ unions and hospital management disagree.
Adding to the challenge, the U.S. health care system is currently
facing two conflicting issues: a shortage of nurses and pressure
to contain costs while providing proper medical care. The quality of care is, in fact, an important consideration for both sides,
especially in light of research published by the National Bureau of
Economic Research. Covering 50 nurses’ strikes in New York state
hospitals over 20 years, the study found higher mortality rates
and higher readmission rates among patients hospitalized during
the strikes, even when hospitals hired replacement nurses to cover
for those on the picket line.
Because the stakes are so high, some nurses’ unions are
banding together to boost their advocacy efforts. In 2009,
the California Nurses Association, the Massachusetts Nurses
Association, and the United American Nurses merged to create
National Nurses United, a union with 150,000 members across
the nation. The union’s top priority is to lobby for a higher ratio
of nurses to patients.
Strikes are not the only way a nurses’ union can put the
spotlight on their concerns. When members of the Washington
State Nursing Association were unhappy with proposed contract
changes that could limit rest breaks, the nurses walked an informational picket line outside the Providence Sacred Heart Medical
Center. The nurses were worried about fatigue affecting the quality of care, and they wanted to ensure that they had a full ten
©a
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1 SOCIAL
MEDIA EXERCISE
Social media influencer, Glen Gilmore, wrote an interesting post
on how unions are using Twitter and what they can do better.
Visit his post at http://socialmediavoice.com/2011/03/14-waysunions-are-using-twitter-labor.html.
1. After reviewing the article, do you think unions are using
social media effectively? Why or why not?
2. Can you think of other ways that unions can benefit by using
social media? If you have difficulty answering this question,
consider doing a quick search in Google or Bing to find articles that may be useful.
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter focused on the unionization
process and why employees join unions.
324
Assignment
1. What are the major reasons for joining and being a part of a
labor union?
2. Under what conditions would you like to be a union member?
3. Are there any circumstances under which a striking union
member should cross a picket line and go back to work?
Explain.
4. Will the unions in the United States grow or decline over the
next decade? Why?
3 DEVELOPING CRITICAL-THINKING SKILLS
Recently, while on its final approach to an airport in Lubbock,
Texas, a commercial airliner encountered a flock of ducks. The
flight crew believed that one or more of the ducks hit the aircraft
and were ingested into the plane’s main engine. The aircraft
Part 4 Human Resources
landed safely and taxied to the terminal. The flight crew advised
the maintenance and operations crews of the incident. Operations
grounded the plane until it could be inspected, but because of
the time of day, maintenance personnel available to perform the
inspection were in short supply. A supervisor, calling from an
overtime list, made calls until contacting two available off-duty
mechanics. They worked on overtime pay to perform the inspection and return the aircraft to a safe flying status. Several days
after the inspection, a mechanic on the overtime list who was not
home when the supervisor called complained that she had been
denied overtime. This union member believed that the company
owed her overtime pay for the same number of hours worked by a
mechanic who performed the actual inspection. The company disagreed. What options are available to resolve this conflict?
Assignment
1.Form a “pro” group and a “con” group and join one of them.
2. Debate whether unions will be stronger or weaker in the next
century.
3. Record the key points for each side.
4.Summarize what you learned about unions and their usefulness in a report, and state your position on the debated issue.
5 RESEARCHING
Assignment
1. Using the following questions as guidelines, determine how
this dispute can be resolved.
a. What options are available to the unhappy mechanic?
What process must she pursue? How does this process
work?
b. Do you believe that the mechanic should receive pay for
the time she did not work? Justify your answer.
c. What do you think was the final outcome of this conflict?
2.Prepare a report describing how you would resolve this situation.
4 BUILDING
reason, some people believe that unions are no longer necessary.
According to some experts, however, as technology changes the
workplace and as cultural diversity and the number of part-time
workers increase, unions will increase their memberships and
become stronger as we move into the new century. What do you
think?
TEAM SKILLS
Assignment
1.Prepare a letter of application to use with the résumé you
prepared in Chapter 9. (An example appears in Appendix A
online.)
2. After having several friends review your letter, edit it carefully.
3. Ask your instructor to comment on your letter.
ck
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Graeter’s
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Running a Business Part 4
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For more than a century, American unions have played an important role in the workplace, striving to improve the working conditions and quality of life of employees. Today, federal laws cover
many of the workers’ rights that unions first championed. For this
DIFFERENT CAREERS
When applying for a job, whether mailing or faxing in your
résumé, you should always include a letter of application, or
a cover letter, as it is often called. A well-prepared cover letter
should convince the prospective employer to read your résumé
and to phone you for an interview. The letter should describe the
job you want and your qualifications for the job. It should also
let the firm know where you can be reached to set up an appointment for an interview.
©G
At Graeter’s, Tenure Is “a Proud Number”
Although you might think working for an ice-cream company would be motivating under almost any circumstances,
Graeter’s doesn’t take its employees’ commitment for granted.
Including full-time and part-time seasonal workers, the company employs about 800 people in three production facilities
and dozens of ice-cream shops. Teenagers who take a summer job at a Graeter’s shop often return to help out during
the winter holidays and then come back to work the following
summer, and the summer after that. Production employees
Chapter 11 Enhancing Union–Management Relations
tend to remain with the company for long periods, as well,
and Graeter’s is relying on their experience and expertise as it
expands its national distribution and opens new stores far from
the Cincinnati base.
PROFESSIONAL PROCEDURES
WITH PERSONAL TOUCHES
Over the last few years, Graeter’s has benefitted from tightening up some of its long-standing human resource management
325
(HRM) procedures, including those for hiring and evaluating
employees. David Blink, the company’s controller, explains: “We
hire based on potential. . . . We are looking for people who are
conscientious about their work, who do a good job, who show
up every day. We are a fun place to work. . . . We have turnover
based on seasonal work only because we hire a lot of college
kids [and] high school kids” to work during the summer months.
Managers begin recruiting during the spring so that each store is
fully staffed in advance of the peak ice cream buying season. The
company also accepts job applications through its website.
When filling job openings at its three factories, Graeter’s
looks for people with baking industry skills. On the job,
employees and managers alike wear name badges that show
the number of years they have worked for the firm, “and that is
a proud number,” says Blink. Graeter’s adds a personal touch
by celebrating employees’ birthdays and milestones such as 25
years of service with the firm.
According to a consultant who works with top management, goals and measurement systems weren’t strongly emphasized in the company’s early days. “If [employees] came in and
they made ice cream, if they made enough for the week, for the
day, that was enough,” he says. These days, however, Graeter’s
sets specific production and store goals so that all employees
know what is expected of them. It also has measurement systems in place to track progress toward those goals. “We have
defined the behaviors that are acceptable and not acceptable
within the company,” the consultant continues. “We communicate that. We teach and educate people.” At the retail level,
Graeter’s training focuses on how employees can make the instore experience engaging, fun, and memorable for customers.
In the factory, higher production goals have given newly
empowered employees achievements to boast about on the
slogan T-shirts they wear. The workforce is eager to submit
suggestions for improvement, and morale is high. The company also offers advancement opportunities for employees who
are ready to take on more responsibility. Graeter’s low rate of
turnover indicates that employees feel involved with the firm
and the work they do. In fact, some employees spend their
entire working careers with Graeter’s and eventually retire from
the firm.
BENEFITS THAT PAY
The benefits package for managers and full-time employees is
competitive. Graeter’s offers profit sharing, and it has made
a profit year after year. It also has a 401(k) retirement plan
that matches employees’ contributions, plus a rolling allowance for paid time-off that is separate from paid vacations and
holidays, and is based on the employee’s tenure with the firm.
326
Other benefits include medical, life, and disability insurance.
Store employees wear uniforms (paid for by the company) and
receive a 25 percent discount when they buy Graeter’s products. All managers and employees receive the training they need
to be effective in their positions and to develop their professional skills.
“YOU CAN’T DO IT ALONE”
The management team has grown as the company moves
forward with its aggressive nationwide expansion plans. CEO
Richard Graeter, a great-grandson of the company’s founders,
believes in recruiting outstanding people, compensating them
well, and giving them the autonomy they need to get things
done. “In the last few months,” he notes, “I have hired a vice
president of sales and marketing . . . [and] we hired a vice
president of finance, basically a CFO [chief financial officer]
because we are big enough to support that . . . Identifying the
gaps in your executive team and your talent pool, and going
out and finding people to fill those gaps, is probably one of
my most critical functions in addition to looking out to define
the strategic direction of the company. I’ve got some wonderful
people on the team now, and they are really helping us make
the jump from a small business to a medium-sized business
. . . People at that level, you’ve got to pay them well. It’s worth
it, though . . . They can command the kind of salary they do
because they bring the talent you need to navigate the waters.”
“You can’t do it alone,” Richard concludes. “That is the other
thing that I think my cousins and I all have come to realize; we
can’t do it alone. Our fathers and aunt and the folks that came
before them . . . they did it all, from figuring out where to build
the next store to hanging up the laundry at the end of the day.”
Now, to achieve the fast-growing company’s ambitious goals, he’s
found that “you need to rely on talent that is beyond just you.”23
Questions
1.Imagine that you’re a human resources manager for
Graeter’s. If you were writing the job specification for an
entry-level, part-time employee who will serve customers
in one of the scoop shops, what qualifications would you
include, and why?
2.Food production facilities like the three Graeter’s factories
must comply with strict regulations to ensure purity and
safety. What kinds of teams might Graeter’s use in these
facilities, and for what specific purposes?
3.Graeter’s is currently a non-union company. How might the
experience of working there change if a union were to be
introduced?
Part 4 Human Resources
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Part 4
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Building a Business Plan
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In this section of your business plan, you will expand on the type
and quantity of employees that will be required to operate the
business. Your human resources requirements are determined by
the type of business and by the size and scale of your operation.
From the preceding section, you should have a good idea of how
many people you will need. Part 4 of your textbook, “Human
Resources,” especially Chapters 9 and 10, should help you in
answering some of the questions in this part of the business plan.
THE HUMAN RESOURCES COMPONENT
To ensure successful performance by employees, you must inform
workers of their specific job requirements. Employees must know
what is expected of the job, and they are entitled to expect regular
feedback on their work. It is vital to have a formal job description
and job specification for every position in your business. Also, you
should establish procedures for evaluating performance.
The labor force component should include the answers to at
least the following questions:
4.1 How many employees will you require, and what qualifications should they have—including skills, experience, and
knowledge? How many jobs will be full-time? Part-time?
4.2 Will you have written job descriptions for each position?
4.3 Have you prepared a job-application form? Do you know
what can legally be included in it?
4.4 What criteria will you use in selecting employees?
4.5 Have you made plans for the orientation process?
4.6 Who will do the training?
4.7 What can you afford to pay in wages and salaries? Is this in
line with the going rate in your region and industry?
4.8 Who will evaluate your employees?
4.9 Will you delegate any authority to employees?
4.10 Have you developed a set of disciplinary rules?
4.11 Do you plan to interview employees when they resign?
REVIEW OF BUSINESS PLAN ACTIVITIES
Remember that your employees are the company’s most valuable
and important resource. Therefore, make sure that you expend a
great deal of effort to acquire and make full use of this resource.
Check and resolve any issues in this component of your business
plan before beginning Part 5. Again, make sure that your answers
to the questions in each part are consistent with the entire business plan. Finally, write a brief statement that summarizes all the
information for this part of the business plan.
Endnotes
1. Based on information in Jeff Zillgitt, “NBA Commissioner David Stern Talks to USA
Today, February 22, 2012, www.usatoday.com; Larry Coon, “First Look at the New
Deal,” ESPN, November 26, 2011, http://espn.go.com; Ian Thomsen, “Silent Majority
of Players Hold Key to Swaying Labor Negotiation,” Sports Illustrated, November 6,
2011, http://sportsillustrated.cnn.com; Ken Berger, “We’ll Never Know How Close
We Came to Losing NBA Season,” CBS Sports, February 26, 2012, www.cbssports.
com; Mike Foss, “Timeline to an NBA Lockout and Loss of Games,” USA Today,
November 15, 2011, www.usatoday.com.
2. “Union Members Summary,” U.S. Department of Labor, Bureau of Labor Statistics,
News Release, January27, 2012, bls.gov/news.release/union2.nr0.htm.
3. “Union Facts: AFL-CIO,” Center for Union Facts, www.unionfacts.com/union/afl-cio
accessed January 6, 2012.
4. “Union Facts: Teamster’s Union,” Center for Union Facts, www.unionfacts.com/
lu/93/IBT accessed January 6, 2012.
5. “Union Facts: United Auto Workers (UAW),” Center for Union Facts, www.unionfacts.com/union/United_Auto_Workers accessed January 6, 2012.
6. Bruce Western and Jake Rosenfeld, “Unions, Norms, and the Rise in U.S. Wage
Inequality,” American Sociological Review, August 27, 2011, vol. 76, no. 4, p. 513–537,
http://asr.sagepub.com/content/76/4/513.abstract.
7. “Union–Management Partnership,” Yale University, www.yale.edu/bestpractices,
accessed March 28, 2012.
8. “Medical Plans: Share of Premiums Paid by Employer and Employee for Family
Coverage,” U.S. Department of Labor, Bureau of Labor Statistics, News Release, July
26, 2011, http://bls.gov/news.release/ebs2.t04.htm, table 4.
9. “UAW, Ford Reach Tentative Agreement on National Labor Contract to Add 12,000
U.S. Jobs, Significant Investment,” MediaFord.com, October 4, 2011, media.ford.com/
article_display.cfm?article_id=35382.
10. www.huffingtonpost.com/michael-gouldwartofsky/nyu-grad-students-filefo_b_561439.html; Cynthia Foster, “NLRB Rule Could Create Stir in the Break
Room,” The Recorder, March 23, 2012, www.law.com/jsp/ca/PubArticleCA.
jsp?id=1202546816771
Chapter 11 Enhancing Union–Management Relations
11.Martin Kaste, “Raising the Minimum Wage: Whom Does it Help?”
NPR, January 3, 2012, www.npr.org/2012/01/03/144594861/
raising-the-minimum-wage-who-does-it-help.
12. “Right to Work States,” National Right to Work Committee, http://nrtw.org/rtws.
htm accessed January 6, 2012.
13. “Can I Be Required to Be a Union Member or Pay Dues to a Union?” National Right
to Work, www.nrtw.org/a/a_1_p.htm, accessed March 28, 2012
14.Ivan Osorio, “Ma’ Bell’s Long History of Unsustainable Pensions is Alive and
Well,” Forbes, March 27, 2012, www.forbes.com/sites/realspin/2012/03/27/
ma-bells-long-legacy-of-unsustainable-pensions-is-alive-and-well/.
15.Fran Spielman, “Chicago Police May Miss Pay Hike Because of Union Mistake,”
Chicago Sun-Times, March 28, 2012, www.suntimes.com/news/metro/11564354-418/
chicago-police-may-miss-pay-hike-because-of-union-mistake-sources.html.
16. Ross Kerber and Lauren Tara LaCapra, “Goldman’s Deal with Union: Something
for Everyone,” Reuters, March 29, 2012, www.reuters.com/article/2012/03/29/
us-goldman-leadership-idUSBRE82S0C820120329.
17. “Work Stoppages Summary,” Bureau of Labor Statistics, www.bls.gov/news.release/
wkstp.nr0.htm, accessed March 19, 2011.
18.Staff reporter, “Allied Waste Garbage Service Disrupted, Workers on Picket Lines,”
King 5 News, March 29, 2012, www.king5.com/news/local/Local-Allied-Republicgarbage-workers-hit-picket-lines-144888405.html.
19. “Protestors Hand Out Awareness Ribbons,” Associated Press,
July 12, 2011, http://espn.go.com/mlb/allstar11/story/_/
id/6763702/2011-mlb-all-star-game-immigration-law-protesters-attendance.
20. “2011 Annual Report,” Federal Mediation & Conciliation Service, http://fmcs.gov/assets/
files/Public%20Documents/2011_Annual_Report.pdf accessed February 20, 2012.
21. Based on information from the organization Web site wgaeast.com accessed
February 20, 2012; Michael Rechtshaffen, “Writers Guild Members Claim Age
Discrimination,” The Ottawa Sun, May 9, 2010, ottawasun.com/entertainment/celebrities/2010/05/06/13853111.html; Michael Cieply, “Hollywood Directors Union
Agrees to Early Contract Talks,” New York Times, April 28, 2010, mediadecoder.blogs.
327
© sergey rusakov/
Shutterstock
pre-auto era, its bicycles became a two-wheeled status symbol
for British consumers, and the brand maintained its cachet for
decades. Although Raleigh’s chopper-style bicycles were hugely
popular in the 1970s, international competition and changing
consumer tastes have taken a toll during the past few decades.
Now Raleigh markets a wide variety of bicycles to consumers in Europe, Canada, and the United States. Its U.S. division,
based in Kent, Washington, has been researching new bicycles for
contemporary consumers and developing models that are lighter,
faster, and better. Inspired by the European lifestyle and tradition
of getting around on bicycles, and its long history in the business,
Raleigh is looking to reinvigorate sales and capture a larger share
of the $6 billion U.S. bicycle market.
Raleigh’s U.S. marketers have been observing the “messenger
market,” customers who ride bicycles through downtown streets
to deliver documents and small packages to businesses and individuals. They have also noted that many everyday bicycle riders
dress casually, in T-shirts and jeans, rather than in special racing
outfits designed for speed. Targeting consumers who enjoy riding bicycles as a lifestyle, Raleigh’s marketers are focusing on this
segment’s specific needs and preferences as they develop, price,
promote, and distribute new models.
In recent years, Raleigh’s marketers have stepped up the
practice of bringing demonstration fleets to public places where
potential buyers can hop on one of the company’s bicycles and
pedal for a few minutes. The idea is to allow consumers who
enjoy bicycling to actually experience the fun feeling of riding a
Raleigh. The marketers are also fanning out to visit bicycle races
and meet bicyclists in cities and towns across America, encourag-
Case 12.2
PepsiCo, the world’s leading snack marketer, aims to gobble up
more market share through careful targeting and creative marketing. Most of PepsiCo’s sales come from North and South
America, where it has traditionally been a strong competitor.
Among its ever-expanding pantry of brands, 19 are already
billion-dollar businesses, including Pepsi-Cola, Diet Pepsi, and
Mountain Dew soft drinks; Lay’s, Doritos, and Tostitos chips;
Lipton teas; Tropicana fruit drinks; Gatorade sports drinks;
Quaker foods; and Aquafina bottled waters.
The company faces aggressive competition from Coca-Cola
and Draft Foods, both of which are making marketing waves in
the Americas, across Europe, and in Asia. It must also deal with
a variety of local brands that, in some cases, have large and loyal
customer bases. Therefore, PepsiCo’s marketers constantly research
customers’ needs and study the influence of environmental forces so
that they can develop the right marketing mix for the right market.
One global trend that PepsiCo’s marketers have identified is
increased interest in healthier eating. Several years ago, the U.K.
government mounted a campaign warning consumers of the
dangers of high salt intake and urged them to change their diets.
In response, PepsiCo slashed the amount of sodium in its locally
Chapter 12 Building Customer Relationships Through Effective Marketing
ing discussions about Raleigh and about bicycling in general and
seeking feedback about particular Raleigh products.
Listening to consumers, Raleigh’s marketers recognized
that many had misperceptions about the weight of steel-frame
bicycles. Although steel can be quite heavy, Raleigh’s bicycles are
solid yet light, nimble, and easy to steer. Those who have been on
bicycles with steel frames praise the quality of the ride, saying that
steel “has a soul,” according to market research.
To stay in touch with its target market, Raleigh is increasingly
active in social media. It has several thousand fans who visit its
Facebook page to see the latest product concepts and post their
own photos and comments about Raleigh bicycles. It also uses
Twitter to keep customers informed and answer questions about
its bicycles and upcoming demonstration events. The company’s
main blog communicates the latest news about everything from
frame design and new bike colors under consideration to product awards and racing activities. It has a separate blog about
both the fun and the challenges of commuting on bicycle, a topic
in which its customers are intensely interested because so many
do exactly that. By listening to customers and showing that it
understands the daily life of its target market, Raleigh is wheeling
toward higher sales in a highly competitive marketplace.24
Questions for Discussion
1.Is Raleigh using the marketing concept? Explain.
2. What type of approach does Raleigh use to select target markets?
3.Of the four categories of segmentation variables, which is
most important to Raleigh’s segmentation strategy, and why?
PepsiCo Tailors Tastes to Tantalize
Tastebuds of Target Markets
popular Walkers snacks by 25 percent. With U.S. health experts
also calling for lower salt in processed foods, PepsiCo is now
reducing the level of salt in many other snacks worldwide. It is
also lightening up on fats and sugar and making nutrition labeling
more prominent so that consumers can make educated choices.
“What we want to do with our ‘fun for you’ products is to make
them the healthiest ‘fun for you’ products,” says the CEO.
Another trend that PepsiCo’s marketers noticed is sharply
higher use of digital media among teenagers and young adults,
a large and lucrative target market for snacks and beverages. As
a result, PepsiCo has stepped up its use of the Internet, blogs,
Twitter, Facebook, and YouTube to communicate with and influence these consumers. Its Dewmocracy campaigns, for example,
invite customers to vote online for their favorite new Mountain
Dew flavors. It has also run contests asking customers to create
and submit homemade television commercials for Doritos chips.
After posting the finalists online for public viewing and voting,
PepsiCo airs the winning advertisements during the Super Bowl,
giving winners cash prizes and their 30 seconds of fame.
PepsiCo’s recent Refresh Project, one of its more unusual marketing efforts, combined digital marketing with social responsibility.
353
herb flavors that local customers favor. In Japan, knowing that
its customers look forward to seasonal variety, the company has
launched a series of limited-edition soft drinks such as Pepsi
Baobab (with the tang of African fruit flavor). In India, it markets
Nimbooz by 7Up, its unique twist on a traditional lemon drink.
What will PepsiCo do next in its quest to satisfy its global customer base?25
oc
1. What is PepsiCo’s approach to target marketing?
2.How are forces in the marketing environment affecting
PepsiCo’s marketing strategy?
3. Which influences on consumer buying behavior should
PepsiCo pay particular attention to, and why?
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Building Skills for Career Success
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During the year-long program, PepsiCo invited consumers to apply
online for grants to make a difference in their community. Every
month, the public voted on which grants they thought were most
deserving of funding. In all, PepsiCo awarded nearly $20 million in
grants, got tens of thousands of customers interested in the project,
and earned positive publicity for its good works. Of course, PepsiCo
hoped that customers would also notice and respond to its social
responsibility when they were making buying decisions about snacks
and beverages.
These days, PepsiCo is keeping up a steady stream of new
product introductions, based on marketing research that helps
it understand the preferences of customers in each country. For
example, catering to Russian palates, it offers Lay’s chips flavored with red caviar. In China, its Cao Ben Le drinks feature
©a
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1 SOCIAL
MEDIA EXERCISE
Building customer relationships through
effective marketing
Comcast, the cable and communications provider, was one of
the first companies to use Twitter for customer service. Frank
Eliason was the first director of digital care and the first to
develop ComcastCares on Twitter. Essentially the Comcast team
scans Twitter for people complaining about service and then
contacts them to see if they can help. This has changed the
entire culture of the organization, as well as prompted other
companies to use Twitter for customer service. Visit the site at
Comcastcares on Twitter (do a search in a search engine like
Bing or Google).
1. After reviewing Comcastcares on Twitter, do you think that
this helps with customer service? Why or why not?
2. Do you see other applications for Twitter for a communications giant like Comcast?
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter emphasized the importance of
keeping the customer at the core of every marketing decision.
Assignment
1.Think about the businesses from which you have purchased
goods or services. Select the organization that you believe has
adopted the marketing concept. Discuss the reasons why you
believe that this company has adopted the marketing concept.
2. Describe the marketing mix this company has created for the
brand that you purchase from this company.
3. Which two companies are the strongest competitors of this
organization? Explain why.
4. Besides competition, which environmental forces have the
greatest impact on this company for which you are a customer?
5.Calculate your customer lifetime value to this company. After
recording your customer lifetime value, describe how you calculated it.
354
3 DEVELOPING CRITICAL-THINKING SKILLS
Market segmentation is the process of breaking down a larger target
market into smaller segments. One common base of market segmentation is demographics. Demographics for the consumer market, which consists of individuals and household members who buy
goods for their own use, include criteria such as age, gender, race,
religion, income, family size, occupation, education, social class,
and marital status. Liz Claiborne, Inc., retailer of women’s apparel,
uses demographics to target a market it calls Liz Lady. The company
knows Liz Lady’s age, income range, professional status, and family
status, and it uses this profile to make marketing decisions.
Assignment
1.Identify a company that markets to the consumer.
2.Identify the company’s major product.
3. Determine the demographics of one of the company’s ­markets.
a. From the list that follows, choose the demographics that
apply to this market. (Remember that the demographics
chosen must relate to the interest, need, and ability of the
customer to purchase the product.)
b. Briefly describe each demographic characteristic.
Consumer
Market
Description
Age
Gender
Race
Ethnicity
Income
Occupation
Family size
Education
Religion
Homeowner
Marital status
Social class
Part 5 Marketing
4.Summarize your findings in a statement that describes the target market for the company’s product.
3. Write a description of the company’s primary customer (target market).
4 BUILDING TEAM SKILLS
Review the text definitions of market and target market. Markets
can be classified as consumer or industrial. Buyer behavior consists of the decisions and actions of those involved in buying and
using products or services. By examining aspects of a company’s
products, you usually can determine the company’s target market and the characteristics important to members of that target
­market.
5 RESEARCHING DIFFERENT CAREERS
Before interviewing for a job, you should learn all you can about
the company. With this information, you will be prepared to ask
meaningful questions about the firm during the interview, and the
interviewer no doubt will be impressed with your knowledge of
the business and your interest in it. To find out about a company,
you can conduct some market research.
Assignment
1.Choose at least two local companies for which you might like
to work.
2.Contact your local Chamber of Commerce. (The Chamber of
Commerce collects information about local businesses, and
most of its services are free.) Ask for information about the
companies.
3.Call the Better Business Bureau in your community and ask if
there are any complaints against the companies.
4. Prepare a report summarizing your findings.
1. Working in teams of three to five, identify a company and its
major products.
2. List and discuss characteristics that customers may find
important. These factors may include price, quality, brand
name, variety of services, salespeople, customer service, special offers, promotional campaign, packaging, convenience
of use, convenience of purchase, location, guarantees, store/
office decor, and payment terms.
Assignment
Endnotes
1. Based on information in Haig Simonian and Louise Lucas, “Starbucks Takes Coffee
Wars to Nespresso,” Financial Times, March 5, 2012, www.ft.com; Dermot Doherty,
“Nestle Forecasts 2012 Earnings as Sales Beat Estimates,” Bloomberg BusinessWeek,
February 16, 2012, www.businessweek.com; Joshua Levine, “Pod of Gold,” Time,
March 7, 2011, www.time.com; www.nespresso.com; Tom Mulier, “Nespresso Will
Survive ‘Plethora’ of Knock-Offs, Inventor Says,” Bloomberg BusinessWeek, January 30,
2011, www.businessweek.com.
2. “Definition of Marketing,” American Marketing Association, www.marketingpower.
com/AboutAMA/Pages/DefinitionofMarketing.aspx, accessed March 19, 2012.
3.Stuart Elliot, “Spotting the Trends, Before They Break Out,” New York Times, March
11, 2012, www.nytimes.com/2012/03/12/business/media/spotting-the-trendsbefore-they-break-out-advertising.html.
4.Eilene Zimmerman, “A Small Business Made to Seem Bigger,” New York Times, March
2, 2011, www.nytimes.com/2011/03/03/business/smallbusiness/03sbiz.html,
accessed March 19, 2012; “Batchbook: Your Social CRM,” BatchBlue, http://batchblue.com/socialcrm/, accessed March 19, 2012.
5. V. Kumar, Customer Lifetime Value (Hanover, MA: now Publishers, 2008), 5.
6.Rajkumar Venkatesan and V. Kumar, “A Customer Lifetime Value Framework for
Customer Selection and Resource Selection and Resource Allocation Strategy,” Journal
of Marketing 68 (October 2004), 106–125.
7. Dennis Price, “How Much is a Customer REALLY Worth?” Insider Retailing, March 18,
2012, www.insideretailing.com.au/IR/IRNews/How-much-is-a-customer-REALLYworth--4454.aspx; Customer Lifetime Value Calculator, http://hbsp.harvard.edu/
multimedia/flashtools/cltv/index.html, accessed March 19, 2012.
8. Press release, “Captain D’s Continues Brand Rejuvenation—Generates an 8.5 Percent
Same-Store Sales Increase in Q1,” March 28, 2012, www.prweb.com/releases/Ds/
Q1/prweb9338053.htm.
9.Sears, press release, January 19, 2010, http://searsmedia.com/tools/press/content.
jsp?id=2010-01-19-0005167078; Elaine Wong, “Why Sears Is Rebranding Kenmore,”
Adweek, February 24, 2010, http://adweek.com/news/advertising-branding/
why-sears-rebranding-kenmore-107086.
10. “Nissan Announces U.S. Pricing on 2010 Cube,” PR Newswire, January 28, 2010,
http://prnewswire.com/news-releases/nissan-announces-us-pricing-on-2010-cuber-70613072.html.
11. “Marni for H&M; Versace for H&M,” Vogue, January 23, 2012, www.vogue.co.uk/
news/2011/06/21/versace-collaborates-with-handm, accessed April 6, 2012; Karen
Chapter 12 Building Customer Relationships Through Effective Marketing
Talley, “Target to Test In-Store Boutiques,” Wall Street Journal, January 12, 2012,
http://online.wsj.com/article/SB100014240529702044090045771566918588845
00.html, accessed April 6, 2012.
12. Paula Andruss, “New OfficeMax Catalog Courts Women Consumers,”
Deliver Magazine, June 29, 2009, www.delivermagazine.com/2009/06/
new-officemax-catalog-courts-women-consumers/.
13.Elizabeth Olson, “Scion Aims Online Videos at Young Buyers,” New York Times, March
4, 2012, www.nytimes.com/2012/03/05/business/media/scion-aims-online-videosfrom-wry-to-racy-directly-at-young-buyers.html.
14. “DVD, Game & Video Rental in the US,” IBISWorld, http://clients.ibisworld.com/
industryus/majorcompanies.aspx?indid=1370 (accessed February 21, 2012).
15.Candace Choi, “Wendy’s Takes No. 2 Spot from Burger King,” BusinessWeek, March
19, 2012, www.businessweek.com/ap/2012-03/D9TJLUH00.htm; Tim Feran,
“Wendy’s Hires New Chief of Marketing,” The Columbus Dispatch, March 29, 2012,
www.dispatch.com/content/stories/business/2012/03/29/wendys-hires-new-chief-ofmarketing.html.
16. Press Release, “IBM Forecasts Robust Gains in 2Q Home Furnishing
Sales,” Market Watch, April 6, 2012, www.marketwatch.com/story/
ibm-forecasts-robust-gains-in-2q-home-furnishings-sales-2012-04-06.
17. David Cooperstein, “Why Marketers Have No Choice But to Adopt Marketing
Technology,” Forbes, April 3, 2012, www.forbes.com/sites/davidcooperstein/2012/04/03/
why-marketers-have-no-choice-but-to-adopt-marketing-technology/.
18. Mary Chapman Party Affiliations in Car-Buying Choices: A Thorny Patch of
Consumer Analysis,” New York Times, March 30, 2012, http://wheels.blogs.nytimes
.com/2012/03/30/party-affiliations-in-car-buying-choices-a-thorny-patch-ofconsumer-analysis/.
19. “D&B Enhances Portfolio Risk Manager for DNBi with Greater Analytics
Capabilities,” Market Watch, March 21, 2012, www.marketwatch.com/story/
db-enhances-portfolio-risk-manager-for-dnbi-with-deeper-analytic-capabilities-2012-03-21.
20. William M. Pride and O. C. Ferrell, Foundations of Marketing, 4th ed. (Mason, OH:
South-Western/Cengage Learning, 2011), 128.
21.Christine Crandell, “The New Corporate Power Couple,” Forbes, February
25, 2012, www.forbes.com/sites/christinecrandell/2012/02/25/
the-new-corporate-power-couple/.
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S h u t t e r s to
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From Artistic Roots, Blu Dot
Styles Marketing Strategy
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Video Case 13.1
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Shutterstock
When a trio of college friends with backgrounds in art and architecture started moving into their first apartments in the late
1990s, they were frustrated to find that when it came to furniture, they couldn’t afford what they liked and didn’t like what
they could afford. Fortunately for many future furniture shoppers, however, this frustration led the three to found Blu Dot, a
Minneapolis-based furniture design and manufacturing company
that has flourished since its founding in 1997.
Blu Dot specializes in the creation of furniture that is attractive, high quality, and affordable. Its modern, streamlined pieces
use off-the-shelf materials and simple manufacturing processes
that keep the company’s costs and prices down. The company
also contracts with suppliers that make industrial rather than
consumer products, because these suppliers use more efficient
and cost-effective processes and technology. These strategies, plus
designs that pack flat and are easy to ship, allow the firm to combine what Maurice Blanks, one of the founders, describes as the
affordability of the low end of the market and the craftsmanship
of the high end. Anyone can design a $600 or $700 coffee table,
Blu Dot believes. It’s the $99 one the company is aiming for that’s
more of a challenge.
The company sells seven product lines—tables, storage, accessories, desks, beds, seating, and shelving. Its pricing strategy for
each of these is straightforward. Managers add their fixed and
variable costs, plus the markup they believe they’ll need to keep
the business functioning. They then usually look at what competitors are doing with similar products and try to identify three or
four different pieces of pricing information to help them settle on
a profitable price. The company also uses some creative pricing
strategies to make its margins. For instance, one coffee table in
a set might have a higher markup, whereas another has a slightly
lower one for more price-conscious customers. Overall, then, the
target margins are often met.
Case 13.2
Gatorade, which single-handedly pioneered the sports drink more
than 45 years ago, is making “G” the centerpiece of its branding efforts. The original Gatorade formula was developed by
researchers at the University of Florida to help players on the college football team avoid dehydration. Other schools took notice
of the Gators’ performance and soon began ordering batches of
Gatorade for their athletes. One by one, Gatorade attracted the
interest of professional football teams, and in 1983, it was named
the National Football League’s official sports drink. That year,
Gatorade was acquired by Quaker Oats and, in 2001, Quaker
was, in turn, purchased by PepsiCo.
390
Blu Dot thinks of its total product offering as consisting of
three interdependent elements: the core product, its supplemental features, and its symbolic or experiential value. Although
some customers are attracted by the design aspects of the products, others are more concerned with value. That’s one reason
the company recently introduced a separate brand, called +oo
(“too”), and priced it slightly below the original Blu Dot line.
These items have been marketed through Urban Outfitters, and
Blu Dot has adjusted the prices over time after seeing how sales
progressed. Co-founder John Christakos likens Blu Dot’s pricing
practice to cooking, in that both are processes that allow for finetuning as events develop.
In an interesting recent promotion that flirted with the price
of zero, Blu Dot celebrated the opening of its new store in New
York’s hip SoHo district by leaving 25 brand-new units of its
iconic “Real Good Chair,” normally priced at $129, on various
street corners in the city. Most of the chairs were equipped with
GPS devices that allowed the company’s marketing agency to
trace the chairs to those who “rescued” them and brought them
home. The company’s Web site proclaims that all the chairs
found good homes, and those “scavengers” who agreed to chat
with the firm about its products received a second free chair in
thank’s30
Questions
1. What challenges does Blu Dot face in selling consumer products (as opposed to business products)?
2. Do you think the product life-cycle is an important marketing
concept in developing and managing Blu Dot products? Why
or why not?
3. Describe the product mix and the role different product lines
play in Blu Dot’s marketing strategy.
Will the “G” Branding Initiatives
for Gatorade Work?
Throughout its history, Gatorade has remained the leader
in sports drinks. However, in recent years, changes in customer
behavior and increased competition have combined to take a toll
on sales. First, increasingly health-conscious customers are seeking out low-calorie, low-sodium beverages instead of traditional
sports drinks. Second, PepsiCo’s main rival, Coca-Cola, has been
powering up its marketing of Powerade sports drinks and winning
over customers. As a result, Gatorade’s annual sales were stalled
at around $5 billion, and its market share had fallen to 75 percent, while Powerade’s market share shot up to 24 percent.
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1. What are the marketing advantages and disadvantages of
emphasizing “G” as the primary element in the Gatorade
brand?
2. As Gatorade sharpens its marketing focus on athletes, should
it vary its packaging for different distribution channels or different sports? Explain your answer.
3. When they launch additional Gatorade brands, like Gatorade
Prime 01 and Gatorade Recover 03, are Gatorade marketers
introducing brand extensions, line extensions, or both?
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Along with fine-tuning the brand and individual products,
Gatorade is fine-tuning its packaging and labeling. For years, all
bottles featured the full “Gatorade” brand name bisected by the
brand’s stylized orange lightning bolt. Today, the G has taken
center stage on container labels, with a small bolt within the
G and a bolder bolt as the backdrop for the product name.
Overall, the G Series packaging unifies the product line while
allowing each item enough distinctive touches (such as different
bottle shapes) to help customers quickly find the particular product they want on crowded store shelves. The sophisticated new
packaging also sets this line apart from the traditional Gatorade
green-and-orange look, visually reinforcing the innovativeness of
the G Series.
Gatorade’s advertising and promotional efforts, including
a YouTube channel and Facebook fan page, carry through the
focus on athleticism. Sports stars such as Serena Williams and
Derek Jeter are featured, along with behind-the-scenes interviews
with athletes getting ready for major sporting events. However,
with Coca-Cola putting a big push behind its Powerade products, will Gatorade’s target market embrace the big G idea and
gulp down enough G Series drinks to increase the brand’s market share?31
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Now Gatorade’s marketers are fighting for higher sales with
new branding initiatives for specific target markets and redesigned
packaging to grab customers’ attention. Both the Gatorade brand
name and the lightning bolt brand mark have been fine-tuned to
emphasize the G and the thunderbolt while downplaying the rest
of the name. The goal is to make the combination instantly recognizable as representing Gatorade, in much the same way that the
Nike swoosh has become the iconic representation of that brand.
Gatorade is also introducing a series of G sports drinks targeting the specific needs of athletes. This is a change for Gatorade,
which had for several years broadened its targeting and positioned the brand as a thirst-quencher for a cross-section of consumers, not just athletes. Now the brand, under its revamped G
branding, is going back to its sports roots with the G Series line
of drink products for casual and serious athletes at a variety of
experience levels.
Gatorade Prime 01 contains vitamins and other nutrients
to help athletes “start strong.” Gatorade Perform 02 products
include the original green Gatorade beverage for rehydration during exertion plus a low-calorie drink, branded as G2. In addition,
mix-your-own powdered versions of both Perform drinks are available. Gatorade Recover 03 is a special drink developed to replenish energy and help muscles recover after any sports activity. The
Elite Series of Gatorade drinks for athletes, more widely available
than in the past, offers special formulations featuring protein,
carbohydrates, and other nutritional enhancements.
Thanks to a new distribution arrangement, G Series Pro—once
sold to professional athletes in gyms and locker rooms—can now
be purchased at 5,500 GNC stores. “This line alone, reaching a
new target audience, is going to be a killer,” comments GNC’s
CEO. “We have consumers who are extremely passionate about
what they [drink].” In another new deal, Gatorade is marketing
its G Natural and G2 Natural low-calorie drinks through Whole
Foods Market, which specializes in natural and organic foods.
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1 SOCIAL
MEDIA EXERCISE
Creating and pricing products that satisfy customers
As one of the largest railway companies in the United States,
Union Pacific has been around for nearly 150 years. Recently,
they used crowdsourcing to create a competition that Union
Pacific held to get people to vote on the ideal route for an old
steam engine to take on the “Union Pacific Great Excursion
Adventure.” Union Pacific split the voting into several rounds and
saw fierce competition from unexpected locations. Smaller towns
like Tuscola, IL, were routinely outpacing big metro markets like
Chicago in each round. Sometimes the most passion can come
from smaller communities for whom winning may be a bigger
deal. Union Pacific recorded nearly 200,000 votes and more than
100,000 email addresses across the campaign. The company
plans to repeat the campaign next year.
Chapter 13 Creating and Pricing Products That Satisfy Customers
1.Visit the Web site. At first you probably would not think of
social media as being useful for a railroad. What do you think
are the most effective elements of the campaign?
2. What can other non-competing companies learn from Union
Pacific’s use of crowdsourcing?
2 JOURNALING FOR SUCCESS
Discovery statement: This chapter explained the importance of
product branding.
Assignment
1.Thinking about the brands of products that you use, to which
brand are you the most loyal? Explain the functional benefits
of this brand.
2. Beyond the functional benefits, what does this brand mean to
you?
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3.Under what set of circumstances would you be willing to
change to another competing brand?
4. Discuss how you first began to use this brand.
3 DEVELOPING CRITICAL-THINKING SKILLS
A feature is a characteristic of a product or service that enables it
to perform its function. Benefits are the results a person receives
from using a product or service. For example, a toothpaste’s
stain-removing formula is a feature; the benefit to the user is
whiter teeth. Although features are valuable and enhance a
product, benefits motivate people to buy. The customer is more
interested in how the product can help (the benefits) than in the
details of the product (the features).
Assignment
1. Choose a product and identify its features and benefits.
2. Divide a sheet of paper into two columns. In one column, list
the features of the product. In the other column, list the benefits each feature yields to the buyer.
3. Prepare a statement that would motivate you to buy this
product.
4 BUILDING
Assignment
1. Working in teams of five to seven, brainstorm ideas for new
products or services for your college.
2. Construct questions to ask currently enrolled students (your
customers). Sample questions might include:
a. Why did you choose this college?
b. How can this college be improved?
c. What products or services do you wish were available?
3. Conduct the survey and review the results.
4. Prepare a list of improvements and/or new products or services for your college.
5 RESEARCHING DIFFERENT CAREERS
Standard & Poor’s Industry Surveys, designed for investors, provides
insight into various industries and the companies that compete
within those industries. The “Basic Analysis” section gives overviews of industry trends and issues. The other sections define
some basic industry terms, report the latest revenues and earnings
of more than 1,000 companies, and occasionally list major reference books and trade associations.
Assignment
TEAM SKILLS
In his book, The Post-Industrial Society, Peter Drucker wrote:
Society, community, and family are all conserving institutions. They try to maintain stability and to prevent, or at
least slow down, change. But the organization of the postcapitalist society of organizations is a destabilizer. Because
its function is to put knowledge to work—on tools, processes, and products; on work; on knowledge itself—it must
be organized for constant change. It must be organized for
innovation.
New product development is important in this process of systematically abandoning the past and building a
future. Current customers can be sources of ideas for new
products and services and ways of improving existing ones.
1. Identify an industry in which you might like to work.
2.Find the industry in Standard & Poor’s. (Note: Standard & Poor’s
uses broad categories of industry. For example, an apparel or
home-furnishings store would be included under “Retail” or
“Textiles.”)
3. Identify the following:
a.Trends and issues in the industry
b.Opportunities and/or problems that might arise in the
industry in the next five years
c.Major competitors within the industry (These companies
are your potential employers.)
4. Prepare a report of your findings.
Endnotes
1. Based on information in Duane D. Stanford, “PepsiCo Adds Water to Tropicana
Products to Juice Margin,” Bloomberg BusinessWeek, February 16, 2012, www.businessweek.com; E. J. Schultz, “PepsiCo Plans 35% Marketing Boost for Snacks,” Advertising
Age, February 24, 2012, www.adage.com; Karlene Lukovitz, “PepsiCo CFO Talks
Pricing, ‘Stagflation,’” MediaPost, September 8, 2011, www.mediapost.com.
2. Apple, http://apple.com accessed February 13, 2012.
3. “Coming Soon: Barq’s Root Beer Redesign,” Bev Review, February 22, 2012, www.
bevreview.com/2012/02/22/coming-soon-barqs-root-beer-redesign/.
4. [email protected], “Google to Discontinue 10 Products, Including Google Desktop,
Google Pack,” The Windows Club, September 3, 2011, www.thewindowsclub.com/
google-discontinue-10-products-including-google-desktop-google-pack.
5. Jell-O, www.jello.com, accessed April 2, 2012.
6. Procter & Gamble, http://pg.com/en_US/brands/index.shtml accessed February 13, 2012.
7. General Mills Cereals, www.generalmills.com/en/Brands/Cereals.aspx, accessed
March 30, 2012.
8.Nick Bunkley, “GM to Reinforce Battery in its Hybrid Car, the Volt,” The New York
Times, January 20, 2012, www.nytimes.com/2012/01/06/business/gm-to-reinforcebattery-in-hybrid-car.html.
392
9. Press release, “WD-40 Launches First-Ever Product Line Extension, Introduces
New WD-40 Specialist Line of Products,” New York Times, February 14,
2012, http://markets.on.nytimes.com/research/stocks/news/press_release.
asp?docTag=201202141309BIZWIRE_USPRX____BW6491&feedID=600&press_symbol=284382
10. Phil Goldstein, “T-Mobile to Discontinue Sidekick 4G, but May Not Kill
Sidekick Brand,” Fierce Wireless, March 16, 2012, www.fiercewireless.com/
story/t-mobile-discontinue-sidekick-4g-may-not-kill-sidekick-brand/2012-03-16.
11. “A Case for Modernizing Product Planning,” (e-paper) Accept Software Corporation,
www.accept360.com/resources/modprodplan, accessed April 2, 2012.
12. Google Project Glass, https://plus.google.com/111626127367496192147/posts,
accessed April 6, 2012.
13.Emily Glazer and Suzanne Vranica, “Big Firms Mentor Start-Ups on Their Image,”
Wall Street Journal, March 29, 2012, http://online.wsj.com/article/SB1000142405270
2303816504577309842814468950.html.
14. Joseph Peña, “Aptera Secures Financing, Introduces New 2e Electric Car,”
San Diego News Network, April 14, 2010, sdgln.com/news/2010/04/15/
video-aptera-secures-financing-introduces-new-2e-electric-car.
Part 5 Marketing
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in delivering products that are fresh. Shipping perishable products
to customers in the summer, for instance, can be a problem. But
“having a distributor . . . that has a couple of thousand dollars of
inventory in their refrigerated warehouse all the time changes that
equation. It means the store can just order from that distributor, pay about the same price that they would pay if they ordered
directly from us, [and] get the product probably the next day,
with much lower shipping cost.”22
Case 14.2
When Michael Dell started his Texas-based computer business in
1984, he chose a distribution strategy that was radically different
from that of other computer marketers. Instead of selling through
wholesalers and retailers, the company dealt directly with customers. This kept costs low and allowed Dell to cater to customers’
needs by building each computer to order. Using a direct channel
also minimized inventory costs and reduced the risk that parts
and products would become obsolete even before customers
placed their orders, a constant concern in high-tech industries.
By 1997, Dell’s Web site alone was responsible for $1 million
a day in sales. Relying on the strength of its online sales, catalogs, and phone orders, Dell expanded beyond the United States
and added new products for four target markets: consumers,
large corporations, small businesses, and government agencies.
Meanwhile, Apple, Hewlett-Packard, and other competitors were
reaching out to many of the same segments with a combination of
direct and indirect channels. Apple Stores, for example, proved to
be major customer magnets and gave a significant boost to sales
of Macintosh computers and other Apple electronics. HewlettPackard forged strong ties with value-added resellers (VARs), intermediaries that assemble systems of computers, servers, and other
products customized to meet the special needs of business buyers.
Although Dell tested retail distribution on a number of occasions, it never let the experiments go on for too long. In the
1990s, it tried selling PCs through a few big U.S. retail chains, but
soon discontinued the arrangement because the profit margins
weren’t as healthy as in the direct channel. Later, it opened a
series of branded retail kiosks in major U.S. markets to display its
products and answer customers’ questions. Unlike stores, however, the kiosks didn’t actually sell anything: Customers could only
place orders for future delivery. Dell ultimately closed the kiosks
down.
By 2007, with competitors coming on strong, Dell was ready
to rethink its worldwide channel strategy. As convenient as online
shopping was for many U.S. computer buyers, it was much less
popular in many other countries. To gain market share domestically and internationally, Dell would have to follow consumers
into stores, malls, and downtown shopping districts. The company began selling a few models through Walmart’s U.S. stores,
Carphone Warehouse’s U.K. stores, Bic Camera’s Japanese stores,
and Gome’s Chinese stores. In addition, it opened Dell stores in
Moscow, Budapest, and other world capitals.
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Questions
1. Which distribution channels does Taza use?
2.In what ways does Taza benefit from selling directly to consumers? What are the potential problems that Taza may experience by selling directly to consumers?
3.If Taza wanted to grow its sales by broadening physical distribution of its products, do you think it should work more
closely with its wholesalers or with its distributors? Why?
Dell Direct and Not-So-Direct
By 2010, sales through retailers had gained enough momentum that Dell sought out other retail deals. In another channel change, it began selling through VAR partners that serve
small- and medium-sized businesses and lined up wholesalers to
distribute its products in Europe, Latin America, and elsewhere.
When Dell introduced a new line of smartphones, it needed a
new channel arrangement to reach buyers. Therefore, it arranged
for mobile phone carriers such as AT&T to sell the new models to
their customers.
As successful as Dell has been in revamping its indirect channels, selling directly to customers remains a top priority. Dell invites
orders around the clock through Web pages tailored to the needs
of each target market. It also maintains an online outlet store to
sell discontinued and refurbished products. It mails millions of catalogs and direct-mail pieces every year. And its sales force calls on
government officials and big businesses that buy in volume. Dell’s
Web site notes, with pride, that the ten largest U.S. corporations
and five largest U.S. commercial banks “run on Dell.”
Moreover, the company is a pioneer in stimulating exchanges
with customers through social media. Dell has 139,000 fans on
Facebook, for example, and regularly posts offers that drive customers to its various Web sites. It’s become a pioneer in selling
directly to customers via the microblog site Twitter. In less than
three years, it generated $6.5 million in revenue from sales transactions that originated on Twitter. That may be a tiny sliver of
Dell’s $53 billion in annual revenue, but it demonstrates the company’s flexibility in adapting to shifts in customer behavior and
environmental forces, such as technological advances.
With market share and profit-margin challenges still facing the
company, and global demand just picking up steam after a long,
difficult recession, watch for Dell to make more channel adjustments in the coming years.23
Questions for Discussion
1.Is Dell using intensive, selective, or exclusive distribution for its
market coverage? Why is this appropriate for Dell’s products
and target markets?
2. What are the major advantages and disadvantages of Dell’s
use of multiple marketing channels instead of using just the
direct marketing channel?
3.In what ways did Dell’s physical distribution practices change
as it changed to using multiple marketing channels?
Part 5 Marketing
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1 SOCIAL
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Wholesaling, retailing and physical distribution
Gamification is a new trend in social media that essentially uses the
ideas and theories behind gaming (rewards, competition, levels and
so forth) to engage people online. Fantasy Shopper is a good example of combining the retail experience (in this case fashion retailing) with online games. For example, a luxury handbag by Stella
McCartney worth $960 is the prize in a online game to design the
best virtual outfit using real items on sale in Matches, a real store.
The players of the game choose the winner. Players visit a city (say
London, with others to follow) and compete to find bargains and
assemble the best outfits using virtual money to spend on goods
actually sold in stores. The choices are then published in Facebook
newsfeeds and others can vote on these looks. In addition to winning real prizes, players are also rewarded virtually with badges and
vouchers to use in real stores. This game is popular with women
20–25 and retailers are excited because it helps them to promote
their products and provides instant feedback about what is likely to
sell. The real value to retailers is the amount of data generated and
passed along by these “social shopping” firms based on the players’
behavior. Visit Fantasy Shopper (www.fantasyshopper.com) and
take a look about the games available.24
1. For what types of retailers are these games most likely to be
effective?
2. While the game mentioned above is aimed at women 20–25,
what other age and gender segments would be most likely to
participate in online games?
2 JOURNALING
FOR SUCCESS
Discovery statement: In this chapter, you learned that retailers
are marketing intermediaries and part of the distribution channel.
Assignment
1.Thinking about brick-and-mortar retail stores, in which store
have you had your most enjoyable shopping experience?
Describe this retail store.
2. Discuss this shopping experience and why it was such a great
shopping experience.
3. At what brick-and-mortar store did you have your worst experience? Describe this store.
4. Discuss this worst shopping experience and be sure to mention the reasons why this shopping experience was the worst
one for you.
3 DEVELOPING
CRITICAL-THINKING SKILLS
According to the wheel of retailing hypothesis, retail businesses
begin as low-margin, low-priced, low-status operations. As they
successfully challenge established retailers for market share, they
upgrade their facilities and offer more services. This raises their
costs and forces them to increase their prices so that eventually
they become like the conventional retailers they replaced. As they
move up from the low end of the wheel, new firms with lower
Chapter 14 Wholesaling, Retailing, and Physical Distribution
costs and prices move in to take their place. For example, Kmart
started as a low-priced operation that competed with department stores. Over time, it upgraded its facilities and products;
big Kmart stores now offer such exclusive merchandise as Martha
Stewart’s bed-and-bath collection, full-service pharmacies, café
areas, and “pantry” areas stocked with frequently bought grocery
items, including milk, eggs, and bread. In consequence, Kmart has
become a higher-cost, higher-priced operation and, as such, is vulnerable to lower-priced firms entering at the low end of the wheel.
Assignment
1.Investigate the operations of a local retailer.
2.Explain how this retailer is evolving on the wheel of retailing.
3.Prepare a report on your findings.
4 BUILDING TEAM SKILLS
Surveys are a commonly used tool in marketing research. The
information they provide can reduce business risk and facilitate
decision making. Retail outlets often survey their customers’ wants
and needs by distributing comment cards or questionnaires.
The following customer survey is an example of a survey that a
local photography shop might distribute to its customers.
Assignment
1. Working in teams of three to five, choose a local retailer.
2.Classify the retailer according to the major types of retailers.
3. Design a survey to help the retailer to improve customer
service. (You may find it beneficial to work with the retailer
and actually administer the survey to the retailer’s customers.
Prepare a report of the survey results for the retailer.)
4.Present your findings to the class.
5 RESEARCHING DIFFERENT CAREERS
When you are looking for a job, the people closest to you can be
extremely helpful. Family members and friends may be able to answer
your questions directly or put you in touch with someone else who
can. This type of “networking” can lead to an “informational interview,” in which you can meet with someone who will answer your
questions about a career or a company and who can also provide
inside information on related fields and other helpful hints.
Assignment
1.Choose a retailer or wholesaler and a position within the
company that interests you.
2.Call the company and ask to speak to the person in that particular position. Explain that you are a college student interested
in the position, and ask to set up an “informational interview.”
3.Prepare a list of questions to ask in the interview. The questions should focus on:
a. The type of training recommended for the position
b. How the person entered the position and advanced in it
c. What he or she likes and dislikes about the work
d. Present your findings to the class.
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Customer Survey
To help us to serve you better, please take a few minutes while
your photographs are being developed to answer the following
questions. Your opinions are important to us.
1. Do you live/work in the area? (Circle one or both if they
apply.)
2. Why did you choose us? (Circle all that apply.)
Close to homeQuality
Close to work
Full-service photography shop
ConvenienceOther
Good service
3.How did you learn about us? (Circle one.)
Newspaper
Flyer/coupon
Passing by
Recommended by someone
Other
4.How frequently do you have film developed? (Please estimate.)
___ Times per month
___ Times per year
5. Which aspects of our photography shop do you think need
improvement?
6.Our operating hours are from 8:00 a.m. to 7:00 p.m. weekdays
and from 9:30 a.m. to 6:00 p.m. Saturdays. We are closed on
Sundays and legal holidays. If changes in our operating hours
would serve you better, please specify your preferences.
7. Age (Circle one.)
Under 25
40–59
26–39Over 60
Comments:
Endnotes
1. Based on information in “Greek Yogurt on a Marathon-Like Growth Spurt,” Wall Street
Journal, January 22, 2012, www.wsj.com; Sheridan Prasso, “The Unlikely King of Yogurt,”
Fortune, December 12, 2011, pp. 43–46; Karlene Lukovitz, “Chobani Champions
Launches Platform, Campaign,” MediaPost, October 3, 2011, www.mediapost.com;
Philip Butta, “The World’s 50 Most Innovative Companies in Food 2012,” Fast Company,
March 2012, www.fastcompany.com; “Chobani Begins Exporting, Breaks Ground on
New Facility,” Dairy Foods, November 16, 2011, www.dairyfoods.com.
2.Kurt Soller, “Target Will Soon be Selling Clothes You’ll Want,” Esquire, April 6, 2012,
www.esquire.com/blogs/mens-fashion/the-webster-for-target-040612.
3.Ken Scarpati, “Dunkin’ Donuts signs long-term supply chain deal,” Supply Chain
Digital, January 4, 2012, www.supplychaindigital.com/global_logistics/dunkindonuts-signs-long-term-supply-chain-deal, accessed April 5, 2012.
4.Larry Hawes, “Innovation in Coordinated Business Networks,” Forbes,
April 3, 2012, www.forbes.com/sites/larryhawes/2012/04/03/
innovation-in-coordinated-business-networks/.
[email protected], “How Apple Made ‘Vertical Integration’ Hot Again, Too
Hot, Maybe,” Time, March 16, 2012, http://business.time.com/2012/03/16/
how-apple-made-vertical-integration-hot-again-too-hot-maybe/.
6.Houston Wire & Cable, www.houwire.com/, accessed April 6, 2012.
7.Retail statistics, U.S. Census Bureau, http://factfinder2.census.gov/faces/nav/jsf/
pages/searchresults.xhtml?refresh=t, accessed April 3, 2012.
8.The Plumbing Warehouse, www.eplumbingwarehouse.com/main/, accessed April 7, 2012.
9. “Gasoline Stations (NAICS 447),” U.S. Bureau of the Census, census.gov/econ/
census/snapshots/SNAP44.HTM accessed February 21, 2012.
10. Sam’s Club Fact Sheet, Costco Wholesale Corporation Fact Sheet, Hoover’s Online,
http://hoovers.com accessed February 21, 2012.
11. “The Year The Walmart Stole Christmas,” Gile Toys Blog, December 19, 2008, blog.
giletoys.com/2008/12/19/the-year-the-walmart-stole-christmas/.
12. “Direct Selling by the Numbers,” Direct Selling Association, www.dsa.org/research/
industry-statistics/#SALES, accessed March 19, 2012.
13. Maris Halkias, “J.C. Penney’s Big Catalog Soon to Be But a Memory,” TheSeattleTimes.
com, November 27, 2009, seattletimes.nwsource.com/html/businesstechnology/2010365217_jcpenneycatalog27.html.
14. www.donotcall.gov; Maya Jackson Randall, “FCC Cracks Down on Robocalls,” Wall
Street Journal, February 15, 2012, http://online.wsj.com/article/SB100014240529702
04792404577225922293962202.html.
15. Stu Woo, “Sales on Cyber Monday Jump Double Digits,” Wall Street Journal, November
29, 2011, http://online.wsj.com/article/SB100014240529702047534045770666731
91494882.html, accessed April 8, 2012.
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16. “Vending Machines of the Past and Present,” The Wall Street Journal,
March 22, 2012, http://online.wsj.com/article/SB10001424052
702304724404577295671669812582.html#slide/1; Aylin Zafar,
“Prescription Pills, iPods, and Live Bait: There’s a Vending Machine for
That,” Time, March 23, 2012, http://newsfeed.time.com/2012/03/23/
prescription-pills-ipods-and-live-bait-theres-a-vending-machine-for-that/.
17. Staff reporter, “Retail’s New Motto is Experiences and Shopping,” SA Commercial
Prop News, March 19, 2012, www.sacommercialpropnews.co.za/commercialproperty-research-report/4539-retail-s-new-motto-is-experiences-and-shopping
.html.
18.Justin Gerdes, “How Nike, Wal-Mart, and IKEA Save Money and Slash Carbon
by Shipping Smarter,” Forbes, February 24, 2012, www.forbes.com/sites/justingerdes/2012/02/24/how-nike-wal-mart-and-ikea-are-saving-money-and-slashingcarbon-by-shipping-smarter/.
19. “Quarterly Coal Distribution Report,” U.S. Energy Administration, January 12, 2012,
www.eia.gov/coal/distribution/quarterly/, accessed April 7, 2012.
20.Piggyback Consolidators, www.piggybackconsolidators.com/, accessed April 4,
2012.
21. Staff reporter, “Plains All American Still a Pipeline for Fat Yields, More
Gains,” Forbes, March 27, 2012, www.forbes.com/sites/zacks/2012/03/27/
plains-all-american-still-a-pipeline-for-fat-yields-more-gains/.
22.Company Web site www.tazachocolate.com accessed August 30, 2010; Courtney
Holland, “Sweet Batches of Local Flavor,” Boston Globe, August 18, 2010, www.
boston.com; Kerry J. Byrne, “Festival of Food Trucks,” Boston Herald, August 6,
2010, www.bostonherald.com; interviews with company staff and the video “Taza
Cultivates Channel Relationships With Chocolate.”
23.Charlotte McEleny“Dell Bets on Social Commerce as Next Boom Area for Etail,”
New Media Age, March 25, 2010, nma.co.uk/news/dell-bets-on-social-commerceas-next-boom-area-for-etail/3011477.article; Antone Gonsalves, “AT&T to Launch
Dell Smartphone,” InformationWeek, March 23, 2010, informationweek.com/news/
mobility/smart_phones/224100024; Fritz Nelson, “Full Nelson: Who Is Dell?”
InformationWeek, January 10, 2010, informationweek.com/news/hardware/data_centers/222300311; Mary Ellen Slayter, “How Dell Took Social Media Mainstream,”
Smart Blog on Social Media, October 2, 2009, socialmedia/2009/10/02/how-dell-tooksocial-media-mainstream/; Jack Ewing, “Where Dell Sells With Brick and Mortar,”
BusinessWeek, October 8, 2007, http://businessweek.com/globalbiz/content/
sep2007/gb20070927_440600.htm.
24.NA (2012, March 3) “The buying game: can play shopping transform the real thing?”
The Economist accessed April 14 at www.economist.com/node/21548929/print.
Part 5 Marketing
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L.L.Bean doesn’t take the wide familiarity of its brand for
granted. It also promotes its name through partnerships with
environmentally conscious companies and organizations and
through charitable giving, mainly to organizations committed to
maintaining and protecting Earth’s natural resources. The company recognizes, however, that a good product is at the heart of
its success. “We really want to sell a good product, and we really
guarantee that product,” says the company’s vice president of
e-commerce. “We want to keep . . . the customer happy and keep
that customer coming back to L.L.Bean over and over.”23
Case 15.2
For many years, Toyota set the standard for quality and reliability. However, Toyota’s success was cut short by a desire to grow
rapidly at the expense of quality. A few years ago, Toyota issued
a series of recalls on several of their popular models because of
safety problems with accelerators, brakes, and power steering.
The recalls affected more than 8 million vehicles across five continents. Following the announcement of the recalls, Toyota engineers and mechanics began to search for solutions to the problems and started the process of repairing millions of cars. The
company also temporarily suspended production in the United
States while it researched the causes of the problems. Many critics
accused the company of acting too slowly to recall the defective
cars and of trying to push the problem under the rug. Because
of the negative press, Toyota sales declined significantly. Toyota
president Akio Toyoda admitted, “We so aggressively pursued
numbers that we were unable to keep up with training staff to
oversee quality.” Toyoda also recognized that Toyota was slow to
act on reports of problems provided by consumers.
Toyota was fined $16.4 million for allegedly hiding safety
defects from consumers. This came after their reputation was
already tarnished by a seemingly endless number of recalls on various car models. Toward the end of the various safety recalls related
to sudden acceleration, the 2010 Lexus GX460 was declared unsafe
to buy by Consumer Reports. Toyota became the target for late-night
television jokes and seemed to constantly be in the news regarding
yet another recall. This negative publicity damaged the reputation
and goodwill that Toyota had developed over many years.
In the wake of massive recalls, Toyota had to adjust its advertising strategy. The world’s largest automaker pulled its national
advertising campaign that promoted its cars for dependability,
safety, and reliability. Toyota, which had long been the leader in
automotive quality, had to scramble to figure out how to handle
a growing public relations crisis resulting from recalls and even a
halt in sales. All experts agreed that Toyota had to move quickly
in an attempt to restore trust and deal with a crisis resulting
from millions of recalled vehicles. A series of ads were developed
to deal directly with the crisis and admit that the company had
strayed from keeping its eye on quality while its sales had been
growing rapidly. A number of low-key ads dealt directly with the
issue and promised to regain consumers’ trust.
450
Questions
1. What are the ingredients of L.L.Bean’s promotion mix?
2. L.L.Bean is reaching into “alternative” promotons, including
outfitting Weather Channel meteorologists around the United
States and emblazoning its name on the tarp used by the
Red Sox baseball team to protect the field during rain delays.
What other kinds of promotional activities do you think
would suit the company’s outdoorsy image?
3. Do you think L.L.Bean’s Web site will ever entirely take the
place of its mail-order catalog? Why or why not?
Rebuilding Trust at Toyota
Initially, Toyota tried to tackle the recall problem by addressing individual nations or sales territories. The company thought
it could deal with the issue in different ways in different markets.
The company forgot that social networking sites quickly highlight
product-related problems through global digital media. As the largest auto manufacturer in the world, Toyota faced a global problem
and found that it could not control information in different territories. Toyota violated the first rule of crisis management by not
responding quickly, but when the company did respond, it took out
full-page ads in major newspapers and produced feel-good television spots featuring dealers, mechanics, and owners. The company
offered no-interest loans, discount leases, and a complementary
two-year maintenance program to get buyers back.
In addition to repairing its vehicles, Toyota had to repair its reputation. Shortly after the recalls, Toyota established a global quality
committee and promised to appoint chief quality officers for each
of its regions. Toyota is also in the process of designing new safety
systems and inspection processes for its vehicles. All future models
will include a new brake-override system designed to activate the
brakes in the event that both the brake and accelerator pedals are
pushed down. Additionally, Toyota will have a third party test its
electronic acceleration system. Ultimately, it will take more than
committees, promises, and programs to rebuild Toyota.
Recently, Toyota has launched an innovative advertising campaign focusing on a new slogan for the Camry. “It’s ready. Are
you?” is a way to show that Toyota is recovering after the recalls
and declined production that tarnished its reputation. Toyota is
not only focused on safety, quality, and durability, but also creating
a new image of the Camry as a desirable car that people want to
purchase. Two years ago, the flooding in Thailand and earthquakes
in Japan resulted in a 54 percent reduction in Toyota’s profits.
Regardless of these more recent setbacks, Toyota is still challenging
consumers to start putting their trust back into the company. By
showing readiness through this new advertising campaign, Toyota
is hoping to regain consumer trust and market share.24
Questions for Discussion
1. In what ways is Toyota using promotional efforts to rebuild
customer trust?
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3.Toyota received a considerable amount of negative publicity
during and shortly after the recalls. What could Toyota have
done to reduce the amount of negative coverage?
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2. Shortly after the recalls, Toyota cancelled its advertising campaign regarding dependability, safety, and reliability. Was this
action necessary? Why or why not?
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MEDIA EXERCISE
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1 SOCIAL
Since companies began using social media to market products, one
of the most successful marketing campaigns was Old Spice’s “The
Man You Wish Your Man Could Smell Like” with Isaiah Mustafa. You
can check out the case study that describes not only the campaign,
but also how it increased brand awareness and profits at http://
wearesocial.net/blog/2010/08/wieden-kennedys-spice-case-study.
1. What factors do you think made the initial Old Spice marketing campaign so successful?
2. Do you feel the way Wieden+Kennedy used comments from
consumers and celebrities to create the “Response Campaign”
was a smart and effective way to continue the Old Spice campaign. Why or why not?
3.After the initial Old Spice marketing campaign, the advertising
agency Wieden+Kennedy created a new generation of advertisements for Old Spice. You can check out new advertisements at www.wk.com. Once at the site, click on “Clients.”
Then click on Old Spice to view current advertisements for
this product. Compare the original advertisements with the
new advertisements. Which advertisements do the best job of
promoting the Old Spice product? Justify your opinions.
2 JOURNALING FOR SUCCESS
Discovery statement: As this chapter showed, advertising is an
important part of an organization’s promotional mix.
Assignment
1. During the last year, you have been exposed to a number
of television advertisements. Identify and describe what you
believe to be the best TV commercial that you have experienced over the last year.
2. Why do you feel that this ad is the very best?
3. Describe the content of this advertisement in as much detail
as possible, and explain what you can recall about this television advertisement.
3 DEVELOPING CRITICAL-THINKING SKILLS
Obviously, salespeople must know the products they are selling,
but to give successful sales presentations, they also must know
their competition. Armed with information about competing
products, they are better able to field prospective customers’
questions and objections regarding their own products.
Assignment
1.Choose a product or service offered by one company and
gather samples of the competitors’ sales literature.
2.After examining the competitors’ sales literature, answer the
following questions:
Chapter 15 Developing Integrated Marketing Communications
a. What type of literature do the competitors use to advertise
their product or service? Do they use full-color brochures?
b. Do they use videotapes?
c. Do they offer giveaways or special discounts?
3.Compare the product or service you chose with what the
competition is selling.
4.Compile a list of all the strengths and weaknesses you have
discovered.
4 BUILDING TEAM SKILLS
The cost of promotional methods is an important factor in a promotional campaign. Representatives who sell advertising space
for magazines, newspapers, radio stations, and television stations
can quote the price of the medium to the advertiser. The advertiser then can use cost per thousand persons reached (CPM) to
compare the cost efficiency of advertising in the same medium.
Assignment
1. Working in teams of five to seven, choose one of these media:
local television stations, newspapers, or radio stations. You
can choose magazines if your library has a copy of Standard
Rate and Data Service.
2.Using the following equation, compare the CPM of advertising in whatever local medium you chose:
CPM 5
price of the medium to the advertiser 3 1,000
circulation
3.Report your team’s findings to the class.
5 RESEARCHING
DIFFERENT CAREERS
There are many sources available online containing occupational
and career materials. Search for trade and professional magazines
and journals about specific occupations and industries that you are
interested in. Familiarize yourself with the concerns and activities
of potential employers by skimming their annual reports and other
publicly distributed materials. Publicly traded companies often
have a link to this data on their Web sites. Another potentially useful source of information is to visit the Web sites of some of the key
companies in the industry you are researching. Checking their Web
sites for current industry news, challenges, and developments can
provide a good insight into the nature of the industry.
Assignment
1.Choose a specific occupation.
2.Conduct an Internet search of the occupation.
3. Prepare a list of sources where information about the occupation you selected can be found.
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Graeter’s Marketing Offers “Sweet Rewards”
When a 140-year-old company finally redesigns its logo, that’s big
news. Graeter’s, the beloved Cincinnati-based maker of premium
ice cream, is still managed by direct descendants of its founders.
Over the years, the company has added complementary products
such as baked goods and candy. These days, ice cream accounts
for more than 85 percent of Graeter’s $30 million in annual
sales—and the highest profit margins come from selling packaged
ice cream to supermarkets and grocery stores.
To support coast-to-coast growth, the company has not only
changed its logo, it has forged new distribution relationships,
added new ice-cream flavors, introduced a rewards program, and
moved into social media. In short, Graeter’s marketing efforts
take full advantage of 21st century technology, even though some
of the firm’s recipes date back more than a century and all of the
ice cream is still made by hand to preserve the quality that made
the brand famous.
FROM SCOOPS TO SUPERMARKETS
AND BEYOND
For most of its long history, Graeter’s concentrated on making ice
cream and selling it by the scoop in its own shops. Then it began
distributing packaged ice cream through Kroger’s supermarkets
in Cincinnati, a relationship that led Graeter’s to new customer
insights and, ultimately, to lucrative new markets.
Kroger’s data revealed that out of the tens of thousands
of brands sold in its stores, premium-priced Graeter’s commands the strongest brand loyalty. Kroger owns the King
Soopers grocery chain in Denver, and research there showed
that more Denver ice-cream buyers choose premium brands
than cheaper choices. To test reaction to Graeter’s, King
Soopers began carrying 12 of the firm’s best-selling ice-cream
flavors. Graeter’s expected to sell two or three gallons per
store per week in Denver. Within a few weeks, however, it was
selling an average of five gallons per store per week. Next,
Kroger stores in Texas and Georgia began carrying Graeter’s
ice cream, and customer reception was so positive that distribution was soon expanded to the entire national network of
2,400 Kroger-owned stores.
Today, Graeter’s works with Kroger, Whole Foods Market,
and thousands of grocery retailers across the country,
sometimes selling directly and sometimes through food
brokers. Its ice creams are also on the menu in some fine
restaurants and country clubs. In addition, the company operates an online store and will ship ice cream overnight to any
of the 48 continental states (California is its biggest shipping
market). The management team would like to explore selling
Graeter’s in Canada, perhaps within the next five years. “The
challenge, of course, is to preserve the integrity of the product
as we grow,” says CEO Richard Graeter II. “But we have done
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that for more than 100 years, and I’d argue that it’s better
now than ever.”
A TASTE OF GRAETER’S
The company’s top-selling flavor is black raspberry chocolate
chip—at 30 years young, a relatively new edition to the product
line. It’s always on the menu at company stores, along with other
popular flavors and an ever-changing group of more than one
dozen limited-time seasonal and “mystery” flavors. For example,
Graeter’s used its Facebook page to announce the introduction of
Cake Batter Fudge Brownie as a recent mystery flavor. Depending
on how well limited-time flavors sell, some will become a regular
part of the menu, some reappear during a later season, and some
will vanish forever. Publicizing these unique flavors helps Graeter’s
build excitement among current customers and bring new customers in for a taste.
Publicity about Graeter’s rich, creamy products has sparked
floods of orders from customers who live miles from any store.
Before Oprah Winfrey told viewers on her talk show that Graeter’s
was the best ice cream she had ever tasted, the company was filling about 40 mail orders per day. After Winfrey’s on-air compliment in 2002, “the next day we probably shipped 400,” the CEO
remembers. Since then, Graeter’s has enjoyed occasional brand
exposure on the Food Network, the Fine Living Channel, the
Travel Channel, and even the History Channel.
Because Graeter’s competes with brands owned by multinational giants, it faces the same challenge in new markets as any
“small, regional niche player,” says George Denman, vice president of sales and marketing. Its marketing is focused on “establishing a relationship with the consumer, building brand awareness [through] trial and repeat . . . One of the first things we do
is we demo the product. We get it out in front of the consumer
and get them to taste it, because the product sells itself.” The
company has also been reducing its price to distributors, who
can then promote Graeter’s pints at special sale prices. “If a consumer has maybe been buying Ben & Jerry’s and never considered
ours, because maybe that dollar price point difference was too
high, this gives her the opportunity to try us. And once she tries
us, we know we’ve brand-switched that consumer right then,”
Denman adds.
“SWEET REWARDS” FOR LOYALTY
Graeter’s created the “Sweet Rewards” program to motivate
repeat purchasing at its scoop shops, identify its best customers for special in-store attention, and reinforce customer loyalty. Customers simply pick up a Sweet Rewards card in any
Graeter’s shop, register for the program online, and present the
card whenever they buy in a Graeter’s store. Members get 10
bonus points for joining and one point for every $1 they spend.
They can redeem points for rewards such as a free T-shirt, a free
Part 5 Marketing
these programs and cut some things out and improve on some
other things, but in the end we have been very pleased with the
results.”25
Graeter’s teddy bear, or a discount on future purchases. Because
Graeter’s collects purchase data electronically and has the e-mail
address of every member, it stays in touch with special promotions such as double rewards points for buying featured items.
Through its Cincinnati-based ad agency, Graeter’s does
some local advertising, including point-of-sale displays in grocery stores, radio ads, print ads, and billboards. The company
launches small-scale promotions for new-product introductions, National Ice Cream Month, and other occasions. The
head of sales and marketing says, “We are looking at electronic
couponing, where consumers will be able to go to our Web
site as a new consumer . . . and secure a dollar-off coupon
to try Graeter’s, just for coming to our Web site or joining up
on Facebook. We’ve done loyalty programs with Kroger where
they have actually direct-mailed loyal consumers and offered .
. . discounts as well . . . . So far it’s worked well for us. We’ve
had to go back and look at the return on investment on each of
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1. Which of Graeter’s marketing-mix elements are most likely to
be affected by external forces in the marketing environment,
and in what ways?
2. Graeter’s scoop shops sell ice cream, sorbet, smoothies,
candy, and (in Cincinnati only) bakery items. Should the company consider a brand extension such as iced coffee drinks for
its scoop-shop menu? Explain your answer.
3. Is Graeter’s using intensive, selective, or exclusive distribution?
Why is this level of market coverage appropriate for its ice
cream products?
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This part is one of the most important components of your business plan. In this part, you will present the facts that you have
gathered on the size and nature of your market(s). State market
size in dollars and units. How many units and what is the dollar
value of the products you expect to sell in a given time period?
Indicate your primary and secondary sources of data and the
methods you used to estimate total market size and your market
share. Part 5 of your textbook covers all marketing-related topics.
These chapters should help you to answer the questions in this
part of the business plan.
THE MARKETING PLAN COMPONENT
The marketing plan component is and should be unique to
your business. Many assumptions or projections used in the
analysis may turn out differently; therefore, this component
should be flexible enough to be adjusted as needed. The marketing plan should include answers to at least the following
questions:
5.1. What are your target markets, and what common identifiable need(s) can you satisfy?
5.2. What are the competitive, legal, political, economic, technological, and sociocultural factors affecting your marketing efforts?
5.3. What are the current needs of each target market? Describe
the target market in terms of demographic, geographic,
psychographic, and product-usage characteristics. What
changes in the target market are anticipated?
5.4. What advantages and disadvantages do you have in meeting the target market’s needs?
5.5. How will your product distribution, promotion, and price
satisfy customer needs?
Chapter 15 Developing Integrated Marketing Communications
5.6. How effectively will your products meet these needs?
5.7. What are the relevant aspects of consumer behavior and
product use?
5.8. What are your company’s projected sales volume, market
share, and profitability?
5.9. What are your marketing objectives? Include the following
in your marketing objectives:
●●
●●
●●
●●
●●
●●
Product introduction, improvement, or innovation
Sales or market share
Profitability
Pricing
Distribution
Advertising (Prepare advertising samples for the appendix.)
Make sure that your marketing objectives are clearly written, measurable, and consistent with your overall marketing
strategy.
5.10. How will the results of your marketing plan be measured
and evaluated?
REVIEW OF BUSINESS PLAN ACTIVITIES
Remember that even though it will be time-consuming, developing a clear, well-written marketing plan is important. Therefore,
make sure that you have checked the plan for any weaknesses
or problems before proceeding to Part 6. Also, make certain
that all your answers to the questions in this and other parts are
consistent throughout the business plan. Finally, write a brief
statement that summarizes all the information for this part of
the business plan.
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Facebook’s Rise From Dorm
Room to Board Room
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1.Every day, millions of people use Facebook to connect with
friends, relatives, and businesses. As a result, Facebook is now
the world’s leading social media company. In your opinion,
what factors have led to Facebook’s success?
2. What is Facebook’s e-business model, and how does this
model fit its customers’ social media needs and interests?
How does this social media company generate revenues and
profits?
3. Because Facebook is a public corporation, it is now accountable to shareholders. If you owned Facebook shares, how
would you react to the CEO’s statement about making money
to build better services, not building services to make money?
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revenues alone. Because the majority of Facebook users in the
United States, Brazil, India, and other large markets access their
accounts via smartphone, the company is working on ways to sell
more mobile advertising.
Facebook is also trying to find an appropriate balance between
its advertisers’ need for marketing data and its users’ need for privacy. A few years ago, it violated its own privacy policy by allowing advertisers access to some individually identifiable user data
and by sharing some user data with outside software developers.
After a public uproar and a government investigation, Facebook
agreed in a settlement with the Federal Trade Commission that it
would obtain the consent of users before making changes to their
privacy settings. Under this settlement, Facebook must allow independent auditors to check its privacy controls and activities every
other year for the next 20 years.
Facebook became a publicly traded corporation in 2012 by
selling $16 billion worth of common stock. The money it raised
will fuel its global expansion and pay for the next generation
of social media services to meet users’ needs now and into the
future. “We don’t build services to make money,” CEO Mark
Zuckerberg says. “We make money to build better services.”34
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In February of 2004, Harvard University sophomore Mark
Zuckerberg cofounded a Web site as a “facebook” (formerly the
term for a physical photo album provided to a student body)
where he and his classmates could post their photos and basic
profile information. It caught on so quickly that just a month
later, Zuckerberg opened it to students at other colleges and universities. By summer, Facebook had become a national phenomenon. Zuckerberg moved the company from his dorm room to
California’s high-tech Silicon Valley, and he hired more engineers
to write software for new features like the “wall,” where users
post messages, photos, and videos.
Year after year, millions of new users logged on to “friend”
friends, acquaintances, family, and classmates. Businesses
also created pages to promote themselves and their products. Facebook’s rapid growth soon attracted the attention of
Microsoft, which in 2007 invested $240 million to buy a tiny
stake in the feisty firm. Zuckerberg and his team were already
hard at work on a new round of upgrades to make Facebook even
more social.
In early 2008, Facebook Chat went live. Although engineers
had argued for a chat feature to allow private, real-time typed
conversations between users, top managers weren’t enthusiastic.
Engineers continued development and demonstrated its use again
and again until they finally won Zuckerberg’s approval. Today,
it remains one of the site’s most popular features. By 2009,
Facebook had more users worldwide than it primary competitor,
MySpace. A year later, Jesse Eisenberg starred as Mark Zuckerberg
in The Social Network, an Academy Award–winning movie about the
legal battles embroiled in Facebook’s financial bonanza.
Most of the company’s revenues come from advertising.
Facebook knows a lot about its users, so it can help advertisers like Domino’s Pizza reach highly targeted audiences, such
as people in certain age groups and people who have “liked” a
particular brand or product. Now, with nearly 1 billion users,
Facebook earns more than $3 billion every year from advertising
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1 SOCIAL
MEDIA EXERCISE
The purpose of the first part of this chapter is to introduce you
to social media and its importance to business. After reading
the chapter, choose a business that you either know something
about, want to start, or is the company you already work for.
Assignment
1. Develop a social media plan for that business using what you
learned in this chapter.
2. What are the objectives of your social media plan?
Chapter 16 Exploring Social Media and e-Business
3. What social media tools would you choose and why? How
would you measure success?
4. Prepare a report that describes how this exercise has helped
you understand the material in this chapter.
2 JOURNALING FOR SUCCESS
Today, more and more people use the Internet to purchase products or services. And yet, many people are reluctant to make
online purchases because of identity and privacy issues. Still others are “afraid” of the technology.
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Assignment
1.Have you ever used the Internet to purchase a product or
service? If you answered yes, why did you purchase online as
compared with purchasing the same product or service in a
traditional retail store?
2. In your own words, describe whether the online shopping
experience was a pleasant one. What factors contributed to
your level of satisfaction or dissatisfaction?
3. If you answered no, describe why you prefer to shop in a traditional retail store as compared with shopping on the Web.
3 DEVELOPING
CRITICAL-THINKING SKILLS
Millions of people around the world belong to social networks.
And yet, you may want to consider the following facts before joining or sharing personal information on a social site.
Prospective or current employers often use the information you
post on social sites to learn more about you.
●● People who you do not know (or want to know) often can view
your personal information.
●● Although social sites have revised or improved their privacy policies, there are still too many reports of serious privacy abuses
that affect too many users.
Today, the two most popular social sites are Facebook and Twitter.
Both sites have privacy statements and attempt to protect users.
●●
Assignment
1.Go to the Facebook Web site (www.facebook.com) and the
Twitter Web site (www.twitter.com) and examine each site’s
privacy policy. (Hint: Scroll down to the bottom of the home
page and look for the link marked “Privacy.”)
2.Read each site’s privacy policy. Note any concerns that you
feel could restrict the type of information you might want to
share or lead to a violation of your personal privacy.
3. In a two-page report, answer at least the following questions.
a. What specific actions has each site taken to protect your
privacy?
b. Are there weaknesses in the policies that could lead to
abuses of your personal privacy?
c. Based on your research, which site do you think has the
most effective privacy policy? Why?
d.How has this exercise changed the type of information you
would share on the Facebook or Twitter Web site? Explain
your answer.
4 BUILDING TEAM SKILLS
After graduating from college with a degree in marketing, your
first job was working in the marketing department for a fast-food
chain located in the southwestern part of the United States. After
three years, you were promoted and became director of the chain’s
social media program. While monitoring posts about the company
on Facebook and Twitter, you notice the following post from one
of the firm’s former employees.
“Got fired today, but I was tired of serving low-quality food
with expired expiration dates. Don’t eat there or any of the
chain’s restaurants unless you want to get deathly ill.”
To make matters worse, a couple of other employees who had
recently been fired chimed in and made posts of a similar nature.
Assignment
1. Working in small teams, create a response that can be used
to convince consumers that your company is committed to
food freshness and quality and that these posts were made by
employees who had been terminated.
2. Choose a spokesperson that will read your response to the rest
of the class.
3. As a class, discuss the pros and cons of each response developed by each team.
4. Ask all members of the class to vote on the best response.
5.Finally, each team should prepare a report for the company’s
management that describes what happened and the response
that was made to tell the company’s side of this issue and
restore consumer confidence in the firm’s food products.
5 RESEARCHING DIFFERENT CAREERS
Today, there are a wide assortment of career opportunities in companies that are involved in technology, social media, and e-business.
In addition to existing business, there are new technology companies
springing up every day. In many cases, these firms want people with
a fresh outlook on how technology, social media, and e-business
companies can differentiate their products or services from those of
other companies in the same industry. They often prefer individuals without preconceived notions about how to proceed. Web site
managers, designers, creative artists, and content specialists are just
a few of the positions available. Many large online job sites, such as
Monster.com, can help you to find out about employment opportunities and the special skills required for various jobs.
Assignment
1. Identify a Web site that provides information about careers in
technology, social media, or e-business.
2. Summarize the positions that appear to be in high demand.
3. What are some of the special skills required to fill these jobs?
4. What salaries and benefits typically are associated with these
positions?
5. Which job seems most appealing to you personally? Why?
Endnotes
1. Sources: Based on information in Dean Takahashi, “Angry Birds Space Introduces
the Age of the Mobile Game Blockbuster,” Washington Post, March 27, 2012, www.
washingtonpost.com; Maeghan Ouimet, “Can This Company Become the New
Disney?” Inc., March 26, 2012, www.inc.com; Sherman So, “Angry Birds Head
for China,” China Business, January 18, 2012, www.atimes.com; Carter Dotson,
“How Mobile Games Leapt from Cult to Cultural Phenomenon,” Mashable, January
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30, 2012, www.mashable.com; Chris Reidy, “Shipments Rise for Angry Birds
Merchandise,” Boston Globe, July 19, 2011, www.boston.com; Jenna Wortham,
“Angry Birds, Flocking to Cellphones Everywhere,” New York Times, December 11,
2010, www.nytimes.com; and the Rovio Entertainment Web site at www.rovio.com,
accessed April 22, 2012.
Part 6 Social Media, e-Business, and Accounting
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Video Case 17.1
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As the “leading supplier of exclusive, high-end audio and video
electronics for homes, businesses, educational institutions, and
other organizations in greater Chicagoland,” The Little Guys has
built an enviable reputation since its founding in 1994. The Little
Guys sells and installs top-brand home audio and theater equipment and does it well. The company prides itself on its highly
knowledgeable salespeople and outstanding customer service,
and these have helped it survive strong competition from both
“big guys” like the Best Buy electronics chain, which has a store
not far away, and economic downturns that have cut consumers’
buying power. “We have the best employees,” says the company’s
Web site, and “how we treat our customers makes us great.”
David Wexler, the store’s co-owner, describes how one of the
firm’s award-winning salespeople deals with his customers, for
instance: “If a guy comes in to buy a $50 DVD player, Ed treats
him the same as the guy who’s spending $500,000 with us. I think
that’s what keeps people coming back over and over and over. He
fights for them. Frankly, sometimes he fights too much for them.
But he’s their advocate, and they know it.”
In response to recession-slowed sales, the company was
recently forced to lay some people off and has reorganized
departments from advertising to payroll (the latter is a major
and complex expense for The Little Guys because its salespeople
earn base pay plus a percentage of their sales). In another costcutting move, the company also recently moved to a new location
not far from its original store, and it’s keeping close track of its
cash flows in and out. Salespeople are careful about customers’
change orders, too, which often cost the company money. Now,
as the economy begins to improve and consumers begin to spend
more on electronics, these same cost-cutting measures will help
improve the firm’s bottom-line profit amount.
With the help of QuickBooks accounting software and a
professional accountant who visits regularly, David Wexler and
co-owner Evie Wexler have deepened their knowledge of accounting and finance as the business has grown. In the beginning, for
instance, they checked sales figures every day, but David quickly
realized that this practice created instant information overload.
Case 17.2
Will sales and profits meet the expectations of investors and Wall
Street analysts? Managers at public corporations must answer
this important question quarter after quarter, year after year. In
an ideal world—one in which there is never an economic crisis,
expenses never go up, and customers never buy competing products—the corporation’s price for a share of its stock would soar,
and investors would cheer as every financial report showed everhigher sales revenues, profit margins, and earnings.
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Now he looks at the numbers about every week or ten days, comparing each set with past results, and the accountant comes in
at least once each quarter to help with more complex issues like
depreciation of assets and equipment for tax purposes. Taxes are
a big concern. As Evie Wexler points out, sometimes the firm has
to make a special push to sell off inventory in order to generate
extra cash flow when taxes are due, or when it wants to purchase new merchandise that customers are asking for and that
will therefore sell faster. Keeping warehoused inventory low saves
money, too.
One reason cash flow can be slow is that customers often
negotiate prices and repayment terms at The Little Guys, so
that an expensive system might not only be sold at a discount,
but the customer may also be given extra time to pay. That
certainly helps make customers happy, but if it means the company is paying its own suppliers on time while customers lag
in their payments, cash can get tight. As David explains, that’s
partly why The Little Guys limits the number of brands it sells
and works with only a few suppliers. Establishing good relationships with these suppliers, largely by ordering regularly and
paying on time, allows the company to ask them for special discounts or improved payment terms—even when other retailers
aren’t getting them—and find yet another way to earn a little
more profit on the same volume of sales.6
Questions
1.Do you think a fairly small company like The Little Guys still
needs a professional accountant after its owners have had so
much experience running a successful business? Why or why
not?
2.Do you think The Little Guys is doing a good job of using
information to manage the business? If so, why, and if not,
how can the company improve this function?
3. What are some of the factors that contribute to The Little
Guys’ cash-flow problems? How might the owners better
manage its cash flow?
Making the Numbers or
Faking the Numbers?
In the real world, however, many uncontrollable and unpredictable factors can affect a corporation’s performance.
Customers may buy fewer units or postpone purchases, competitors may introduce superior products, expenses may rise, interest
rates may climb, and buying power may plummet. Faced with
the prospect of releasing financial results that fall short of Wall
Street’s expectations, managers may feel intense pressure to
“make the numbers” using a variety of accounting techniques.
Part 6 Social Media, e-Business, and Accounting
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Questions
1. What are the ethical and legal implications of using accounting practices such as the book-and-hold technique to inflate
corporate earnings?
2. Why would Commodore’s auditor insist that Rob document
any sales booked under the book-and-hold technique?
3.If you were in Rob’s situation, would you agree to use the
book-and-hold technique this month? Justify your decision.
4.Imagine that Commodore has taken out a multimillion-dollar
loan that must be repaid next year. How might the lender react
if it learned that Commodore was using the book-and-hold
method to make revenues look higher than they really are?
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figures using “book and hold,” which means recording future
sales transactions in the current period.
Rob hesitates, saying that the company is gaining market share
and that he needs more time to get sales momentum going. He
thinks “book and hold” is not a good business practice, even if
it is legal. Margaret hints that Rob will lose his job if his sales
figures don’t look better and stresses that he will need the bookand-hold approach for one month only. Rob realizes that if he
doesn’t go along, he won’t be working at Commodore for very
much longer.
Meeting with Kevin, one of Commodore’s auditors, Rob learns
that book and hold meets GAAPs. Kevin emphasizes that customers must be willing to take title to the goods before they’re
delivered or billed. Any book-and-hold sales must be real, backed
by documentation such as e-mails to and from buyers, and the
transactions must be completed in the near future.
Rob is at a crossroads: His sales figures must be higher if
Commodore is to achieve its performance targets, yet he doesn’t
know exactly when (or if) he actually would complete any bookand-hold sales he might report this month. He doesn’t want to
mislead anyone, but he also doesn’t want to lose his job or put
other people’s jobs in jeopardy by refusing to do what he is being
asked to do. Rob is confident that he can improve his district’s
sales over the long term. However, Commodore’s executives are
pressuring Rob to make the sales figures look better right now.
What should he do?7
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For example, some executives at the telecom company
WorldCom made earnings look better by booking billions of dollars in ordinary expenses as capital investments. The company
was forced into bankruptcy a few weeks after the $11 billion
accounting scam was exposed. As another example, top managers at the drug retailer Rite Aid posted transactions improperly to
inflate corporate earnings. Later, when Rite Aid had to lower its
earnings by $1.6 billion, investors fled and the share price fell.
Under the Sarbanes–Oxley Act, the CEO and CFO now must
certify the corporation’s financial reports. (For more information
about Sarbanes–Oxley, visit www.aicpa.org, the Web site of the
American Institute of Certified Public Accountants.) Immediately
after this legislation became effective, hundreds of companies
restated their earnings, a sign that stricter accounting controls were
having the intended effect. “I don’t mean to sugarcoat the figure
on restatements,” says Steve Odland, the former CEO of Office
Depot, “but I think it is positive—it shows a healthy system.” Yet
not all earnings restatements are due to accounting irregularities.
“The general impression of the public is that accounting rules are
black and white,” he adds. “They are often anything but that, and
in many instances the changes in earnings came after new interpretations by the chief accountant of the SEC.”
Now that stricter regulation has been in force for some time,
fewer and fewer corporations are announcing restatements. In
fact, the number of corporations restating earnings has declined
since it peaked in 2006. The chief reason for the decline is that
corporations and their accounting firms have learned to dig
deeper and analyze the process used to produce the figures for
financial statements, as well as checking the numbers themselves.
Because accounting rules are open to interpretation, managers sometimes find themselves facing ethical dilemmas when
a corporation feels pressure to live up to Wall Street’s expectations. Consider the hypothetical situation at Commodore
Appliances, a fictional company that sells to Home Depot,
Lowe’s, and other major retail chains. Margaret, the vice president of sales, has told Rob, a district manager, that the company’s sales are down 10 percent in the current quarter. She points
out that sales in Rob’s district are down 20 percent and states
that higher-level managers want him to improve this month’s
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1 USING
SOCIAL MEDIA
The Security and Exchange Commission (SEC) regulates accounting practices and has pretty specific rules about endorsements
and testimonials. Yet, much of the content on social media sites
deals with both endorsements and testimonials. For example,
Facebook “likes” can be considered a type of endorsement.
Recently the SEC weighed in on this. Read a summary of what
they had to say at www.accountingtoday.com/news/SEC-SocialMedia-Guidelines-61964-1.html.
1. What do you think of these rules? Do you agree or disagree?
Why?
Chapter 17 Using Management and Accounting Information
2.Can you think of other industries that may have to contend
with the transparency of social media?
2 JOURNALING FOR SUCCESS
More and more people are using computers and personal finance
and accounting software to provide the information they need
to manage their finances. To complete this journal entry, use the
Internet to research the Quicken software package or a software
package offered by a local bank or financial institution. Then
answer the following questions.
515
Assignment
1.Today, personal finance and accounting software packages
are used by millions of people. Based on your initial research,
would you prefer to purchase Quicken software or use a free
software package available from a bank or financial institution? Why?
2. Why do you think these money-management software packages have become so popular? Do you think either type of
software package could help you manage your finances?
3
DEVELOPING CRITICAL-THINKING SKILLS
According to the experts, you must evaluate your existing financial condition before establishing an investment plan. As pointed
out in this chapter, a personal balance sheet provides a picture of
your assets, liabilities, and net worth. A personal income statement will tell you whether you have a cash surplus or cash deficit
at the end of a specific time period.
Assignment
1.Using your own financial information from last month, construct a personal balance sheet and personal income statement.
2. Based on the information contained in your personal financial
statements, answer the following:
a. What is your current net worth?
b.Do you have a cash surplus or a cash deficit at the end of
the month?
c. What specific steps can you take to improve your financial
condition?
3. Based on your personal financial information, prepare a
plan for improving your financial condition over the next six
months.
4
BUILDING TEAM SKILLS
Assignment
1.In groups of three or four, analyze the financial condition of
Park Avenue Furniture.
2.Discuss why you think the bank officer turned down Park
Avenue’s loan request.
3. Prepare a detailed plan of action to improve the financial
health of Park Avenue Furniture over the next 12 months.
5 RESEARCHING
DIFFERENT CAREERS
To improve productivity, employers expect employees to use
computers and computer software. Typical business applications
include e-mail, word processing, spreadsheets, and graphics. By
improving your skills in these areas, you can increase your chances
not only of being employed but also of being promoted once you
are employed.
Assignment
1.Assess your computer skills by placing a check in the appropriate column in the following table:
Software
None
Skill Level
Low
Average High
e-Mail
Word processing
Desktop publishing
Accounting
Database management
Graphics
o
Spreadsheet
Internet Research
2.Describe your self-assessment in a written report. Specify the
skills in which you need to become more proficient, and outline a plan for doing this.
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This has been a bad year for Miami-based Park Avenue Furniture.
The firm increased sales revenues to $1,400,000, but total
expenses ballooned to $1,750,000. Although management
realized that some of the firm’s expenses were out of control,
including cost of goods sold ($700,000), salaries ($450,000),
and advertising costs ($140,000), it could not contain expenses.
s ya
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Running a Business Part 6
As a result, the furniture retailer lost $350,000. To make matters worse, the retailer applied for a $350,000 loan at Fidelity
National Bank and was turned down. The bank officer, Mike
Nettles, said that the firm already had too much debt. At that
time, liabilities totaled $420,000; owners’ equity was $600,000.
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Adding MIS and Social Media to Graeter’s Recipe for Success
Graeter’s still makes ice cream by hand, just like the founders did
in 1870. But in every other respect, it’s a very different business
from the mom-and-pop firm founded by the great-grandparents
of Richard, Robert, and Chip Graeter. The founders greeted their
customers in person, mixed and packed every batch of ice cream
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by hand, and added up the cash in the till after hours to find out
how much they had made.
In contrast, today’s fourth generation of family owners runs
a $30 million company with a workforce of nearly 800 and three
factories capable of producing, in total, well over a million pints
Part 6 Social Media, e-Business, and Accounting
of ice cream every year. Graeter’s now sells premium ice cream
through supermarkets and grocery stores in 43 states, and
receives thousands of orders through its Web site every year. It
would be impossible for the owners to keep this business running
smoothly—let alone keep up their fast-paced growth strategy—
using only the basic information systems that served Graeter’s
earlier in its history.
NEW GROWTH, NEW SYSTEMS
Paul Porcino, a consultant working with the Graeter family,
observes that small, entrepreneurial firms often have only “a
very small amount of information, and . . . it hasn’t been pulled
together in any meaningful way.” In fact, the Graeter’s stores were
collecting some useful sales data, but “not really enough to run
the company of the future,” he notes. Therefore, the first step
in implementing an updated information system was to define
what Graeter’s executives needed to know to run the business.
For example, they needed to be able to track unit sales online, in
each store, and to each wholesale customer, and to measure both
costs and profitability by product and channel. Without timely,
accurate, and detailed data, they couldn’t determine how far they
were progressing toward their goals, nor could they coordinate
the efforts of every business function for maximum efficiency.
With the new management information system, Graeter’s
owners would have “some of the same powerful decision-making
tools available to managers in much larger companies,” Porcino
says. “We are going to be . . . bringing in probably a variety of different information systems . . . so we fully have an understanding
of what we are selling, as well as some other financial systems,
and probably some human resources information systems.”
Despite some technical challenges during implementation,
Graeter’s has already experienced some of the benefits of collecting better information, particularly about store-level sales. When
management noticed that overall bakery sales weren’t up to par,
“we had to adjust,” comments Porcino. The remedy was surprising: “We actually reduced the number of products we were selling
in the store . . . . It wasn’t very clear exactly how much we were
selling, but at least [we had] the good-enough gut sense in terms
of the ones that were not selling, and we . . . adjusted the total
inventory line.” With the MIS in place, Graeter’s managers have
the data they need to fine-tune production, inventory, and shipments to meet demand in each channel.
COUNTING ON ACCOUNTING
Graeter’s controller, David Blink, is responsible for preparing “all
financial statements, all reports, payroll, [and] any ad hoc reports
that any of the managers would need. I handle a lot of the reporting for the retail side as well as the manufacturing side,” he says.
Although an outside payroll company actually prints the employees’ checks, Blink’s department collects and analyzes payroll data
as input for management decisions.
Chapter 17 Using Management and Accounting Information
Blink and his staff are also in charge of accounts receivable,
accounts payable, and financial reporting. They check and record
financial details about revenues and expenses, and then send the
data to an outside accounting firm, which prepares financial statements for top management use. With these reports in hand, the
Graeter’s team can make informed decisions about how many
seasonal employees to hire, which products to keep, how much to
invest in new equipment, and other issues that arise day by day.
GRAETER’S SOCIAL SIDE
Even a small business can have a big presence in social media.
Graeter’s has designated an employee to manage all of the
company’s activities on Facebook, Twitter, and YouTube. With
150,000 Facebook “likes,” Graeter’s engages its brand fans in
conversations about new or favorite flavors, the size of its chocolate chunks, special celebrations featuring ice cream, and more.
It posts a new message or photo every few days, and reveals the
names of mystery flavors on Facebook in advance of other publicity. As a result, fans return to its Facebook page often and they
enjoy commenting on what other customers post, as well. In
addition, Graeter’s tweets frequently and periodically posts videos
on its YouTube channel.
Graeter’s also monitors mentions of its brand on other socialmedia sites. For example, hundreds of consumers have shared
images of Graeter’s ice cream and its logo on the Pinterest site.
As other people add their comments and click to “like,” the conversation continues and the word of mouth builds more buzz
for the Graeter’s brand. Similarly, whenever a customer uses
Foursquare to “check in” at a Graeter’s shop while buying a sundae or another treat, others can see the activity. The social competition aspect of Foursquare encourages others to join the fun
by vying to become “mayor” of a particular location (such as a
Graeter’s shop) by gaining the highest number of check-ins during
the month. No matter who’s the Foursquare mayor, Graeter’s is
always the brand winner.8
Questions
1. Suppose you were writing a social media plan for Graeter’s,
with two objectives: to improve brand awareness in markets
where the ice cream is just becoming available and to build
online orders during holiday periods. What quantitative and
qualitative measurements would you plan to use to evaluate
the results of your plan?
2. Graeter’s uses information to track cash, sales revenue, and
expenses on a daily basis. How does this type of accounting
system facilitate effective decision-making and discourage
store-level theft?
3. As a small but fast-growing, privately-owned company,
which of the financial ratios should Graeter’s track especially
closely? Why?
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Building a Business Plan Part 6
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Now that you have a marketing plan, the next big and important
step is to prepare a financial plan. One of the biggest mistakes an
entrepreneur makes when faced with a need for financing is not being
prepared. Completing this section will show you that if you are prepared and provide accurate and relevant management and accounting information, the task may be easier than you think. Chapter 16
“Exploring Social Media and e-Business” and Chapter 17, “Using
Management and Accounting Information,” should help you to
answer the questions in this part of the business plan.
THE INFORMATION AND ACCOUNTING
PLAN COMPONENT
Information and accounting systems are important if your business is to succeed. Your information plan should answer at least
the following questions.
6.1.How will you gather information about competitors, their
products, and the prices that they charge for their products
and services?
6.2.Explain how you will develop a management information system to collect, store, update, and process data, and present
information?
6.3.Will your business have an e-business component? If so,
explain how you will sell your products or services online.
6.4.Are there ways that you can use social media to promote
products and services and reach out to your customers?
6.5.Who will create and maintain the accounting system that you
will use to record routine business transactions for your business?
6.6.Will you hire an accountant to prepare financial statements
for your firm?
THE FINANCIAL PLAN COMPONENT
Your financial plan should answer at least the following questions about the investment needed, sales and cash-flow forecasts,
breakeven analysis, and sources of funding.
6.7.What is the actual amount of money you need to open your
business (start-up budget) and the amount needed to keep it
open (operating budget)? Prepare a realistic budget.
6.8.How much money do you have, and how much money will
you need to start your business and stay in business?
6.9.Prepare a projected income statement by month for the
first year of operation and by quarter for the second and
third years.
6.10.Prepare projected balance sheets for each of the first three
years of operation.
6.11.Prepare a breakeven analysis. How many units of your products or service will have to be sold to cover your costs?
6.12. Reinforce your final projections by comparing them with
industry averages for your chosen industry.
REVIEW OF BUSINESS PLAN ACTIVITIES
Throughout this project you have been investigating what it takes
to open and run a business, and now you are finally at the bottom
line: What is it going to cost to open your business, and how much
money will you need to keep it running for a year? Before tackling the
last part of the business plan, review your answers to the questions in
each part to make sure that all your answers are consistent throughout the entire business plan. Then write a brief statement that summarizes all the information for this part of the business plan.
Endnotes
1. Sources: Based on information from the PwC Web site at www.pwc.com, accessed
April 12, 2012; Alison Overholt, “American Idol: Accounting Edition,” Fortune,
October 17, 2011, pp. 101–106; Dena Aubin, “Going Green, Big Business Hires
Auditors for Proof,” Reuters, November 23, 2011, www.reuters.com; Alex Spence,
“PwC Reclaims the Lead in Global Consulting’s Four-Horse Race,” The Times (London),
October 4, 2011, www.thetimes.co.uk.
2John Smith, “Financial Reporting in a Changing World,” The International
Accounting Standards Board Web site at www.iasb.org, accessed May 8, 2009.
3.Joseph Nocera, et al. “System Failure Corporate America Has Lost Its Way,” Fortune,
June 24, 2002, 64.
4. “Summary of the Provisions of the Sarbanes–Oxley Act of 2002,” the AICPA Web site
at www.aicpa.org, accessed April 9, 2012.
5. Occupational Outlook Handbook, The U.S. Bureau of Labor Statistics Web site at www.
bls.gov/oco/ocos001.htm, accessed April 9, 2012.
6. Based on information found at The Little Guys Web site at www.thelittleguys.com/
home.asp, accessed April 12, 2012; Alan Wolf, “The Little Guys Get New Home,
Amended Name,” TWICE, April 19, 2010, 6, 22; Audrey Gray, “Perfecting a Soft
Sell,” Dealerscope, March 2009, 82; and information from interviews with company
staff and the video, “The Little Guys.”
518
7. Based on information from The Office Depot Web site at www.officedepot.com,
accessed April 12, 2012; Matt Krantz, “Companies Are Making Fewer Accounting
Mistakes,” USA Today, March 1, 2010, www.usatoday.com; Jane Sasseen, “WhiteCollar Crime: Who Does Time?” BusinessWeek, February 6, 2006, www.businessweek.
com; Stephen Labaton, “Four Years Later, Enron’s Shadow Lingers as Change Comes
Slowly,” New York Times, January 5, 2006, C1; Making the Numbers at Commodore
Appliance (Cengage video).
8. Based on information from Kimberly L. Jackson, “Graeter’s Premium Chocolate Chip
Ice Cream Lands at Stop & Shop,” Newark Star-Ledger (NJ), April 4, 2012,
www.nj.com; “Graeter’s Ice Cream Debuts in Bay Area,” Tampa Bay Times
(St. Petersburg, FL), January 10, 2012, p. 4B; Jim Carper, “Graeter’s Runs a Hands-on
Ice Cream Plant,” Dairy Foods, August 2011, pp. 36+; Jim Carper, “The Greater
Good,” Dairy Foods, August 2011, pp. 95+; “Graeter’s Unveils New ‘Mystery Flavor,’”
Dayton Daily News, March 29, 2012, www.daytondailynews.com; Bob Driehaus, “A
Cincinnati Ice Cream Maker Aims Big,” New York Times, September 11, 2010,
www.nytimes.com; Lucy May, “Graeter’s Northern Kentucky Franchisee Puts
Stores on the Block,” Business Courier, August 6, 2010, http://cincinnati.bizjournals.com; www.graeters.com; interviews with company staff and Cengage videos
about Graeter’s.
Part 6 Social Media, e-Business, and Accounting
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Bank of Hawaii Says “Aloha” to
Customers and Communities
Case 18.2
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Questions
1.Do you agree with Bank of Hawaii’s decision to open
branches in stores while it continues to invest in new
­technology for electronic and mobile banking? Explain
your answer.
2.How might Bank of Hawaii adjust its credit policies if the area
experiences a sudden or dramatic economic downturn? Suggest
at least two adjustments the bank should make when applying
the five C’s of credit in such a situation.
3.In addition to the many languages spoken throughout
the islands, what other challenges do you think banks face
in serving the financial needs of individuals and businesses
in Hawaii? What are the implications for Bank of
Hawaii?
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Building Skills for Career Success
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home, saving for retirement, developing a business plan, and
making investment decisions. More than 2,000 of the bank’s
employees participate in community projects such as Junior
Achievement, the Hawaii Book and Music Festival, and environmental cleanup programs. The annual “employee giving”
campaign raises $500,000 every year to benefit local nonprofit
groups, and the bank donates tens of thousands of dollars for
scholarships and other community needs.
Bank of Hawaii remained profitable even during the recent
recession, thanks in large part to its sound lending practices
and its ability to adapt to changing economic and technological
conditions. As customers began using iPhones and other digital
devices, the bank expanded its mobile and online banking services
to provide instant, on-the-go access to financial information.
Bank representatives tweet and also post on the bank’s Facebook
page to stay in touch with customers who like to use social
media. For added convenience, the bank is opening new branches
inside popular stores, allowing customers to bank where they
shop. Finally, bank officials have created a “business dashboard”
to track performance on key measures of customer service and
identify any areas for improvement.17
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Established 62 years before Hawaii became a state, Bank of
Hawaii is now one of the top-ranked independent banks in
America, known as much for its community involvement as for its
financial strength. With 81 branches spread across six Hawaiian
islands, American Samoa, Saipan, Guam, and Palau, Bank of
Hawaii provides a full range of financial services for corporations,
small businesses, and individuals. From traditional checking and
savings accounts to loans, mobile banking, online bill payment,
and even international trade finance, Bank of Hawaii offers all the
services its customers need to achieve their financial goals.
The Honolulu-based bank briefly experimented with an expansion on the mainland before refocusing on its home state, where
its heritage and market share are competitive advantages. “The
industry recognizes that Hawaii is a challenging place to do business,” says CEO Peter Ho. “It’s the most ethnically diverse state
in the country in many ways.” With this diversity in mind, Bank
of Hawaii offers customers the choice of communicating in
Japanese, Korean, French, Tagalog, Vietnamese, or any of three
Chinese dialects. Also, the bank has arranged for the growing
number of Chinese tourists who visit Hawaii to use their China
UnionPay debit cards at any of Bank of Hawaii’s ATMs.
Two-thirds of Hawaiian households use at least one of the
bank’s services, and it enjoys high customer loyalty within the
business community, as well. Bank of Hawaii gave the founder
of Yummy’s Restaurant Group his first business loan more than
25 years ago. Today, the chain has grown to more than 40 restaurants, and both the company and its founder remain loyal
customers. Maui Soda and Ice Works, a family-owned firm that
makes ice cream sold throughout the Hawaiian islands, appreciates the bank’s professionalism and its expertise in matters such
as local economic forecasting. The bank was recently named
Small Business Association lender of the year in Hawaii, reflecting
its strength in providing financial services for entrepreneurs and
growing businesses.
To help customers learn to better manage their money, Bank
of Hawaii offers monthly seminars on topics such as buying a
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1 SOCIAL
MEDIA EXERCISE
As more and more people have smartphones, it is becoming quite
clear that products like Google Wallet will soon become popular
electronic money-management tools, especially for Millennials—
people born after 1980. Google Wallet is a new way to use your
smartphone to pay for things both in store and online. Google
says you can “Save time and money by shopping with Google
Wallet—a smart, virtual wallet that stores your payment cards,
Chapter 18 Understanding Money, Banking, and Credit
offers, and more on your phone and online.” Take a look at
Google Wallet to see how it works. www.google.com/
wallet.
1. For the consumer, what are the advantages and disadvantages
of Google Wallet (and similar services)?
2. For merchants, what are the advantages and disadvantages of
Google Wallet (and similar services)?
3.Would you use Google Wallet? Why or why not?
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2 JOURNALING
FOR SUCCESS
You could be one of the 11 million Americans who fall victim
to the crime of identity theft every year. Crooks who steal your
name, birth date, credit card numbers, bank account numbers,
and Social Security number can withdraw money from your bank
accounts, charge merchandise in your name, or contract for cellphone service.
Assignment
1. Use the Internet to obtain information about how to
­prevent identity theft. Then, according to the professionals,
describe the steps someone should take to protect his or
her identity.
2.Complete a “security audit” of your personal information and
financial records. Based on your audit and the recommendations from professionals, what should you do now to protect
your identity?
3.It always helps to have a plan in case your identity is stolen.
Based on the information you obtained from your Internet
research, what immediate steps should you take if your identity is stolen?
3 DEVELOPING CRITICAL-THINKING SKILLS
Assumption: There are banks, savings and loan associations,
credit unions, and other financial institutions that want your
business. Therefore, it pays to shop around for the lowest interest rates for loans needed to purchase a home mortgage or an
automobile. It’s also easy to compare interest rates when investing in certificates of deposit (CDs) or savings accounts. A logical
place to start is with the financial institution where you do your
banking. You can also compare interest rates at other local banks
and financial institutions located close to where you live or work.
Finally, you can use the Internet and Web sites like www.bankrate.
com or www.interest.com to determine interest rates for loans
and CD investments.
Assignment
To answer each of the following questions, contact at least three
different financial institutions in your city or town or three different Internet Web sites. Hint: If you use the Internet, use a search
engine like Google or Yahoo! and enter “interest rates” in the
search window.
1.What is the lowest rate you found for a 30-year $150,000
home mortgage?
2.Based on your research, what is the difference between the
lowest interest rate and the highest interest rate for a home
mortgage? Assuming you pay back the loan in 30 years, how
could the difference in interest rates affect the total amount
you will pay for your home?
3.What is the highest interest rate you found for a one-year certificate of deposit?
4.Based on your research, what is the difference between the
highest rate and the lowest rate for a one-year CD? How
could this affect the amount of money you would earn for the
12-month period?
548
5.In a one- to two-page report, summarize what you have
learned from this critical-thinking exercise.
4 BUILDING TEAM SKILLS
Three years ago, Ron and Ginger were happy to learn that, upon
graduation, Ron would be teaching history in a large high school,
making $35,000 a year, and Ginger would be working in a public
accounting firm, starting at $38,000. They married immediately
after graduation and bought a new home for $110,000. Since
Ron had no personal savings, Ginger used her savings for the
down payment. They soon began furnishing their home, charging
their purchases to three separate credit cards, and that is when
their debt began to mount. When the three credit cards reached
their $10,000 limits, Ron and Ginger signed up for one additional
credit card with a $10,000 limit. Soon all their monthly payments were more than their combined take-home pay. To make
their monthly payments, Ron and Ginger began to obtain cash
advances on their credit cards. When they reached the credit ceilings on their four credit cards, they could no longer get the cash
advances they needed to cover their monthly bills. Stress began
to mount as creditors called and demanded payment. Ron and
Ginger began to argue over money and just about everything
else. Finally, things got so bad they considered filing for personal
bankruptcy; ironically, they could not afford the legal fees. What
options are available to this couple?
Assignment
1.Working in teams of three or four, use your local library,
the Internet, and personal interviews to investigate the
following:
a. Filing for personal bankruptcy.
●● What is involved in filing for personal bankruptcy?
●● How much does it cost?
●● How does bankruptcy affect individuals?
b. Review the Money Management International Web site at
www.cccsintl.org.
●● What services does this organization provide?
●● How might this organization help Ron and Ginger?
●● What will it cost?
2. Prepare a specific plan for repaying Ron and Ginger’s debt.
3.Outline the advantages and disadvantages of credit cards,
and make the appropriate recommendations for Ron and
Ginger concerning their future use of credit cards.
4.Summarize what you have learned about credit card misuse.
5 RESEARCHING DIFFERENT CAREERS
It has long been known that maintaining a good credit record is
essential to obtaining loans from financial institutions, but did
you know that employers often check credit records before offering an applicant a position? This is especially true of firms that
handle financial accounts for others. Information contained in
your credit report can tell an employer a lot about how responsible you are with money and how well you manage it. Individuals
have the right to know what is in their credit bureau files and to
have the credit bureau verify any inaccurate, misleading, or vague
Part 7 Finance and Investment
information. Before you apply for a job or a loan, you should
check with a credit bureau to learn what is in your file.
Assignment
1. Using information in this chapter, use the Internet or call a
credit bureau and ask for a copy of your credit report. A
small fee may be required depending on the bureau and
circumstances.
2. Review the information.
3.Have the bureau verify any information that you feel is inaccurate, misleading, or vague.
4.If the verification shows that the information is correct,
prepare a brief statement explaining your side of the dispute,
and send it to the bureau.
5. Prepare a statement summarizing what the credit report says
about you. Based on your credit report, would a firm hire you
as its financial manager?
ENDNOTES
1.Sources: Based on information in Charles Passy, “Banks Branch into Yoga,” Smart
Money, March 13, 2012, www.smartmoney.com; “100 Best Companies to Work For:
No. 69, Umpqua Bank,” Fortune, February 6, 2012, www.fortune.com; Michael Sisk,
“Umpqua Keeps Testing New Ideas,” Bank Technology News, July 1, 2011, p. 18; www
.umpquabank.com.
2. “The Economy: Crisis & Response,” The Federal Reserve Board of San Francisco Web
site at www.frsb.org, accessed April 1, 2012.
3.The Federal Reserve Board Web site at www.federalreserve.gov, accessed
March 30, 2012.
4.Ibid.
5.Ibid.
6.The Investopedia.com Web site at www.investopedia.com, accessed March 30, 2012.
7.The Federal Reserve Board at www.federalreserve.gov, accessed March 30, 2012.
8. “Wall Street Reform,” the White House Web site at www.whitehouse.gov, accessed
June 20, 2010.
9.The Office of the Comptroller of the Currency Web site at www.occ.gov, accessed
March 31, 2012.
10. “The Quarterly Banking Profile for December 31, 2011,” The Federal Deposit Insurance
Corporation Web site at www.fdic.gov, accessed March 31, 2012.
11. U.S. Census Bureau, Statistical Abstract of the United States, 2012 (Washington, DC: U.S.
Government Printing Office), table 1183.
Chapter 18 Understanding Money, Banking, and Credit
12. “The Occupational Outlook Handbook,” the Bureau of Labor Statistics Web site at
www.bls.gov, accessed March 31, 2012.
13. U.S. Census Bureau, Statistical Abstract of the United States, 2012 (Washington, DC: U.S.
Government Printing Office), table 1188.
14.The Federal Trade Commission Web site at www.ftc.gov, accessed March 27, 2012.
15.The United States Senate Committee on Banking, Housing, and Urban Affairs Web site
at banking.senate.gov, accessed June 15, 2010.
16.Company Web sites www.chase.com and www.jpmorganchase.com, accessed
March 31, 2012; “JPMorgan Chase Discloses Results,” American Banking and Market
News, July 15, 2010, www.americanbankingnews.com; Eric Dash, “JPMorgan Chase
Easily Exceeds Estimates,” New York Times, July 15, 2010, www.nytimes.com; and the
video, “Chase Bank Helps Small Business Owners.”
17.Based on information in Jackie Stewart, “Bank of Hawaii to Shift Some Branches to
Grocery Stores,” American Banker, February 7, 2012, www.americanbanker.com;
Wang Kaihao, “Ready to Say ‘Aloha,’” China Daily, June 6, 2011, www.chinadaily.
com; Kurt Badenhausen, “America’s Best and Worst Banks,” Forbes, December 13,
2011, www.forbes.com; Rachel Witkowski, “Two Hawaiian Banks Find There’s No
Place Like Home,” American Banker, May 18, 2011, p. 3; www.boh.com; Bank of Hawaii
Annual Report 2011.
549
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Case 19.2
Growth has been on the menu ever since Bill Darden opened his
first Red Lobster restaurant in Florida in 1968. The combination
of fresh seafood and casual dining caught on quickly—and quickly
caught the eye of General Mills, which bought the fast-growing
company in 1970. In 1995, General Mills renamed the company
after its founder and spun it off in a public offering. Once it went
public, Darden Restaurants used the proceeds to chart a new
financial path to long-term growth.
Today, Darden employs 180,000 people and serves more
than 400 million meals each year across North America in
1,900 casual, full-service restaurants. The company’s seven
restaurant brands are: Red Lobster (seafood), Olive Garden
(Italian menu), LongHorn Steakhouse (Western-theme steaks
and more), The Capital Grille (premium steak house), Bahama
Breeze (Caribbean-theme casual dining), Seasons 52 (fresh-grilled
foods), and Eddie V’s (prime seafood and steaks). In all, Darden’s
yearly revenue tops $7.5 billion.
Healthy cash flow is definitely on the menu. The average
Capital Grille unit rings up $6.5 million in annual sales, the
average Olive Garden rings up $4.8 million in annual sales,
the average Red Lobster rings up $3.6 million, and the average
LongHorn Steakhouse rings up $2.9 million. With the cash generated from restaurant revenue, Darden has been reinvesting in
its businesses by opening new units, remodeling existing units,
and greening its restaurants with eco-friendly materials and
energy-saving touches. Because of its size, it can take advantage of economies of scale in buying foods and beverages from
global sources, which in turn helps keep costs under control and
supports good profit margins.
Over the years, the company has fueled its continued expansion with a combination of debt and equity. The company can
draw on a revolving credit agreement of almost $500 million,
which helps smooth out the financial bumps of its seasonal
business. Typically, Darden’s revenue spikes in the spring and
descends to a low point in the fall, although sales are definitely affected by weather conditions, economic circumstances,
holidays, and other uncontrollable elements. Having revolving
credit in place provides the flexibility to borrow if and when
needed.
Darden has also raised money by issuing corporate bonds,
some of which mature in 5 years, some in 10 years, some in
20 years, and some with even longer maturities. Twice a year,
the company pays interest to its bondholders. On the equity
side, Darden’s common stock trades on the New York Stock
Exchange, and it pays cash dividends to its shareholders. Its
576
Darden Restaurants Serve Up
Long-Term Growth
cash flow has been so strong, in fact, that Darden increased its
dividend not long ago and has focused on paying down debt
even as it invests in business.
Looking ahead, Darden expects to continue its growth spurt,
despite an unpredictable economy and intense competition
from big names in fast food and casual dining. It avoided the
heavy, broad-based discounting that some chains used to attract
customers during the recent economic crisis. Instead, it used
occasional, selective price promotions to heighten its message of
affordability. The company’s financial stability means that it has
money available for making acquisitions, building new restaurants, developing new menu items, training new staff members,
and launching new advertising campaigns.
Within the past decade, Darden has used its financial
strength to buy and expand the Capital Grill and LongHorn
Steakhouse restaurant chains. And Darden acquired the Eddie
V’s and Wildfish Seafood Grill restaurant chain in 2011. It
is also responding to increased consumer interest in healthy
dining by opening more of its Seasons 52 restaurants, which
feature only steamed, baked, or grilled dishes. As its name
implies, Seasons 52 adds new menu items regularly, depending
on what’s in season. The ever-changing menu brings customers
back again and again to try seasonal specialties and enjoy old
favorites.
Sometimes Darden closes underperforming units or sells
entire chains so that it can put its money and management attention into other growth opportunities. A few years ago, Darden
divested its Smokey Bones Barbecue & Grill chain after determining that this restaurant concept did not have the potential for
nationwide expansion and profit potential that Darden required.
What will Darden do next in its quest for profitable, long-term
growth?17
Questions
1. Darden is spending heavily to upgrade the interior of many of
its Red Lobster and LongHorn Steakhouse restaurants. How
would you suggest that the company measure the financial
results of this remodeling program?
2.Why would Darden issue corporate bonds with maturities of
5, 10, 20 years or even longer maturities?
3.If Darden needs cash to remodel existing restaurants and
open new restaurants, as well as to pay down debt, why
would it increase its cash dividend that is paid to its stockholders?
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1 SOCIAL
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Turbo Tax is probably one of the best-known tax preparation
services in the world. One of the reasons for its popularity is that
it provides tax software that people really need. Another reason
for its popularity is the company’s use of social media through
various platforms that include building an online community of
users, using Twitter, and developing a YouTube channel. Each
video on the TurboTax channel illustrates how a company can
use social media to provide valuable information to customers.
You can check out Turbo Tax videos at www.youtube.com/user/
TurboTax/videos.
1.Visit the YouTube channel for Turbo Tax (www.youtube.com/
user/TurboTax/videos). Do you think social media is an effective method of obtaining the tax information you might need
to prepare your taxes?
2.Can you think of other companies that could use videos on
a YouTube channel to share information that their customers
could use?
2 JOURNALING FOR SUCCESS
Because many people spend more than they make on a regular
basis, they often use credit cards to make routine daily purchases.
As a result, the amount they owe on credit cards increases each
month and there is no money left to begin a savings or investment program. This exercise will help you to understand (1) how
you manage your credit cards and (2) what steps you can take to
improve your personal finances.
Assignment
1.How many credit cards do you have?
2. Based on the information on your monthly credit card statements, what types of credit card purchases do you make?
3. Do you pay your balance in full each month or make minimum payments on your credit cards?
4.Most experts recommend that you have one or two credit
cards that you use only if you are in an emergency situation. The experts also recommend that you avoid using
credit cards to make inexpensive purchases on a daily basis.
Finally, the experts recommend that you pay your balance in
full each month.
5. Based on the preceding information, what steps can you
take to better manage your personal finances?
3 DEVELOPING CRITICAL-THINKING SKILLS
Financial management involves preparing a plan for obtaining
and using the money needed to accomplish a firm’s goals and
objectives. To accomplish your own goals and objectives, you
should prepare a personal financial plan. You must determine
Chapter 19 Mastering Financial Management
what is important in your life and what you want to accomplish,
budget the amount of money required to obtain your goals, and
identify sources for acquiring the funds. You should monitor and
evaluate the results regularly and make changes when necessary.
Assignment
1.Using the three steps shown in Figure 19.3, prepare a personal financial plan.
2. Prepare a three-column table to display your plan.
a.In column 1, list at least two goals or objectives under
each of the following areas: Financial (savings, investments, retirement), Education (training, degrees, certificates), Career (position, industry, location), and Family
(children, home, education, trips, entertainment).
b.In column 2, list the amount of money it will take to
accomplish your goals or objectives.
c.In column 3, identify the sources of funds for each goal or
objective.
3. Describe what you learned from doing this exercise in a comments section at the bottom of the table.
4 BUILDING
TEAM SKILLS
Suppose that for the past three years you have been repairing
lawn mowers in your garage. Your business has grown steadily,
and you recently hired two part-time workers. Your garage is no
longer adequate for your business; it is also in violation of the city
code, and you have already been fined for noncompliance. You
have decided that it is time to find another location for your shop
and that it also would be a good time to expand your business. If
the business continues to grow in the new location, you plan to
hire a full-time employee to repair small appliances. You are concerned, however, about how you will get the money to move your
shop and get it established in a new location.
Assignment
1.With all class members participating, use brainstorming to
identify the following:
a.The funds you will need to accomplish your business goals
b.The sources of short-term financing available to you
c. Problems that might prevent you from getting a shortterm loan
d.How you will repay the money if you get a loan
2.Have a classmate write the ideas on the board.
3. Discuss how you can overcome any problems that might hamper your current chances of getting a loan and how your business can improve its chances of securing short-term loans in
the future.
4.Summarize what you learned from participating in this
exercise.
577
5 RESEARCHING
DIFFERENT CAREERS
Financial managers are responsible for determining the best way
to raise funds, for ensuring that the funds are used to accomplish
their firm’s goals and objectives, and for developing and implementing their firm’s financial plan. Their decisions have a direct
impact on the firm’s level of success.
Assignment
1.Investigate the job of financial manager by searching the
library or Internet, by interviewing a financial manager, or
both.
2. Find answers to the following questions:
a.What skills do financial managers need?
b.How much education is required?
c.What is the starting salary? Top salary?
d.What will the job of financial manager be like in the
future?
e.What opportunities are available?
f.What types of firms are most likely to hire financial managers? What is the employment potential?
3. Prepare a report on your findings.
Endnotes
1.Sources: Based on information from the J. M. Smucker Co. Web site at www
.smucker.com, accessed April 15, 2012; Betty Lin-Fisher, “Smucker Spreads into
China Market,” Akron Beacon Journal Online, March 26, 2012, www.ohio.com;
“Smucker Completes Deal for Sara Lee Coffee Unit,” Columbus Business First (Ohio),
January 4, 2012, www.bizjournals.com/Columbus/news; Cecile Vannucci, “J.M.
Smucker Completes Acquisition of Rowland Coffee,” Bloomberg News, May 17, 2011,
www.bloomberg.com; Robert Schoenberger, “J.M. Smucker to Buy Sara Lee’s Coffee
and Tea Business for $400 Million,” Cleveland Plain Dealer, October 24, 2011,
www.cleveland.com; Joseph Ciolli, “Smucker Plans Biggest Bond Offering to Help
Finance Acquisitions,” Akron Beacon Journal Online, October 13, 2011, www.ohio.com.
2.Maria Bartiromo, “BlackRock’s Peter Fisher on When the Pan Will End,” the
BusinessWeek Web site, accessed October 8, 2008.
3.The U.S. Bureau of Labor Statistics at http://bls.gov, accessed February 29, 2012.
4.The 3M Corporation Web site at www.3m.com, accessed February 24, 2012.
5.The McDonald’s Corporate Web site at www.aboutmcdonalds.com, accessed
February 27, 2012.
6.Lubrizol Corporate Web site at www.lubrizol.com, accessed March14, 2011.
7.Tom Randall, “Pfizer Sells Capsugel Pill Unit to KKR for $2.4 Billion,” the Bloomberg
Web site at wwwbloomberg.com, accessed April 4, 2011.
8. “CIT, GE Capital Add to Factoring Businesses,” the Reuters Web site at www.reuters
.com, accessed March 29, 2010.
9.Julianne Pepitone, “Groupon IPO Opens at $28,” the Fidelity.com Web site at
https://fidelity.com/news, accessed November 4, 2011.
10. Ari Levy and Lee Spears, “LinkedIn Retains Most Gains Second Day After Surging in
Initial Offering,” the Bloomberg Web site at www.bloomberg.com, accessed May 20,
2011.
11.Ginger Crist, “Sun Coke Energy IPO Shares Soar,” the Dayton Business Journal Web
site at www.bizjournals.com, accessed July 21, 2011.
578
12. “The GE 2011 Annual Report,” the General Electric Web site at www.ge.com,
accessed August 20, 2012.
13.Russ Garland, “Zynga Inc: Venture Capital Investment Up Despite Fund-Raising
Constraints,” the 4-Traders.com Web site at www.4-traders.com, accessed
January 20, 2012.
14.The Advanced Micro Devices corporate Web site at www.amd.com, accessed
February 25, 2012.
15. Mergent Transportation Manual (New York: Mergent, Inc., 2009), 64.
16. Based on information from the company Web site www.nederlanderconcerts.
com, accessed February 29, 2012; Nederlander Organization company overview,
BusinessWeek, www.businessweek.com, accessed August 20, 2010; Hannah Heineman,
“Moving Forward on Capital Improvement Projects,” Santa Monica Mirror, July 28,
2010, www.smmirror.com; Steve Knopper, “Tour Biz Strong in Weak Economy,”
Rolling Stone, October 2, 2008, 11–12; Ray Waddell, “Nederlander/Viejas Deal Offers
Touring Opportunities,” Billboard, January 10, 2008, www.billboard
.com; interviews with Nederlander employees and the video “Financial Planning and
Budgets Equal Profits for Nederlander Concerts.”
17. Based on information from the company Web site at www.darden.com, accessed
February 29, 2012; Jason Daley, “The 500 Calorie Smack Down,” Entrepreneur, May
2010, 85ff; Jim Johnson, “Darden Plans Eco Eateries,” Waste & Recycling News, March
29, 2010, 6; Ron Ruggless, “Darden Says No to Discounting,” Nation’s Restaurant
News, March 25, 2010, www.nrn.com; Jonathan Birchall, “Darden Claws Back
Custom of US Diners,” Financial Times, March 25, 2010, 18; “Darden 3Q Profit
Rises 25 Percent,” BusinessWeek, March 23, 2010, www.businessweek.com; Michael
Sanson, “Darden Restaurants,” Restaurant Hospitality, August 2009, 28.
Part 7 Finance and Investment
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he says. But by examining their budget, he and Michelle were
able to figure out how to adjust their spending. As a result, they
haven’t run up debt on their credit cards like other people without a budget might have done.
In fact, not only do the Thomases have no credit card debt,
they don’t even have a mortgage on their home. After paying off
all of their consumer debt, they regularly saved as much money as
they could. They then built an impressive two-story home bit-bybit over the course of a three-and-a-half-year period. “We built it
from the ground up, contracting it and financing it completely by
ourselves,” Trevor says.
The difference between people who carry credit card debt and
those who don’t is that the people without it don’t feel deprived
when they can’t have everything they want right away, says Bedda
D’Angelo, a certified financial planner. “They’re not cheap.
They’re just not willing to pay for things they don’t need and
Case 20.2
Boston-based Fidelity Investments wants its 20 million customers to be able to manage their money and receive responsive
assistance from anywhere at any time. Whether customers use an
iPad or Android app, tweet for customer service, transfer money
electronically, use online chat for service, call a broker, or place
orders through the company’s Web site, Fidelity is ready to help
around the clock.
Founded in 1946, Fidelity now has 39,000 employees worldwide and offers 524 mutual funds that hold a total of $3.6 trillion
in assets from individuals and institutional investors. Its mutual
funds fall into four main categories: money market, stocks, bonds,
and international securities. Fidelity is best known for its managed
funds, such as the Contrafund and the Magellan Fund, although it
also offers many indexed stock and bond funds. Over the years, it
has expanded into a wide range of other financial services, including discount brokerage services, college savings accounts, credit
cards, checking accounts, and online bill payment. Fidelity is also
the country’s largest administrator of 401(k) retirement accounts,
handling retirement plans for more than 19,000 corporations, educational institutions, and nonprofit groups.
When the financial markets are open, Fidelity completes
345,000 securities trades per day for its customers. More than
3 million customers click on its user-friendly Web site every day
to read analysts’ reports, learn about investment and account
options, view market update webinars, monitor their portfolios, or
place a trade. For in-person service and advice, customers can visit
one of the 168 Fidelity Investor Centers around the United States
or attend a local seminar featuring Fidelity’s investment experts.
Technology has always been one of Fidelity’s strengths, so it’s
not surprising that the company has a Facebook page with 55,000
“likes” and a Twitter account with 48,000 followers. “Our expectation is that over time, we’ll be interacting with not tens of thousands, but millions of people on these channels,” says Fidelity’s
head of digital distribution. On the company’s Web site, customers
610
haven’t saved for.” They also don’t lie awake at night wondering
how they are going to pay their bills.
The Kofkes admit they have been teased a time or two by people who think they are tightwads. They don’t let it get them down,
though. In today’s debt-addicted world, where so many people,
businesses, and even governments are broke, they’re happy not to
be under a monster-load of debt. “Do what’s right for you and
your family,” Danny advises. “If people who don’t do well managing their money—if they are laughing at you and telling you to
change—then you must be doing something right.”12
Questions
1. Is all debt bad? When does going into debt make sense?
2. Why is it so important for people to save and invest when
they are young?
3. What steps can you take now to improve your financial outlook?
Fidelity Helps Investors Prepare
for Their Financial Future
are invited to rate brokerage products and services for convenience,
value, and features on a scale of one to five stars. In addition, they
can write detailed reviews of what they like and don’t like. This
allows investors to see what other investors think, as well as giving
Fidelity vital feedback and fresh ideas for new products.
Given Fidelity’s diverse menu of offerings, “The time has
arrived when a lot of people can do very well with a firm like
Fidelity for all of their cash management [needs],” says a senior
executive. For example, customers can deposit checks to nonretirement accounts using a smart phone app, and withdraw
money from any local bank’s ATM—Fidelity pays the ATM fee. In
fact, customers now click to make 7 million transfers of money to
or from Fidelity accounts every year, a number that is growing as
customers shift more of their personal finances to Fidelity.
Are young people going to have the money they need to enjoy
retirement decades in the future? Fidelity’s research shows that,
thanks to new U.S. laws, more employees are being automatically
enrolled in their employers’ retirement plans. The earlier people begin
to build their savings, the more money they will have when they reach
retirement age. Among the plans that Fidelity administers, more than
half of company employees now participate in the plan—triple the
number of employees who participated in 2006. When these people
need help with other financial matters, Fidelity will be ready.13
Questions
1. Why would Fidelity offer 524 mutual funds? What are the
advantages to the company and to investors?
2. What are the pros and cons of having a checking account
with Fidelity rather than with a local bank or credit union?
3. If you were trying to evaluate a specific mutual fund, where
would you obtain the research information needed to choose
the right fund? Assuming that you have found the right fund,
would you prefer to invest online or talk with a Fidelity broker
to complete the transaction?
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1 SOCIAL
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A growing number of personal finance- and investment-related
ventures are starting to take advantage of the power of social
media by connecting people beyond the boundaries of Facebook
and Twitter. Peer-to-peer collaboration is now part of a new reality in the personal finance and investment fields. Online investor
communities like Investorvillage (http://investorvillage.com),
Covestor (http://covestor.com), and SocialPicks (http://socialpicks.com) allow people to compare their investment ideas and
their investment portfolio’s performance to those of peers, professional analysts, and financial bloggers. According to SocialPicks,
the site is “a trusted online investing community where investors
and traders invest smarter together.”
1.Do you think peer-to-peer investment and personal finance
Web sites like these are valuable? Why or why not?
2.Do you trust peer-to-peer collaboration when it comes to
investing and personal finance? Why or why not?
2 JOURNALING
FOR SUCCESS
According to many financial experts, the logical place to begin
the search for a quality investment is to examine the products and
services you use on a regular basis—products and services that
provide a high level of consumer satisfaction.
The preceding statement is based on the assumption that if
you like the product or service and you feel that you got excellent value for your money, other consumers will too. And while
it may be obvious, a satisfied, growing customer base can mean
increased sales, profits, and ultimately higher stock values for
the company that manufactured the product or provided the
­service.
Assignment
1.To begin this journal exercise, think about purchases you
made over the last month. Describe one product or service
that you feel “was worth the money.”
2. For the product or service you chose, describe the attributes
or features that impressed you.
3.Determine if the company that made the product or provided
the service is a public company that has issued stock.* Then
use the Internet or go to the library to research the investment
potential for this company. Finally, describe why you feel this
would be a good or bad investment at this time.
*If the company that manufactured the product or service
you chose is not a public company, choose another product or
service.
3 DEVELOPING
CRITICAL-THINKING SKILLS
One way to achieve financial security is to invest a stated amount
of money on a systematic basis. This investment strategy is called
dollar-cost averaging. When the cost is lower, your investment buys
more shares. When the cost is higher, your investment buys
Chapter 20 Understanding Personal Finances and Investments
fewer shares. A good way to begin investing is to select a mutual
fund that meets your financial objectives and to invest the same
amount each month or each year.
Assignment
1. Select several mutual funds from the financial pages of the
Wall Street Journal or a personal finance periodical such as
Money, Kiplinger’s Personal Finance, or SmartMoney that provides
information about mutual funds. Call the toll-free number for
each fund and ask about its objectives. Furthermore, request
that the company send you a prospectus and an annual
report.
2. Select one fund that meets your financial objectives.
3. Prepare a table that includes the following data:
a.An initial investment of $2,000 in the mutual fund you
have selected
b.The net asset value (NAV)
c.The number of shares purchased
4.Record the investment information on a weekly basis. Look
in the Wall Street Journal or on the Internet to find the NAV for
each week.
5.Determine the value of your investment until the end of the
semester.
6. Write a report describing the results. Include a summary of
what you learned about investments. Be sure to indicate if you
think that dollar-cost averaging (investing another $2,000 next
year) would be a good idea.
4 BUILDING TEAM SKILLS
Investing in stocks can be a way to beat inflation and accumulate
money. Traditionally, stocks have earned just below 10 percent
per year since 1926. Bonds and certificates of deposit, on the
other hand, often earn little more than the inflation rate, making
it very difficult to accumulate enough money for retirement.
Assignment
1. Form teams of three people. The teams will compete against
each other, striving for the largest gain in investments.
2.Assume that you are buying stock in three companies; some
should be listed on the NYSE, and some should be traded in
the Nasdaq over-the-counter market.
a.Research different investments, and narrow your choices
to three different stocks.
b.Divide your total investment of $25,000 into three
amounts.
c.Determine the number of shares of stock you can purchase in each company by dividing the budgeted amount
by the price of the stock. Allow enough money to pay for
the commission. To find the cost of the stock, multiply the
number of shares you are going to purchase by the closing
price of the stock.
611
Assignment
1.Answer the following questions based on information
obtained in the Occupational Outlook Handbook.
a. What is the nature of the work performed by personal
financial advisors?
b. What type of training or qualifications is required for a
career in financial planning?
c. Where are the job opportunities for personal financial
advisors?
d. What are typical annual wages for a personal financial
advisor?
2. Summarize your findings in a report. Be sure to include if you
would choose this career and why.
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Graeter’s
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Part 7
5 RESEARCHING DIFFERENT CAREERS
Today many people choose a personal financial advisor to help
develop an investment program that will help them achieve their
financial goals. Not only is this career choice an opportunity to
help others, it is also one of the fastest growing career fields in
the United States. According to the Occupational Outlook Handbook,
the job opportunities for personal financial advisors are expected
to increase by 32 percent between now and the year 2020.
For help completing this exercise, use the Occupational Outlook
Handbook in your college’s library or career center or go to www
.bls.gov/ooh.
ar
Running a Business
o
/S h u tte r
st
d.Assume that the commission is 1 percent. Calculate it by
multiplying the cost of the stock by 0.01. Add the dollar
amount of commission to the cost of the stock to determine the total purchase price.
3. Set up a table to reflect the following information:
a.Name of the company
b.Closing price per share
c.Number of shares purchased
d.Amount of the commission
e.Cost of the stock
4.Record the closing price of the stock on a weekly basis.
Prepare a chart to use for this step.
5. Before the end of the semester, assume that you sell the stock.
a.Take the closing price on the day you sell your stocks and
multiply it by the number of shares; then calculate the
commission at 1 percent.
b.Deduct the amount of commission from the selling price
of the stock. This is the total return on your investment.
6.Calculate your profit or loss. Subtract the total purchase price
of the stock from the total return. If the total return is less
than the total purchase price, you have a loss.
7. Prepare a report summarizing the results of the project.
Include the table and individual stock charts, as well as a
statement describing what you learned about investing in
stocks.
©
G
Plans for Financing Growth
Almost as soon as Richard, Chip, and Robert Graeter became
fourth-generation owners of the business their family had built,
they started talking about expansion. They worked with Kroger,
now their largest distribution partner, to put pints of Graeter’s ice
cream on store shelves many miles from the company’s Cincinnati
headquarters. Year by year, they increased their distribution reach
with new retail partners—which meant they would need sufficient production capacity to fill all their orders, especially during
months of peak demand.
Graeter’s Reading Road factory, opened in 1934, was a
­printing plant before its conversion to ice-cream production.
But it was bursting at the seams, and despite dramatic improvements in production efficiency, the Graeters recognized the
increasingly urgent need to construct a new facility to support
ongoing expansion.
FROM ONE FACTORY TO TWO
The economic situation was less than ideal for obtaining financing for a new factory, because the country—and the world—was
in the grip of a severe and prolonged financial crisis. After scout612
ing possible locations and exploring various options, Graeter’s
signed a 20-year deal with the city of Cincinnati. It paid the city a
token amount for land in the Bond Hill neighborhood and borrowed $10 million from the city to pay for construction of a new
28,000-square-foot factory. The loan carried low interest rates
and would be repaid over 20 years. In turn, Cincinnati issued $10
million in bonds to provide Graeter’s with this funding.
Graeter’s received a total package of financial incentives
worth $3.3 million toward its new Bond Hill factory. In exchange,
Graeter’s committed to “stay and grow” in Cincinnati for at least
20 years, creating new jobs when the facility opened and even
more as Graeter’s growth continued.
Following months of construction, the new facility officially
opened in 2010, during Graeter’s landmark 140th anniversary
year. “As a Cincinnati-based, family-run company, we are proud
of our association with this wonderful city and look forward to
new generations of success,” said Richard Graeter II, Graeter’s
CEO. “We are incredibly grateful [for the City’s assistance],
because not only will their support help us expand nationally, but
it is also helping us create jobs locally.”
Part 7 Finance and Investment
FROM TWO FACTORIES TO THREE
acquisition would be a good move. They put together the financing needed to buy the stores and factory from the franchisee.
Now Graeter’s has the added strength of a sizable retail chain as
well as three factories equipped to make the company’s signature
French-pot ice cream, one small batch after another—the right
combination of ingredients for expanding from coast to coast and
beyond.14
Even as the Bond Hill facility was nearing opening day, Graeter’s
was presented with an unexpected opportunity. Its largest franchisee wanted to sell the franchise operation, complete with stores
and an ice-cream factory, and Graeter’s had the right to buy
the franchise back. The timing was almost perfect for its growth
strategy, giving Graeter’s not one, not two, but three production
facilities to fuel expansion. On the other hand, how would the
company pay for this unanticipated acquisition?
“That was not planned, not part of our strategic vision,”
explains Richard Graeter, “but the opportunity came up, and we
had to look at it.” If the Graeters decided to move ahead with the
acquisition, “we had to come up with several millions of dollars
in additional financing over and above what we had borrowed to
build our new plant. So that means working with the bankers and
lawyers and accountants to model how the business would look
after the acquisition to determine if it makes financial sense, and
then going out and raising the investment that you need to make
the acquisition.”
In the end, after looking at what the business had done in
the past and where it was going in the future, the three greatgrandsons of Graeter’s founders decided that this unexpected
_b/
Part 7
m
us
Building a Business Plan
.c o
1. What kinds of questions do you think Cincinnati officials
asked Graeter’s owners before agreeing to loan the company
$10 million? Why would Graeter’s go with this financing
arrangement rather than borrowing from a bank to pay for
the Bond Hill factory?
2.One of the financing strategies Graeter’s has not used is to
sell common stock to the general public. Why would Graeter’s
hesitate to go public? Do you agree with its decision to use
debt rather than equity financing?
3.As an investor, would you be willing to buy shares in Graeter’s
if it decided to go public through an IPO? Explain why the
company’s stock would or would not be a good investment
for you.
Sh u t ters
to
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Questions
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i
In this last section, provide some information about your exit
strategy, and discuss any potential trends, problems, or risks that
you may encounter. These risks and assumptions could relate
to your industry, markets, company, or personnel. Make sure to
incorporate important information not included in other parts of
the business plan in an appendix. Now is also the time to go back
and prepare the executive summary, which should be placed at
the beginning of the business plan.
THE EXIT STRATEGY COMPONENT
Your exit strategy component should at least include answers to
the following questions:
7.1How do you intend to get yourself (and your money) out of
the business?
7.2 Will your children take over the business, or do you intend to
sell it later?
7.3Do you intend to grow the business to the point of an IPO?
7.4How will investors get their money back?
THE CRITICAL RISKS AND
ASSUMPTIONS COMPONENT
Your critical risks and assumptions component should answer at
least the following questions:
7.5 What will you do if your market does not develop as quickly
as you predicted? What if your market develops too quickly?
7.6 What will you do if your competitors underprice or make
your product obsolete?
Chapter 20 Understanding Personal Finances and Investments
7.7 What will you do if there is an unfavorable industry-wide
trend?
7.8 What will happen if trained workers are not available as predicted?
7.9 What will you do if there is an erratic supply of products or
raw materials?
THE APPENDIX COMPONENT
Supplemental information and documents are often included in
an appendix. Here are a few examples of some documents that
can be included:
●● Résumés of owners and principal managers
●● Advertising samples and brochures
●● An organization chart
●● Floor plans of a retail facility or factory
REVIEW OF BUSINESS PLAN ACTIVITIES
As you have discovered, writing a business plan involves a long
series of interrelated steps. As with any project involving a number
of complex steps and calculations, your business plan should be
reviewed carefully and revised before you present it to potential
investors or lenders.
Remember, there is one more component you need to prepare
after your business plan is completed: The executive summary
should be written last, but because of its importance, it appears
after the introduction.
613
THE EXECUTIVE SUMMARY COMPONENT
In the executive summary, give a one- to two-page overview of
your entire business plan. This is the most important part of the
business plan and is of special interest to busy bankers, investors,
and other interested parties. Remember, this section is a summary; more detailed information is provided in the remainder of
your business plan.
Make sure that the executive summary captures the reader’s
attention instantly in the first sentence by using a key selling point
or benefit of the business.
Your executive summary should include answers to at least the
following:
7.10 Company information. What product or service do you
provide? What is your competitive advantage? When will
the company be formed? What are your company objec-
tives? What is the background of you and your management
team?
7.11 Market opportunity. What is the expected size and growth
rate of your market, your expected market share, and any
relevant market trends?
Once again, review your answers to all the questions in the
preceding parts to make sure that they are all consistent throughout the entire business plan.
Although many would-be entrepreneurs are excited about the
prospects of opening their own business, remember that it takes a
lot of hard work, time, and in most cases a substantial amount of
money. Though the business plan provides an enormous amount
of information about your business, it is only the first step. Once
it is completed, it is now your responsibility to implement the
plan. Good luck in your business venture.
Endnotes
1. Sources: Based on information in Chris Flood, “Vanguard ETF Assets Surge to Top
$200 bn,” Financial Times, March 25, 2012, www.ft.com; Jackie Noblett, “Vanguard
Drives Home Low-Cost Mantra, in a Mobile Café,” Financial Times, March 21, 2012,
www.ft.com; Jason Kephart, “Vanguard Steps Up Efforts to Woo Advisers,” Investment
News, March 12, 2012, p. 2; Robert Steyer, “Providers Going Big with Technology,”
Pensions & Investments, October 31, 2011, p. 2; www.vanguard.com.
2. “Money 101 Lesson 4: Basics of Investing,” the CNN/Money Web site at
www.money.cnn.com, accessed March 8, 2012.
3. Suze Orman, The Road to Wealth (New York: Riverbend Books, 2001), 371.
4.The 2010 Advanced Micro Devices Annual Report, the Advanced Micro Devices Web
site at www.amd.com, accessed March 8, 2012.
5.The Investment Company Institute Web site at www.ici.org, accessed August 21,
2012.
6.The Mutual Fund Education Alliance Web site at www.mfea.com, accessed March 8,
2012.
7.The Investment Company Institute Web site at www.ici.org, accessed August 21,
2012.
8. Bill Barker, “Loads,” the Motley Fool Web site at www.fool.com, accessed March 8,
2012.
9. “The Low Down on Index Funds,” the Investopedia Web site at www.investopedia
.com, accessed October 23, 2009.
10. “The Regulatory Pyramid,” the New York Stock Exchange Web site, accessed March
10, 2012.
11. Ibid.
614
12. Based on information in Julia Gabriel, “Little Money? Live Rich on Simple Financial
Wisdom,” CBN News, October 30, 2011, www.cbn.com; Trevor Thomas, “Living Debt
Free,” American Thinker, July 24, 2011, www.americanthinker.com; Shelly K. Schwartz,
“You Can Live Debt Free,” CNBC, August 12, 2008, www.cnbc.com.
13. Based on information in John McCrank, “E-Brokerages Tap Social Media for
Faster Service,” Reuters, April 5, 2012, www.reuters.com; Stephen Miller, “Pension
Protection Act Changes Plan Design, Motivates Saving,” HR Magazine, February 2012,
p. 14; Dan McCrum, “Original US Fidelity Business Thrives,” Financial Times, April 11,
2012, www.ft.com; Ari I. Weinberg, “Coming to Your 401(k): Fidelity ETFs?” Wall
Street Journal, January 3, 2012, www.wsj.com; William Baldwin, “Who Needs Bank
Branches?” Forbes, August 3, 2011, www.forbes.com; www.fidelity.com.
14. Sources: Based on information from Kimberly L. Jackson, “Graeter’s Premium
Chocolate Chip Ice Cream Lands at Stop & Shop,” Newark Star-Ledger (NJ), April
4, 2012, www.nj.com; “Graeter’s Ice Cream Debuts in Bay Area,” Tampa Bay Times
(St. Petersburg, FL), January 10, 2012, p. 4B; Jim Carper, “Graeter’s Runs a Hands-on
Ice Cream Plant,” Dairy Foods, August 2011, pp. 36+; Jim Carper, “The Greater
Good,” Dairy Foods, August 2011, pp. 95+; “Graeter’s Unveils New ‘Mystery Flavor,’”
Dayton Daily News, March 29, 2012, www.daytondailynews.com; Bob Driehaus, “A
Cincinnati Ice Cream Maker Aims Big,” New York Times, September 11, 2010,
www.nytimes.com; Lucy May, “Graeter’s Northern Kentucky Franchisee Puts Stores
on the Block,” Business Courier, August 6, 2010, http://cincinnati.bizjournals
.com; “Cincinnati Officials Help Dedicate New Graeter’s Plant,” Cincinnati Economic
Development, September 2010, www.choosecincy.com; www.graeters.com; interviews
with company staff and Cengage videos about Graeter’s.
Part 7 Finance and Investment
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