Applying a zfactor 

Release 9.3
Last modified January 13, 2012 
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Note:
This topic was updated for 9.3.1.
The zfactor is a conversion factor that adjusts the units of measure for the vertical (or elevation) units when they are different from the horizontal coordinate (x,y) units of the input surface. It is the number of ground x,y units in one surface z unit. If the vertical units are not corrected to the horizontal units, the results of surface tools will not be correct.
The zvalues of the input surface are multiplied by the zfactor when calculating the output surface. If the x, y, and zunits are all the same (in feet, for example), the zfactor is 1. This is the default value for the zfactor. For another example, if your vertical zunits are feet and your horizontal x,y units are meters, you would use a zfactor of 0.3048 to convert your zunits from feet to meters (1 foot = 0.3048 meter).
The correct use of the zfactor is particularly important when the input raster is in a spherical coordinate system, such as decimal degrees. It is not uncommon to perceive the output from Hillshade to look peculiar if the input surface raster is not in a projected coordinate system. This is due to the difference in measure between the horizontal ground units and the elevation zunits. Since the length of a degree of longitude changes with latitude, you will need to specify an appropriate zfactor for that latitude.
If your x,y units are decimal degrees and your z units are meters, some appropriate zfactors for particular latitudes are:
Latitude Zfactor 0 0.00000898 10 0.00000912 20 0.00000956 30 0.00001036 40 0.00001171 50 0.00001395 60 0.00001792 70 0.00002619 80 0.00005156