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When performing a hillshade or slope function in ArcGIS, the Z units are presumed to be the same as the horizontal (x,y) units. When working with data in geographic coordinates, this is a problem because the linear distance of a degree of latitude varies.
In some cases, a value of 0.000003 was suggested as the Z factor to account for the actual Z unit in meters. While that value can still be used, this article presents a more accurate method of determining the Z factor when the Z units are in meters.
The following procedure assumes the Z units of the raster being used to generate the hillshade or slope are meters. If the Z units of the data being used are feet, first use the raster calculator to multiply the raster by the conversion factor 0.3048, so that the z units are meters.