Many financial theories can be applied directly or indirectly to achieve business success. The application of each theory varies according to each organization's business category. In this paper, I will discuss a classic and contemporary financial theory that can be applied to AECOM. How can these theories contribute to the company's financial viability?
Three-Sector Model Theory (Classic)
According to (Fisher,1935), AGB Fisher divided the works into three categories, the first category (the primary sector) is the work of raw materials such as agriculture, pastoral production, fishing and mining. The second category (secondary industry) is the group of businesses based on manufacturing, construction, and production of vital goods; the third category (service sector) is the business group that meets human needs such as transportation, communication, trade, and personal services.
Although the first category of business was dominant at this time, Fisher expected labor force shares to be as follows for the developed world: The first sector: 10%, the second sector: 20%, the third sector: 70%, Fisher's view, although correct, but the reality became more significant than that, for example, in Germany, the business for 2014 became as follows: the first sector 1.5%, the second sector 24.6%, and the third sector 73.9%. The United States' global economic dominance is based on the vast service sector, which accounts for more than 85% of the country's GDP (Paramati, Apergis & Ummalla, 2018).
Application on AECOM
Since its inception, the founders of AECOM realized this future momentum for this service sector, actually, this company focuses on the service economy backed by knowledge, accordingly, it has been providing advisory services and technical support to the construction sector for nearly a century. AECOM depends on surpassing its competitors in this field by understanding what its target customers want, the company adopts enhancing production, increasing speed and efficiency, and reducing the number of employees required for operation, this reduces costs and improves revenue cash flow, (Elfi, 2010).
Behavioral Finance-Theory (Contemporary)
According to (Fromlet, 2001), the ancient classical theories were based on human rationality and that they would make the right financial decision. This is based on the information available to them, according to the transparency of this information, as well as previous investment experiences, but the Behavioral Theory contradicts this idea, as it explains many events that are contrary to the traditional theory in this theory, the psychological factors of investor behavior are taken into account as it explains the fact that the world is not always perfect, the theory is based on analyzing what has happened before in the financial markets such as financial bubbles and the irrational exaggeration of the value of technology companies.
Application on AECOM
According to (Cayer, 2019), The company has primarily throughout its history through acquisitions and mergers of consulting services companies in the field of construction, design, and consulting; since the 1990s, the company has concluded more than 20 acquisitions of engineering offices around the world, sometimes AECOM has acquired bankruptcy engineering firms such as the Schaumburg, Illinois, and Houston offices. Therefore, it failed in the Initial public offering on the stock exchange that it prepared in 2002, and the sale has been postponed indefinitely if AECOM analyzes the market according to Behavioral Theory, perhaps they have found an easy way to make this IPO success.
Conclusion
Financial theories play a vital role in understanding the elements of business success. However, it is impossible to rely on one theory in light of the incredible complexities of the current markets. Successful financial management must have full knowledge of all previous financial experiences that suit its community, not relying on theory without its actual practice.
References
Cayer, A. (2019). Shaping an Urban Practice: AECOM and the Rise of Multinational Architecture Conglomerates. Journal of
Architectural Education, 73(2), 178-192.
Elfi, M. (2010). Aecom, the all-in-one, Construction Research and Innovation, 1:4, 20-23, DOI:
10.1080/20450249.2010.11873777
Fisher, A. G. (1935). Clash of progress and security. Macmillan and Co. Limited, London.
Fromlet, H. (2001). Behavioral finance-theory and practical application. Business Economics, 36(3), 63-69. Retrieved from
https://www.proquest.com/scholarly-journals/behavioral-finance-theory-practical-application/docview/199860913/se-2
Paramati, S. R., Apergis, N., & Ummalla, M. (2018). Dynamics of renewable energy consumption and economic activities
Across the agriculture, industry, and service sectors: evidence from sustainable development's perspective. Environmental Science and Pollution Research, 25(2), 1375-1387.