Inter & Intra firm Comparison | Meaning | Definition | Need

Meaning of Inter-Firm Comparison

Inter firm comparison means a comparison of two or more similar business units with the objective of finding the competitive position to improve the profitability and productivity of those business units. Thus, inter firm comparison is a tool used by the management of a company to compare its operating performance and financial results with those of similar companies engaged in the same industry.

Definition of Inter-firm Comparison

According to Centre for Inter-firm Comparison, established by the British Institute of Management, Inter firm Comparison is concerned with the industrial firm, its success and the part played by the management in achieving it. The end product of a properly conducted inter firm comparison is not a statistical survey but the flash of insight in the mind of meaning director of the firm which has taken part in such an exercise. The results of this give him an instant and vivid picture of how his firm’s profitability, its costs, its stock turnover, and other key factors affecting the success of a business compares with other firms in his industry.

The way in which the results of inter firm comparisons are presented to him makes him see clearly where his firm is weaker or stronger than its competitors; what weaknesses call for his own attention, what possibilities of improving those weaknesses or reinforcing the firm’s strength he should explore; in what respects the general objectives and specific targets of the firms should be changed.

Meaning of Intra-firm comparison

Intra-firm comparison means comparison of two or more departments or divisions of the same business unit with the objective of meaningful analysis in order to improve the operational efficiency of all the departments or divisions.

Both, the inter firm comparison and intra-firm comparison have the same objectives. The comparison may cover the financial position or operating results or both.

Need for Inter-firm & Intra-firm comparison

The survival and growth of any business unit are based on the competitive strength. The competitive strength is based on the financial position and solvency of the company. Some ratios are calculated to find out the financial position and solvency. A business unit can get success in market by knowing the strength and weakness of other similar business units. In this situation, there is a need of inter-firm comparison. Besides, a business unit can identify the strength of its various departments and divisions before competing with other similar business units. In this context, there is a need of intra-firm comparison.