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Understanding KPI in China – A Brief Introduction

Posted by: Zhorea Garcia
Category: Business in Asia
Understanding KPI in China – A Brief Introduction

The modern concept of KPI or key performance indicator has integrated into China since its era of opening and transformation. Thus, in recent years, the importance of measuring performance has also become a prevailing concept of enterprise management in the country.

Have a look at our previous article on How to Retain and Motivate Chinese Employees

Establishing a KPI system may help enterprises keep their employees satisfied and improve their overall performance. In the same way, companies in China make use of this system to evaluate the improvement and compensation of their employees. But what is the Chinese perspective on KPI? Are Chinese companies successful in implementing it? Keep reading!

What is KPI?

KPI is a data-driven performance indicator that allows companies to monitor the working level of employees and to stimulate their interest in the job. At the same time, KPI reflects the success of a company by measuring certain factors such as year-on-year revenue or sales.

KPIs are usually tied to the financial aspect of the company’s success, however, there are also non-financial KPIs like turnover rates of employees, the ratio between repeat and new customers or customer’s feedback.

The use of KPIs enables enterprises to specify their goals and quantify the performance of employees. Thus, it is widely implemented in various industrial enterprises and even in the internal government system of China.

Treatment of KPI in China

The widespread application of KPI has forced China to adopt a similar practice into its modern management systems. Since its introduction into China in the 90s, KPI has become an essential area of public as well as enterprise management. However, despite the benefits of KPI, problems remain in the KPI assessment of Chinese enterprises.

Use of OKR instead of KPI

Giant companies such as Huawei and Alibaba regarded the OKR (objectives and key results) method instead of KPI as a more superior management tool. In OKR, the autonomy of employees is given more emphasis rather than their work completion rates. Chinese companies are increasingly using OKR that focuses more on long-term results, allowing employees to enable performance in the process. China’s enterprises are said to be evolving toward an innovative stage where it becomes unattainable by using KPI. Furthermore, KPI depends on the metric component of success while OKR quantifies the value and meaning behind a goal.

Problems in understanding KPI in China

  • KPI as a tool for reward and punishment

KPI is a goal-oriented system where goals, plans, and processes of the company are set, otherwise, it cannot work alone. However, most enterprises in China treat KPI as a “carrot-and-stick” system which compensates their employee accordingly. This way itself will not only fail to guide and motivate employees. But it can also cause a psychological burden from which employees focus more on achieving the KPI metrics instead of working toward the goal of the company.

  • Lack of a complete appraisal system

The lack of communication and democratic awareness during performance appraisal leads most companies to experience an imperfect use of the KPI system. Top managers make evaluations at their own will, resulting in conflicts among employees. Thus, the absence of employee feedback or complaints brings a negative effect on employees, leading to confusion and dissatisfaction with the system.

  • Insufficient use of assessment results

Some enterprises use the KPI assessment to increase wages for employees. Thus, it points back to the problem of simply treating KPI as a reward and punishment method. While the reward system is not often obvious, some punishment measures simply deduct a poor performance from the employee’s monthly bonus.

Conclusion

In a nutshell, key performance evaluation is in the heart of enterprise management. Although China has picked up the fundamentals of the KPI system, problems still occur in the understanding of its application. Therefore, it restricts the further organizational structure development of many Chinese enterprises. It is suggested that communication within the appraisal system must be strengthened. Moreover, enterprises need to optimize their KPI evaluation and improve the overall usage of the system.

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Author: Zhorea Garcia

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