Integrity Management Toolbox for Small and Medium Enterprises (SME)

The international water and sanitation sector faces important challenges of bad governance and lack of integrity such as corruption, fraud, unsustainable practices and non-ethical working conditions, often leading to significant shortcomings in water supply and conflicts.

Apart from public water utilities, small and medium-sized enterprises (SME) in the private sector play a increasingly important role in the water sector when it comes to procurement of goods and services such as consultancies, engineering and construction. These SME of the water sector are mostly contracted by public authorities, water utilities or private companies and are increasingly relevant for the structures of the water sector as they provide water and sanitation services in low-income areas.

Specific integrity challenges can emerge from SME engagement because the private sector is hardly embedded in overarching regulatory, reporting and control structures that would pressure it to abide by integrity principles as water utilities are. See the graph below for an example of embedment of SME in the Zambian water sector (for more information on the institutional set up of the Zambian Water Sector, see the factsheet Institutional Setting Zambia).

As private involvement in the water sector is increasing in countries perceived to be highly corrupted, the private sector also becomes increasingly exposed to risks of corruption. A challenge particularly related to the involvement of SME is that they are usually dependent on a few contracts or clients, which makes them easy prey for corrupt officials or useful allies when it comes to collusion among bidders in public procurement. Among the most important reasons for this state of affairs are weak institutional and legal frameworks and procurement systems, unregulated public-private sector contracting and little awareness and know-how for addressing integrity issues at the operational level of these SME.

Integrity management systems are an instrumental element of corporate governance and work two-fold: on one hand, they can be used to communicate values to employees and thus create a positive work climate and improve motivation. On the other hand, they provide instruments to detect and manage integrity risks as well as to prevent violation of laws and sanctions. The Integrity Management Toolbox aims at raising awareness among water sector SME that transparent, ethical, as well as regulatory compliant practices increase efficiency and performance. This makes it easier for companies to include integrity aspects into their regular business approaches.

The main purpose of this Integrity Management Toolbox is to support SMEs in turning challenges into opportunities by making integrity issues an integral part of their internal management. The Toolbox that was developed for Zambian water sector SME supports SMEs in undergoing an Integrity Change Process that enables them to reduce costs and boost their performance, and make them more resilient to reputational and legal risks. In the long run, companies that include integrity management in their business models will have a comparative advantage, because they can systematically prevent and mitigate integrity risks.

The overall objective is that SMEs initiate an Integrity Change Process based on the Toolbox, which takes account of the country specific policy, legislation and regulatory framework. SMEs initiate the change process by individually selecting and applying the most relevant and effective integrity instruments for their company.

The main principles of the Integrity Change Process are as follows:

• It follows a systematic approach to address integrity at the operational level of the SME.
• It createsawareness on integrity and enables SME to manage their Integrity Change Process themselves.
• It promotes good management instead of a moralising approach.
• It shows SMEs how they can benefit (opportunities!) from a business point of view by implementing integrity management systematically.
• It supports SMEs in optimising their business models with the help of integrity management.

Additionally to a tangible toolbox, an electronic version of the Integrity Management Toolbox was developed for SME of the Zambian water and sanitation sector. It includes:

• The manual for coaches explaining in detail how to use the Toolbox for conducting an Integrity Management workshop and coaching the whole Integrity Change Process
• Elaborate descriptions of the most common integrity risks and suggested integrity instruments for Zambian SMEs

While water sector practitioners are encouraged to use this toolbox, they should also consider the following:

• For use in other countries than Zambia, the integrity risks and instruments of the Integrity Management Toolbox as well as other elements of the toolbox have to be adapted and contextualised properly.
• Anchoring the Integrity Change Process with key institutions from a country’s water and sanitation sector is crucial to maximise the benefits from its use.
• The proper training of Integrity Management Coaches is important to assure quality during the Integrity Change Process.

The Integrity Change Process is a stepwise approach to initiate and guide a bottom-up change process. The complete Integrity Change Process comprises the following steps.

Step 1: Awareness Raising and Introduction to the Integrity Change Process

It is thus crucial in this step that participants understand what impacts non-integrity can have, how integrity can improve the performance of the SME and why it is important to look at integrity from a business point of view. It is important to introduce the idea, scope and principles of the whole Integrity Change Process to the SME. They will not only be participating in an initial Integrity Management workshop but also undergoing the subsequent implementation phase that can last from six months to several years. It has to be clarified that the Integrity Change Process requires the necessary time and commitment, which means that SME have to invest in their people who are the main drivers of change. The Integrity Management Toolbox and Integrity Management Coaches can support them in undertaking this process.

Step 2: Description of the SMEs Business Model

The SMEs business model is the starting point of the Integrity Change Process, as it serves as the basis for assessing the most relevant and threatening integrity risks of the SME. In a later step, the business model is the key tool to identify the most promising integrity instruments to improve the SMEs operations and performance. Finally, the current business model of the SME serves as a baseline to monitor the progress of the SME towards an integrity-improved business model. See the factsheet Business Model Canvas that describes what a business model is and how to best visualise it using the canvas.

Step 3: Mapping of the Integrity-related Water Sector

While step 2 clarified the SMEs internal dynamics for creating value, step 3 aims to complete the picture by reflecting on the external forces that influence the SME. In order for SME to identify and anticipate integrity risks, and know which external stakeholders are potential partners in their integrity change process, it is important for them to understand the political, structural and institutional framework they are embedded in. In this mapping exercise existing laws and regulations and different stakeholders of the analysed sector are identified. Such an exercise increases the understanding of the structure of the playground on which the SME go about their daily business and outlines the possible partners, adversaries and legal framework in the Integrity Change Process.

Step 4: Identification and Priorisation of Integrity Risks

In this step SME evaluate possible risks affecting their company. As SME have limited time and financial resources, it is not possible for them to answer to all integrity risks they are or could be exposed to. The methodology for selecting the risks must ensure that only the highest priority risks are being treated. When a preliminary selection of risks is done, the risk assessment should be made on the basis of expected impact on the business model. So, if the impact represents a severe threat to the (survival of the) company it should be a priority risk.

Step 5: Selection of Integrity Instruments and Development of Integrity-improved Business Model

In this step integrity instruments are identified to target specific integrity risks. SME choose these integrity instruments according to the priority risks they have chosen to tackle in step 4. The selection of these instruments will take stock of the measures they have already put in place, identifying feasible additional measures and discarding instruments that cannot be implemented. To make sure that the selected instruments can be implemented effectively, it is necessary to determine what should be achieved with each of the selected measures and to develop clearly defined targets. For this purpose participants determine which areas of the business model are affected by each of the chosen instruments and what impact can be expected if the tool is implemented successfully.

Step 6: Development of a Road Map

A road map guides the Integrity Change Process of implementing the integrity-improved business model. This map defines a sequence of activities that must be performed in order to ensure a successful implementation of the integrity instruments. The purpose of the road map is to create a mutual understanding of the Integrity Change Process among those responsible for its implementation and a basis for SME management and Integrity Management Coaches for monitoring the implementation process. The road map provides details on what exactly has to be done, how, by whom, when and at what costs.

Step 7: Implementation and Monitoring of the Integrity Change Process

The implementation is the longest and most difficult step of the whole Integrity Change Process. After having attended the Integrity Management workshop the participating SME return to their businesses and implement the chosen integrity instruments according to the activities laid out in their road maps. Depending on the complexity of the chosen Integrity Instruments this step can take from 6 months to several years. In step 7 unexpected difficulties can arise and resistance from different levels may affect progress and the overall implementation of the integrity instruments. A sound understanding of the reasons why activities were completed and also why certain milestones were not met is crucial for a successful Integrity Change Process. To support the overall monitoring and reflect upon the SMEs integrity efforts external Integrity Management Coaches should accompany this step with coaching sessions.