Integrity Management Toolbox for Small and Medium Enterprises (SME)

Compiled by:
Tandiwe Erlmann (cewas - international centre for water management services)
Adapted from:
CEWAS; WIN; WASAZA (2014)

Executive Summary

The Integrity Management Toolbox for Water Sector SME proposes a systematic bottom-up approach to tackling integrity issues of small and medium-sized enterprises of the water and sanitation sector. Instead of a moralising approach, an Integrity Change Process is initiated based on the Integrity Management Toolbox. The process focuses on how SMEs can benefit from a business point of view by systematically implementing integrity management instruments. The main goal is to optimise the SMEs business models and eventually their performance by integrating integrity considerations into day-to-day operations.

Introduction

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).


Embedment of SME in Zambian Water Sector. Source: CEWAS (2014)

 

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 Integrity Management Toolbox for SME

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:

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

How to Implement 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.


The 7 Steps of the Integrity Change Process. Source: CEWAS (2014)

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 visualize 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.

Applicability

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. For use in other countries than Zambia, the integrity risks and instruments of the IM Toolbox as well as other elements of the toolbox have to be adapted and contextualised properly.

Advantages

  • It follows a systematic approach to address integrity at the operational level of the SME.
  • It creates awareness on integrity issues.
  • 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.

Disadvantages

  • Embarking on the Integrity Change Process is complex and most SME need external support from qualified trainers.
  • Undertaking the Integrity Change Process can take several months up to several years.

References Library

CEWAS; WIN; WASAZA (2014): Integrity Management Toolbox for Zambian Water Sector SME. Manual for Coaches. Willisau: CEWAS. URL [Accessed: 03.09.2014]. PDF

Further Readings Library

Reference icon

DEL ROSARIO, R.V.; STARR, C.V. (2011): Anti-Corruption Manual for SMEs. Hills Program on Governance. PDF

Although they are usually low profile, small and mediumsized enterprises (SMEs) play a significant role in this country. SMEs, however, have not realized their full potential as drivers of the economy. There are many factors that negatively affect the business environment for SMEs, and one of the biggest factors is corruption. Indeed, a recent study by the World Economic Forum shows that the most problematic factor for doing business in the Philippines is corruption.


Reference icon

Ethics Institute of South Africa (2009): An anti-corruption guide for South African SMEs. BUSA. PDF

As organised business we believe that ethical business practice is good business practice. Not only does it build solid businesses, but also a stable business environment. We believe that the majority of business owners understand that corruption is detrimental to the stability of the business environment and, in that way, it impacts on all of us. World Bank studies have found that Small and Medium Enterprises (SMEs) are more vulnerable to corruption. Yet SME owners and managers have fewer resources to help them understand corruption and how corruption laws could affect them. Business Unity South Africa (BUSA) has therefore, with the support of the German Agency for Technical Cooperation (GTZ), developed this guide to assist SMEs in making sense of corruption and to understand how they can contribute in promoting ethical business practices in South Africa.


Reference icon

FSMB (2006): Combating Corruption - SME Sector Perception and Solutions. Yerevan: FSMB. PDF

According to The Evaluation Report on Armenia published by GRECO, the Council of Europe Group of States against Corruption on March 2006 corruption remains a major problem in Armenia despite the adoption of a number of anti-corruption measures. It says particularly that Armenia’s judiciary, customs service, tax inspectorate, licensing and privatizations are affected by corruption. The report describes two different dimensions of corruption in Armenia: high level corruption through abuse of political or public authority; and administrative corruption typically practiced by middle and lower-level public officials in their dealings with members of the public. This publication considers the manifestations of administrative corruption in the sphere of small and medium entrepreneurship.


Reference icon

SME Corporation Malaysia (2011): Financial Guide for SMEs. Kuala Lumpur: SME Corporation Malaysia. PDF

SME Corporation Malaysia and CPA Australia have been granted the copyright to reproduce the Guide and to modify the content to suit the Malaysian context. The Guide will be a useful reference for entrepreneurs on fi nancial management which is a key success factor to any SME business, particularly for new entrepreneurs with little fi nancial background.


Reference icon

UNDP (2011): Fighting Corruption in the Water Sector. Methods, Tools and Good Practices. New York: UNDP. PDF

This study maps corruption risks in the water sector (including irrigation and hydropower) and presents methods and tools to measure corruption in the sector. It also presents good practices in improving oversight and promoting better water resource management.


Case Studies Library

Reference icon

DIETZ, G.; GILLESPIE, N. (2012): The Recovery of Trust: Case studies of organisational failures and trust repair. (= Occasional Paper, 5). London: Institute of Business Ethics. PDF

Building an organisation’s reputation for trustworthiness can take a long time and requires considerable effort and investment. But what happens when a crisis or scandal hits an organisation and its reputation for trustworthiness comes under sustained threat? Recent examples include BP, News International, Castlebeck Care Homes, several banks (HBoS, Royal Bank of Scotland, UBS, Goldman Sachs) and Foxconn. The process of trust repair and the recovery of reputation can be arduous, but it is achievable.


Training Material Library

Reference icon

CEWAS; WIN; WASAZA (2014): Integrity Management Toolbox for Zambian Water Sector SME. Manual for Coaches. Willisau: CEWAS. URL [Accessed: 03.09.2014]. PDF

The Integrity Management Toolbox for Water Sector SME proposes a systematic bottom-up approach to tackling integrity issues of small and medium-sized enterprises of the Zambian water and sanitation sector. In an initial two-day workshop, the first six steps (Steps 1-6) are completed, defining priority actions to be taken in the Integrity Change Process. The last step (Step 7) is implemented within the SMEs during a period of several months or years depending on the complexity of the chosen integrity instruments. This manual guides the coach, whose role is to train and coach the SME, step-by-step through the workshop programme and the following implementation phase.


Reference icon

CEWAS; WIN; WASAZA (2014): Integrity Management Toolbox for Zambian Water Sector SME. Description Integrity Risks. Willisau: CEWAS. URL [Accessed: 03.09.2014]. PDF

The Integrity Management Toolbox for Water Sector SME proposes a systematic bottom-up approach to tackling integrity issues of small and medium-sized enterprises of the Zambian water and sanitation sector. In an initial two-day workshop, the first six steps (Steps 1-6) are completed, defining priority actions to be taken in the Integrity Change Process. The last step (Step 7) is implemented within the SMEs during a period of several months or years depending on the complexity of the chosen integrity instruments. This description lists and describes integrity risks relevant to SME of the Zambian water sector.


Reference icon

CEWAS; WIN; WASAZA (2014): Integrity Management Toolbox for Zambian Water Sector SME. Description Integrity Instruments. Willisau: CEWAS. URL [Accessed: 03.09.2014]. PDF

The Integrity Management Toolbox for Water Sector SME proposes a systematic bottom-up approach to tackling integrity issues of small and medium-sized enterprises of the Zambian water and sanitation sector. In an initial two-day workshop, the first six steps (Steps 1-6) are completed, defining priority actions to be taken in the Integrity Change Process. The last step (Step 7) is implemented within the SMEs during a period of several months or years depending on the complexity of the chosen integrity instruments. This description lists and describes integrity instruments relevant to SME of the Zambian water sector.


Reference icon

GIACC; TI (2008): ANTI-CORRUPTION TRAINING MANUAL. (INFRASTRUCTURE, CONSTRUCTION AND ENGINEERING SECTORS). PDF

This Anti-Corruption Training Manual aims to help users achieve a better understanding of corruption and how to avoid it. It can be used by individuals, and also by companies as part of their corporate training. (1) Section 1 provides an overview of what constitutes corruption, who may be liable for corruption, and how it may be avoided. (2) Section 2 provides 47 detailed examples of corruption throughout the project cycle. (3) Section 3 provides some simple anti-corruption rules which individuals should follow (and which companies could impose on their employees) to try to ensure that no corruption offence is committed. (4) Section 4 provides practical advice as to what individuals and companies should do when faced with a potentially corrupt situation.


Reference icon

UNDP; SIWI; WIN; Cap-Net; WATERnet (n.y.): Training Manual on Water Integrity. PDF

The training manual is developed to assist capacity builders in developing training and educational programmes on water integrity and how it can be promoted and worked with in more practical ways. The overall goal is to develop institutional capacities and prepare for change through increased knowledge and action on integrity, accountability and anti-corruption in any country or region. The primary objectives of the training are to provide: 1. Conceptual grounding in the area of integrity, accountability and anti-corruption in water, its drivers and impacts on water as well as on poverty reduction and sustainable development; 2. An overview of tools and methodologies to promote water integrity, transparency and accountability and their applicability in various contexts; 3. Examples of good practices relating to the promotion of integrity, transparency, accountability and anti-corruption in water.