Sodexo’s CEO on Smart Diversification



Sodexo was founded in 1966 to provide food and catering services to businesses, schools, hospitals, and other institutions. When the French space agency, a client, asked the company to organize cleaning and maintenance for its base in Guyana as well, it was an early sign that Sodexo could extend its reach into previously unconsidered areas. Companies have outsourced so many functions for so many years that managing and coordinating the work of their suppliers has become a significant challenge. Some of them realize that working with a single integrated provider such as Sodexo—which now manages everything from employee cafeterias to HVAC systems, landscaping, incentive programs, and employee benefits—is far easier.

Over the past decade Sodexo has diversified broadly and globally while observing four basic rules: (1) Be true to the business model. Almost all of Sodexo’s services can be provided by an individual or a team and don’t require capital investments in property or serious machinery. (2) Make people happy and productive. An orientation toward the needs of the individuals who actually use the company’s services guides choices about what Sodexo will or will not do. (3) Help clients execute strategy. Direct dialogue with top management differentiates the company and demonstrates that its offerings are not just commodities. (4) Rely on employees, not subcontractors. Sodexo owns the businesses it’s in and works hard to motivate and develop its employees.

HBR Reprint R1503A

Stéphane Lavoué

The roots of Sodexo’s business lie in a small shipping-supply company run by Pierre Bellon’s family, which since the beginning of the 20th century had operated a ship chandling business in Marseille. Pierre Bellon started Sodexo in 1966 because he saw a business opportunity in providing food and catering services to local companies and then to schools, hospitals, and other institutions. Just one year later CNES, the French space agency, which was a client, asked Sodexo to organize cleaning and maintenance for its base in Guyana as well. That was an early sign that if we did a good job for our clients, they might lead us to expand into services we hadn’t imagined providing.

Since I became CEO, 10 years ago, that trend has accelerated. Companies have outsourced so many functions for so many years that they’ve created a new challenge for themselves: managing and coordinating the work of many suppliers of varying quality. Some companies have realized that it’s far easier to work with a single integrated provider—a company like Sodexo, which can manage everything from the employee cafeteria to the HVAC system and the landscaping, from incentive programs to employee benefits.

Diversification has its limits, of course. Over the past decade we have expanded both globally and in the variety of our offerings—but in the process we’ve had to think carefully about when it makes sense to diversify. Broadly speaking, we have four basic rules.

Be True to the Business Model

The first rule is that we never enter an area that’s inconsistent with our existing business model. Indeed, many companies claim this. But when you’re offering an integrated package of services, you have to be especially careful on that score.

Our model is very simple: With just a few exceptions, our services can be provided by an individual or a team and don’t require capital investments in property or serious machinery. When we operate company restaurants, for example, we don’t own the refrigerators and ovens, and the cost of the food is priced into the contract. We don’t supply services performed by nurses, aircraft pilots, or accountants.

It’s conceivable that Sodexo could one day provide quality-of-life services to an individual from birth to post-retirement.

This business model has several advantages. First, we don’t have to make any investments in fixed assets. Payroll and raw materials, which are variable costs, are our main expenses. Usually when we take on a new contract, the client already has employees performing the functions involved, so we take those employees on as our own and retrain them. They require training because their attitude is a major component of our competitive advantage. If we need to gain expertise in a particular area quickly, we may make an acquisition; but even then, our growth is 80% organic.

A second benefit is standardization. We’ve figured out plenty of best practices, and we can transfer them from client to client; that efficiency produces savings we can share through our prices, which are considerably lower than what clients pay when they undertake to do the work themselves.

Of course, running a business that is by its nature profoundly local on a global basis is challenging. To resolve this problem, we are replacing a country-based structure with a global grouping of our businesses by client type. So we’ll have a global health care division, a global campus division, and so on. Organizing according to client types gives us a platform for sharing knowledge and best practices. Meanwhile, employees, too, are being grouped according to the jobs they do (boiler service technician, housekeeper, catering staffer, and so on). These teams of experts are responsible for training new hires and identifying best practices, which can then be shared globally.

Make People Happy and Productive

Our second rule is that we deliver only services that directly improve the lives of individual people (whom we refer to as consumers), even though it is client organizations—companies, government ministries, schools, hospitals—that foot the bill. We believe that making the individuals in those organizations happy and productive is how we add value for our clients. And by taking this approach, we’ve found new ways to diversify our offerings.

My contribution has been to help clarify what’s involved. Several years ago we started working with professors and research centers to identify exactly what metrics we should track. We came up with six: physical environment, social interaction, well-being and wellness, social recognition, efficiency, and personal development. Any service we provide must contribute along at least one of those dimensions and preferably several.

Such clarity makes it easier to measure and demonstrate performance. If a company’s employees take fewer sick days, we’re probably doing a reasonable job with its HVAC system. If they’re losing weight, perhaps it’s because we’re offering a more healthful diet in the cafeteria. When we’re helping a company plan its space—where to put the photocopier, for example—we look directly at how the layout will affect the efficiency of individual employees. The design and management of communal spaces on a college campus, such as spectator sports facilities, reception areas, and cafés, can promote (or compromise) social interaction, an important component of the college experience. If those places are bustling with happy-looking kids, we’re probably doing a good job of making the campus safe and inviting.

This orientation toward the needs of the individuals who actually use our services guides our choices about what we will or will not do. Prisons (principally in the United Kingdom) are one of our main business lines, but we will not bid for this work in the United States, because it would include services for prisoners on death row. That simply doesn’t square with our ethical principles or with improving the quality of individuals’ lives along any of the six dimensions. Given the size of the prison business in the U.S., this was not a trivial decision. We also won’t manage security in prisons if that means our personnel must carry firearms. In 2005, for example, a prison in western Australia asked us to manage the transportation of inmates, which we declined on those grounds.


Focusing on the quality of individuals’ lives often reveals surprising adjacencies. We manage services on oil rigs and in facilities in Siberia. People working in those remote environments are at high risk of becoming overweight or having problems with alcohol. Some of our clients asked us to help mitigate the effects of the isolation. We put together a program to help individual employees better manage their diet and exercise, both on-site and during home leaves. (They typically work 15 days and then take 15 days off.) It’s a pretty extensive service package and a not inconsiderable investment for the client, but companies have found that it pays off in reduced absenteeism and improved productivity.

Thinking systematically about quality of life has also opened our eyes to interesting opportunities in which individuals are the paying customers. For instance, since 2008 we’ve been providing home support services for elders in the United States, drawing on our experience in health care and other industries. Given demographic trends (1.5 billion people globally will be over 65 by 2050), this is a fast-growing market, not only in the already aging developed world but also in China, because of its population control policies. And with more parents working and away from their extended families, we see growth potential in child care services, especially in developed markets but also in emerging ones.

With extensions like these, it’s conceivable that we could one day provide quality-of-life services to an individual all the way from birth to post-retirement.

Help Clients Execute Their Strategies

Our third rule is that the service packages we put together must help clients execute their own strategies. Here’s an example: One of our big clients in China wanted to move its research center from the middle of Beijing to the outskirts. The greatest challenge was persuading its employees, who mostly lived near the old site, to stay on and commute to the new one. (Retaining talent is a big problem in China.) The client asked us for help in putting together a workplace value proposition that would appeal to the employees.

We worked with the company and its architects on the layout of the offices and developed a transportation plan to make commuting easy. We also set up a concierge service to reduce the personal inconvenience of working far from where these people lived. It arranges for laundering, travel, restaurant reservations—anything that makes working outside Beijing as easy as working in its center. Employee satisfaction rose to 98% after the move, from 84% before; and staff turnover fell to 8% from 12%.


We realized that if we didn’t provide those services, we would be a subcontractor to the company that did. To differentiate yourself and show that your offerings are not just commodities, you need direct dialogue with top management. Since I became CEO, Sodexo has entered into global, multiyear deals with multinationals such as GlaxoSmithKline and Unilever. My colleagues and I visit their headquarters regularly to learn how we can help them improve the productivity and motivation of their employees.

Rely on Employees, Not Subcontractors

The fourth rule is that we own the businesses we’re in. We don’t want to be simply a primary contractor that works with subcontractors, which is what many of our competitors do. We believe that to deliver services that materially improve people’s lives, you need to deliver them yourself and employ competent, cheerful people who want to grow. And if people are our primary assets, we have to be in charge of motivating and developing them.

One way we do that is by making a real effort to improve the quality of their lives, too. Frankly, our employees often don’t have comfortable circumstances, and their work isn’t always easy.

For instance, we manage services for a big hospital in the Bronx. Typically, a housekeeper at this hospital will have a two-hour commute, is a single mother or the sole breadwinner and homemaker, has children of school age or younger, and is on a tight budget because salaries in her line of work are modest. After a day of hard physical labor cleaning rooms at the hospital, she will have to go home, feed the kids, and oversee their homework.

How can we motivate her to work quickly and with a smile? To begin with, we usually offer above-average benefits for that position. And we try to help her with the challenges of everyday life, perhaps by finding her a lawyer if she needs one, or someone to advise her about managing her finances.

We also invest a lot in training our people so that they’ll have opportunities. And we offer career paths inside the company. We want people to learn and grow with us because that means we, too, will benefit from our investment. A good example is in China, where frontline employee turnover has dropped from 200% a year to 50%. Many of our managers begin at the bottom. One of our top female executives in the U.S.—where we have a €6 billion business—started out 18 years ago as a waitress for one of our clients. I could cite many other examples from around the world.

Managing Sodexo is a challenge that’s both big and quotidian. We employ more than 400,000 people at about 33,000 sites in 80 countries. Yes, we can promote best practices, processes, and protocols—but the real magic is having employees who understand that their jobs are about improving the quality of people’s lives and managers who understand that the quality of our employees’ lives is part of that value proposition. That’s why Sodexo stands out in an industry that has traditionally competed fiercely on costs.

A version of this article appeared in the March 2015 issue of Harvard Business Review.


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