SMART DIVERSIFICATION

BEING THERE

What single integrated service providers do best

BY Jayashantha Jayawardhana

Sodexo is a French food services and facilities management company headquartered in the Paris suburb of Issy-les-Moulineaux. According to its integrated report for fiscal year 2025, it boasted 24.1 billion euros in consolidated revenue, 426,464 employees and 27,000 client sites spread across 43 countries at the end of August that year. 

Founded by French businessman Pierre Bellon as a humble ship chandlery business in Marseille in 1966, Sodexo went on to serve 80 million consumers daily and is also the second largest France based private employer worldwide. 

A former chairman and CEO of Sodexo Michel Landel wrote in the Harvard Business Review (HBR) that Sodexo is a prime example of smart diversification.

Bellon established Sodexo in 1966 as he saw a promising business opportunity in providing food and catering services to local companies, and then to schools, hospitals and other institutions. 

A year later, French space agency Centre National d’Études Spatiales (CNES), one of Sodexo’s clients, wanted it to organise cleaning and maintenance for its base in Guyana. This provided an opportunity to expand into other services.

When businesses outsource so many functions to different suppliers and service providers, managing and coordinating the work of many suppliers of varying quality becomes a formidable challenge. 

So some enterprises prefer to work with a single integrated service provider such as Sodexo, which can handle everything from the employee cafeteria, and the heating, ventilation and air conditioning (HVAC) system, to landscaping, incentive programmes and employee benefits.

Diversification certainly has its limits; and behind Sodexo’s global footprint and its various offerings, there’s been extensive strategic thinking about whether or not to diversify. Broadly speaking, it follows four basic rules in diversifying: be true to the business model; make people happy and productive; help clients execute their strategies; and rely on employees instead of subcontractors. 

On the surface, these are no-brainers; but in Sodexo’s case, they are the strategic cornerstones of its smart diversification strategy. 

Being true to the business model: as a rule, Sodexo never enters an area that’s inconsistent with its existing business model. With only a few exceptions, its services can be provided by an individual or a team, and doesn’t require capital investment in property or expensive machinery. 

For instance, when it operates an entity’s restaurants, it doesn’t own the equipment and the cost of the food is priced into the contract. It doesn’t supply services performed by nurses, aircraft pilots or accountants. 

So Sodexo doesn’t have to invest in fixed assets. It also benefits from standardisation as Sodexo has established plenty of best practices, which can be readily transferred from one client to the next. 

Making people happy and productive: Sodexo delivers only the services that directly improve the lives of individuals it considers consumers – even though it’s the client organisations such as companies, government ministries, schools, hospitals and so on that pay the bills. 

It’s by making the individuals in those organisations happy and productive that Sodexo creates value for its clients. 

When providing services, Sodexo ensures that it contributes at least one or more of six key metrics, which it tracks – viz. physical environment, social interaction, wellbeing and wellness, social recognition, efficiency and personal development. 

For example, if the employees of one of its client organisations take fewer sick days, it could be because Sodexo is doing a great job managing the HVAC system.

Helping clients execute their own strategies: the third rule adopted by Sodexo is that the service packages it puts together must help clients execute their own strategies. 

When one of its major clients in China wanted to move its research centre from the middle of Beijing to its outskirts, it found it difficult to persuade people to stay on. So the client turned to Sodexo to draw up a workplace value proposition that would appeal to its workers. 

Through a new office layout, a transportation plan that made commuting easier and a concierge service to reduce the personal inconvenience of working far from where these people lived, Sodexo saw employee satisfaction rise to 98 percent after the move – from 84 percent before. Likewise, staff turnover dropped to eight percent (from 12%).

Relying on employees instead of subcontractors: Sodexo believes that to deliver services that materially improve people’s lives, it needs to deliver those services itself and employ happy, competent people who want to grow. The company is serious about motivating and developing its employees, and improving the quality of their lives.