Regulators and governments focus on the risks to the systems that support local and global economies. A systemic risk affects all participants in an economic sector or industry.
To some degree, outsourcing both increases and reduces systemic risk. Outsourcing permits individual enterprises to share systemic risks by hiring service providers who understand and invest in risk-controlling technologies, human capital and other resources. At the same time, in concentrated industries with a small number of service providers, such a concentration of process management in the hands of a small number of service providers could pose systemic risks in the form of antitrust or anti-competitive conduct, the risk of massive losses due to a single loss incident affecting multiple enterprise customers and the dependency of the service provider upon a favorable regulatory climate.
When planning any solution to the Sourcing Dilemma, executives and managers need to understand the nature of systemic risk and adopt appropriate risk planning strategies.