Hawk or Dove? How leaders respond in an economic shock

The oil crisis is creating a difficult context for any business decision. We’re anticipating inflationary pressure and ongoing uncertainty about the global economic outlook. How we respond in this economic crisis really matters and we might have more power than we realise.

Taking the macro-view

Central banks around the world are navigating the unenviable task of managing inflation alongside cooling business confidence, slower demand and sluggish economic growth. The banks have two broad approaches, the hawk or the dove. 

A hawkish response from the central bank would be to tighten monetary policy and raise interest rates in an effort to curb inflation. The risk is that they focus on the single outcome of low and stable inflation but drive the economy into recession by choking off demand.

A dovish response is to focus on growth and employment, which would likely lead to a looser approach to monetary policy in an attempt to avoid a recession by keeping interest rates lower but potentially accepting higher and unstable inflation as a cost.

Neither of these are ideal and both perspectives have their place. At the macro-economic level, a central bank has limited levers and can only play their part in the national response.

Taking the micro-view

As business leaders, at the micro-level, we don’t have to be as binary or as narrow as the central banks. We have a lot more scope within our organisations to use with a much wider variety of levers. However, we can apply their thinking to our decisions and consider when we need to be the hawk and tighten our approach and when we can be the dove and find creative ways to go for growth, despite the constraints.

Hawk?

If every organisation simply becomes a hawk, we will have a worse recession. Economies are created as an aggregate of actors and businesses are right at the centre of that system. Simply freezing projects, shelving hiring plans and cutting all discretionary activity, while importantly saving cash in the short term, can and will create more pain in the medium to long term. The hawkishness has its place, to protect liquidity and avoid reactive spending without a clear strategy, but it doesn’t have to be our default and only option.

Dove? 

Where we have the opportunity to viably innovate and grow we can keep projects alive, or kick-off new ones. Investing in productivity and innovation at a time like this can and does have its place without a big price tag. 

One option to consider is shortening the work week. If you’re able to reduce some fixed costs by closing part of your operation one day per week or fortnight, now might be the time to pilot a new way of working. If you hold pay steady and offer to give your employees a recharge day in exchange for higher productivity it’s amazing how quickly behaviour and collaboration evolves for the better. I’ve recently seen it myself having concluded a six-month pilot with an organisation in New Zealand. By aligning employee incentives (a paid day off) with the business goal (higher productivity) people very quickly switch their focus from getting their tasks completed to thinking about how to create value to the customer as part of a team. Before you know it you have an organisation that is driving ever stronger productivity, a team that is moving against the burnout trend, feeling better balanced, refreshed and energised leaving you ready to make some new choices about how to deliver more products, service and markets than was previously possible. 

If you’re incorporating AI into your work, this is the perfect fit to drive that AI adoption and integrate it into everyone’s daily work, as they seek opportunities for productivity rather than freeze from fear of becoming redundant. 

When to hawk and when to dove?

Choosing when to be a hawk and when to be a dove is always open to you and your leadership team. The benefit of leading your organisation compared to a central bank, is that you have a lot more options in front of you. An economic shock can make us feel that the only option is pure hawkishness, but that can lead to organisational freeze and deepen the impact of the downturn. A deliberate mix of financial discipline, with a dovish drive for productivity, innovation, and growth is an ideal response that will benefit your business performance, your people and your ability to emerge from this crisis stronger.