Hiring while simultaneously laying off employees may sound counterintuitive. Why bring on new workers as leaders stress leanness and cost-cutting to fend off economic headwinds?

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Yet companies rarely halt hiring completely during layoffs, says Susan Gunn, a partner at Bain and Co. and member of its leadership, talent, and performance improvement practices. The reasons for hiring post-layoff typically fall into three buckets, she says:

• The company experienced changes to its operating or product models, or even location strategy, and must source talent with the necessary skills from different markets. One example is BlackBerry, which started phasing out its cell phone business in 2016 while transforming into a cybersecurity software company and undergoing layoffs in the process.

• There is a mismatch between existing capabilities and the mission-critical skills needed to drive innovation and growth.

• The company does not understand its existing skill set and internal mobility practices and is hiring externally instead of redeploying employees to other areas.

“The ability to redeploy the talent that you have to emerging requirements is really a differentiator for any organization,” Gunn says. But hiring externally can also be necessary. Determining whether to ramp up hiring after job cuts requires leaders to examine the company's financial position and identify the skills and capabilities needed to grow the business and achieve strategic objectives.

SAP, Europe’s largest software company, is at this crossroads. The firm is embarking on a reorganization, focusing on growing its cloud business and expanding its software offerings in sustainability and supply chain management. In late January, it announced plans to cut 2.5% of its workforce, about 3,000 roles, and sell the remainder of its 71% stake in the experience management company Qualtrics. Congruently, the company has over 1,000 vacant roles for hire.

Identifying mission-critical talent

Layoffs are a sensitive subject, especially for affected employees, and companies that opt to hire while reducing headcount should do so with careful consideration.

“We're a very values-based company. Therefore, we're always thoughtful about what we do,” says Sabine Bendiek, SAP’s chief people and operating officer. When assessing the economic outlook last year, the company put the brakes on some hiring and spending. “[That] put us in the fortunate position that, when we had to make those decisions around restructuring, we could do it in a very strategic and targeted way.”

Still, companies must be clear and thoughtful about the mission-critical roles required to deliver on strategy and growth needs. Just 5% of roles account for over 95% of a company’s ability to execute strategy and deliver results, Gunn says.

Organizations that are thoughtful about their talent strategy spend time understanding their internal capability, where the skills gaps lie, and how to close them, she adds. Mission-critical positions at a tech company may be UX/UI designers, software engineers, or focused on A.I. and machine learning.

At SAP, restructuring and layoffs primarily targeted its CRM function as the company pivoted focus to its cloud, supply chain, and sustainability business. That journey requires the right mix of people, Bendiek says, and thinking strategically about which positions to fill, locations to recruit from, and the skills needed.

The company is targeting young and early career talent who can bring fresh, diverse perspectives and knowledge in areas where current employees lack deep expertise. "Then, of course, we add the institutional knowledge that's in the company…that's where the magic happens," says Bendiek.

Devising talent strategy

SAP is among the many tech companies that embarked on a pandemic-induced hiring spree to keep up with the digital transformation demand. The German tech firm grew from around 100,000 employees in 2019 to over 112,000 at the end of 2022. Now, the company is taking a more prudent approach to hiring. “What's changed is the process before you actually decide to post a position and start recruiting,” says Bendiek. “We’re being thoughtful around where we want to invest and add capacity.” As for the overall hiring process, it's largely remained the same, with time to hire ranging from four weeks to three months, depending on geography.

Consider SAP’s cloud business. The right candidate has technical and industry knowledge about cloud software and can address client questions while understanding the full end-to-end business. Bendiek says these are "the most sought-after skills our customers need."

As it beefs up talent in high-growth areas, SAP has created a dedicated workforce planning function to connect talent considerations with business strategy. And against the backdrop of its January workforce reduction, it says it’s encouraging laid-off employees to apply for open positions internally.

Affected employees received a code to use on internal applications, helping recruiters identify and potentially fast-track them through the hiring process. SAP declined to share the number of employees applying for high-growth roles but said its talent attraction team had received applications in the three-digit range.

Encouraging employees to take advantage of upskilling resources has taken a more central position in SAP's talent strategy. The company set a global target of 2.5 million learning hours in 2022 and reports reaching 3 million hours by the end of the year. Over 34,000 employees have participated in its cloud journey upskilling program, considered a high priority for the company’s accelerated cloud transformation.

According to Mercer, reskilling an employee for another role instead of hiring new talent can save employers $40,000 per person. But most companies lack the critical workforce planning and talent development framework to invest in reskilling, says Tauseef Rahman, a career business leader at Mercer.

Bendiek acknowledges the importance of upskilling existing talent. While it’s easy to prioritize the technology, she says, employers must remember that people build the products.

“If your employees are important to you, you have to figure out how to keep them in the long run, which means you have to make sure they continue to develop, they continue to grow,” Bendiek says, adding, ”Because this is a fast industry, we cannot afford to have people stand still.”

Check out this global study on cultural fitness by HR research firm i4cp, in partnership with Fortune.

This story was originally featured on Fortune.com

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