Choosing Between On-Premise and Cloud Enterprise Software Solutions

Doug Cox
Doug Cox

By Doug Cox, chief strategic officer, Elixir Technologies.

With the dramatic changes that have taken place in the U.S. healthcare landscape over the past several years, it’s not surprising that healthcare CIOs increasingly find leading transformation and delivering on the organization’s core strategies and objectives included in their responsibilities. (See SSi-SEARCH Research “Healthcare’s Million Dollar Man”) The CIOs for small to mid-sized payers and third party administrators are no exception.

When it comes to freeing up IT resources for mission-critical strategic tasks, decisions regarding enterprise software solutions should not be overlooked, as they can have a significant impact on success for healthcare organizations in the small to mid-sized range.

While historical experience in these IT organizations may create a bias toward choosing on-premise software solutions, one should give serious consideration to three major benefits that cloud-based solutions can deliver to the organization: speed to market, scalability and total cost of ownership. These potential—and sought after—benefits hold the promise to deliver critical return on investment and serve the critical goals of both the IT organization and the business users within the company. Let’s take a closer look at each.

Speed to Market

At first glance, the initial deployment time for cloud or desktop (on-premise) applications can appear similar. However, two areas that impact overall deployment time should not be overlooked: capabilities and accessibility.


One characteristic typical of cloud applications is that they generally have more robust capabilities than on-premise software. This makes them easier to use and manage by a broader group within the organization and readily delivers on the promise of fast deployment. Overall deployment of cloud applications often takes less time than desktop applications because so much of it can be performed by a wider range of (less technical) users, rather than being dependent on the schedule and resources of IT.

To stay competitive, business users need the ability to react quickly to market forces and retool applications to take advantage of competitive opportunities. One example might be the need to redesign customer-facing content, such as member enrollment documents, to keep them accurate and effective. The capabilities of software as a service (SaaS) applications greatly simplify this task compared to on-premise applications, which typically require IT involvement to configure them.

Additionally, it is often the case that participation from external teams becomes necessary to complete a task. However, collaborating using on-premise systems designed for a particular workflow can be difficult because such collaboration wasn’t anticipated in the original design of the application. Modifying the application to enable external collaboration may involve delays and expense associated with engaging the IT department in the process.


Once a cloud application is deployed, it is ready for use by an unlimited number of (authorized) users. An on-premise deployment, on the other hand, requires initially configuring servers and other common services and a few desktop users and then later repeating the same number of steps involving the same amount of time for each additional user.

Typically, a healthcare payer can achieve deployment using a SaaS model within one or two weeks. As discussed, the difference between the cloud time frame and desktop is that the cloud system can be accessed by an unlimited number of users within a short period of time. The on-premise deployment would often only be ready for a few users in that same time frame. Another challenge with deploying on-premise software to larger numbers of users is that the actual elapsed time to upgrade everyone can be lengthy and can result in personnel using different versions of the same software during the upgrade process


Cloud applications scale on a number of fronts including performance, capacity, user base and the application itself in terms of the extent of functionality that can be added quickly; whereas desktop applications have much more overhead in these areas, including cost and time.  Perhaps the most compelling differentiator is that the cloud scales in real time and desktop applications do not. Cloud architectures permit secure distribution of operational activities, allowing companies to assign and adjust the services they need in real time against their capacity or as their business objectives change.

Case in Point: In the case of one leading U.S. healthcare payer, scalability benefits were realized with respect to how quickly they could grow their user base, and that they could do so independent of the cloud SaaS provider.  The organization started with about 20 users and within mere weeks had scaled to over 500. It now has more than 1,000 users accessing the system. The organization can scale its user base up and down depending on business need—and continue to do so without assistance from the SaaS provider. The payer’s business users are able to manage the cloud-based platform internally.

Total Cost of Ownership

It’s important to go beyond comparing just the basic software price against the subscription fee when calculating total cost of ownership. In many cases the savings for on-going costs such as maintenance and upgrades can be exponentially higher with on-premise applications than when using a cloud application. In a cloud deployment, maintenance and upgrades are often more transparent to the user and involve a process that happens once on a single server. By contrast, on-premise applications require ongoing investments of time and resources for each user plus any centralized servers and services.

As a result, with a cloud solution the costs to adjust when employees leave or add new users (which includes installation) can be relatively low compared to using on-premise software as well. Depending on the requirements, a SaaS deployment can deliver 10 times less total operating cost as the same deployment using an on-premise application.

Case in Point: For one top-ranked healthcare payer, moving to the cloud eliminated more than 70 percent of the costs associated with a desktop equivalent. This was due in part to capabilities that the cloud application had relating to automation and real time processing versus the desktop alternative.  The cloud application required virtually no ongoing involvement from IT.


A 2014 survey by Gartner found that global buyers of cloud applications cite cost, innovation and agility as the reasons for adoption. The research firm predicted that the deployment model for on-premise software will shrink from 34 percent to 18 percent by 2017. According to Gartner, “Key drivers for SaaS include the fact that ‘hands off’ IT enables redirection of limited in-house staff to other responsibilities since the SaaS provider is responsible for ongoing support. Rapid deployment and faster access to innovation are also important since SaaS vendors are able to roll out applications when you are ready and lower upfront costs with a pay-as-you-go pricing model.”  Thus, Gartner anticipates a continued rise in SaaS deployments for mission-critical applications.

The Gartner commentary above aptly summarizes the potential benefits that payers should consider when determining whether to deploy traditional on premise solutions versus SaaS alternatives. While for some organizations, security concerns linger concerning the cloud, Gartner concludes this is merely a perception, not a reality and that there have been very few breaches in the cloud, while most breaches have involved on-premise data centers.

For all of these reasons, small to mid-sized payers and third party administrators are wise to consider cloud SaaS solutions as an effective means to free up internal IT resources for mission-critical tasks while at the same time gaining agility and reducing total cost of ownership. Adopting this increasingly popular model for IT deployments can help the entire organization keep pace and remain competitive in today’s rapidly changing healthcare landscape.

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