Innovation has nowadays become the main force to cope with challenging times in the fast-changing world. The influence of public sector innovation (PSI) in resolving dynamic economical and societal challenges is undisputable. Regardless of the numerous advantages of innovation in the public sector (PS) which have been recognised worldwide, the concept of public sector innovation is still novel for the Federation of Bosnia and Herzegovina (FBiH). Moreover, there is limited empirical evidence which would facilitate the understanding of public sector innovation performance. The purpose of this paper is to identify main components of PSI performance. The primary research data was obtained through a survey with close-ended questions which was completed by the public sector institution employees in FBiH. The exploratory factor analysis (EFA) was used in order to determine the principal components of measuring public sector innovation performance. The EFA returned the factor-structures for all four suggested constructs, innovation capabilities, wider sector conditions for innovation, sources of information and the share of creative occupation, explaining between 65% and 78% of the variance of the innovation performance measurement construct. The results from the exploratory factor analysis provided a distinct estimation on the factor structure of measuring PSI. The paper has provided and analysed the first instrument in measuring public sector innovation performance in FBiH.

Innovation has become a necessity in order to overcome some challenging times in the rapid changing world. The world's paradigm is shifting towards sustainable development and shared values. Even though numerous benefits of innovating the public sector (PS) have been recognised worldwide, the concept of public sector innovation (PSI) is still new for Bosnia and Herzegovina. The complex and stratified structure of the Federation of Bosnia and Herzegovina (FBiH) and its PS has been forever standing in the way of any larger progress. The purpose of this paper is to contribute to the development of PSI in FBiH as an opportunity to enhance the performance of public services, increase their efficiency, and decrease the costs.The research was completed by using a mixed-method approach in order to analyse the concept of innovation in the PS. The primary data was collected through semi-structured interviews with the management and a survey with close-ended questions which was completed by the employees of the public sector institutions in FBiH. The method of structural equation modelling was used in order to test the research hypotheses.A part of this paper is analysing the main PSI drivers and challenges. The results show that the main obstacles to PSI are the institutional system and the regulations in the FBiH. On the other side, the manager and employees are considered to be the largest drivers of public sector innovation in FBiH. The paper concludes with several recommendations on how to overcome the main barriers of public sector innovation in FBiH.