Financial structure and innovation in Icelandic public institutions

Abstract

This thesis asks whether the way Icelandic public institutions are funded shapes how they do innovation. It compares institutions that rely almost entirely on the state budget with institutions that also earn some of their own income. The study brings together official financial data and ten guided interviews with information technology (IT) staff. The material is organised under four themes that cover what projects or changes are delivered, the culture around new ideas, the ability to make changes, and what helps or hinders change. Both groups feel pressure to improve, but their conditions differ. Fully budget-funded bodies describe small step improvements that automate internal work and connect to shared government systems. These efforts are possible but fragile. They often rely on individual initiative and are limited by tight budgets and outside constraints. Institutions with their own income report a wider range of projects, including data hubs, chatbots, and early use of artificial intelligence. They also describe stronger backing for new ideas, open suggestion channels, a willingness to treat failure as learning, and more flexible funding. The results suggest that financial structure is one of several factors that shape both what gets done and the culture around change. The study links funding arrangements to staff experience and points to the need to match expectations for innovation with the resources and support available.