Public organisations are normally overwhelmed with socio-technical challenges of Information Systems (IS) innovation at both organisational and institutional levels. However, most studies of these challenges adopt an organisational perspective, leaving the institutional perspective largely unanalysed. In this paper, the IS innovation challenges faced by a British local authority are analysed to explain the institutional roles of public bureaucracy and information technology (IT). The analysis reveals the tensions between the low-entrepreneurial ethos of public organisations and the efficiency principle of IT. The paper argues that the primary principle of IS innovation should be institutional adjustments of public bureaucracy and information technology. Suggestions on how both institutions can be adjusted are provided.