Electronic Government (eGovernment) and New Public Management (NPM) have been subject to numerous innovation studies. However, the question of how such singe-organisational innovations diffuse throughout the public sector still remains unanswered. Here, we analyse public sector innovations and identify politico-administrative system dynamics shaping the processes of their emergence and diffusion. By means of expert interviews in Japan, we seek to elaborate our argument that system dynamics, such as recent efforts to decentralise and localise governance, have significant impact on how innovations and the diffusion of innovations take place. This research-in-progress paper contains preliminary results.