This study analyses and examines in detail the impact of public sector innovation to improve public satisfaction level, it is about changing the traditional government into a more integrated and efficient one. Innovation is actually the engine of economic growth. Innovation in the public sector is an under-researched area. It deals with governance, political and human issues which are very difficult to solve. Since much of the topic and studies on innovation are focusing on the private sector, it is the aim of this study to analyse the process of innovation, mainly in Information and Communication Technology (ICT) in the public sector. This study will eventually be able to give e-government model/ guidelines that encapsulates the reality of innovation by the government. Innovation in government is not only about bringing a new breakthrough product to the people, but also to bring in changes to the culture in the organisation, the way a decision is made, and perhaps more importantly, how it can use technology to strengthen its role as the provider of social and economic welfare to the people. This study has also compared the findings of the e-government case study to the literature of innovation mainly in the area of process innovation. There is SWOT analysis with weight rating to judge the e-governance challenges, which Pakistan is facing as a developing nation. The study concludes that the public sector needs to overcome its traditional characteristics of poor agenda setting, unclear objectives, lack of transparency, and bureaucratic layers of decision-making processes.