Objective of the paper is to discuss the implication, in terms of organizational structures and human resource management practi-ces, of the recent innovations in the public sector labour law in Italy. After having described the challenges posed by financial constraints to the Italian public administration, the paper suggests that decentralization and the implementation of budgeting will im-ply conspicuous organizational restructuring (e.g.: process reengi-neering) and innovative human resource management (competen-ce based planning, recruiting and training, flexible compensation, etc.). These will be the high leverage points on the basis of which organizational learning will take place in order to increase efficien-cy and quality. Competitive benchmarking with top performers within the public sector will also represent a fundamental process through which best practices can diffuse across organizations.