As part of the public sector reform, Finland reformulated its higher education policy in the late 1980s. It also included a profound reform of the government policy implementation instruments within the university system. As a result, a steering model based on the regulation of results instead of inputs was built up, and the autonomy of traditionally heavily regulated universities was increased. The planning and budgeting dialogue between the Ministry of Education and universities was simplified, and the system of performance negotiations and agreements was established. Also, a funding formula, based first on institutional goals agreed upon in the performance agreements, and later, to an increasing degree, on outputs, was established. The new steering model was implemented in the situation, which was characterised by comprehensive linking of Finnish higher education policy to economic and industrial development policies and the information society policy, in particular. The universities have been faced with a challenge of improving their management capacity to be effective in their responses to the new governmental steering and to the changing policy environment, in general.

The paper is based in two ongoing empirical studies by the authors, one about the change of the governmental steering instruments from the mid-80s to the present time and the other about the institutional reactions to the present steering-by-results model. The theoretical basis for the paper is provided by the theories of institutional governance.