The importance of governance and institutions in supporting processes of economic growth is well established, both at the national and subnational levels. They act as mediating factors shaping both individual behaviour and as structuring elements, creating the rules and norms that regulate and coordinate economic activities. Though their importance has been accepted for quite some time, several important aspects regarding how institutions are shaped have remained relatively under-researched, at least until recently. Institutions have often been portrayed in the literature as technical entities, which can be more or less attuned to support innovation and growth. Hence, suggestions regarding how to improve them tend to rely on a similar approach, namely by offering the case studies of the most advanced regions as a benchmark. Institutions are not however technical or neutral entities: they are shaped by politics, as understood in a broader sense, and are as such the result of power struggles, conflict and consensus, pro-active change and inertia, among other social dynamics. In this paper we will look into the experience of designing and implementing innovation strategies in four lagging regions of Europe, by focusing on the power dynamics that shape policy in these contexts. We will examine in particular two dimensions: vertical relationships between different levels of government, and their impact on the characteristics of regional governments; horizontal relationships between regional politicians/policymakers with economic or social agents, and how the interests and demands of specific interest groups shape the design and implementation of policy.