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This paper examines the dynamics of public sector performance across European Union (EU) countries through a comprehensive methodological framework. This study introduces the European Public Sector Performance Index, a novel approach that employs Partial Least Squares (PLS) econometric modelling and cluster analysis to evaluate public sector performance from 2007 to 2021. By assessing performance across governance, social, and economic dimensions, the research captures the multifaceted nature of public sector efficiency in the EU. Our investigation reveals significant determinants of performance, including governance factors like Control of Corruption, Rule of Law, and Government Effectiveness, as well as economic indicators such as Inflation and social factors like Equity of access to healthcare services and Education Spending. These findings underscore the critical role of transparent governance, economic stability, and equitable social policies in enhancing public sector efficiency. Despite its reliance on secondary data and the PLS method, the study provides new methodological insights and empirical evidence on public sector performance, contributing to the literature with a holistic analysis that integrates digitalisation and well-being. This study’s holistic approach offers actionable insights for policymakers and stakeholders, emphasising the need for robust governance and equitable policies to improve public sector performance across the EU. The omission of certain societal components—such as economic conditions, demographic changes, or cultural factors—may result in a skewed representation of how digital transformation and governance interact. These external factors can significantly influence the effectiveness of digital initiatives and the overall performance of public institutions.