This paper contributes to the discussion on contingencies of process innovations by focusing on and introducing organizational-level constructs of climate for initiative and psychological safety. We argue that process innovations, defined as deliberate and new organizational attempts to change production and service processes, need to be accompanied by climates that complement the adoption and implementation of such innovations. Our study of 47 mid-sized German companies examines the relation between process innovations, climates for initiative and psychological safety, and firm performance. Results show that climates for initiative and psychological safety were positively related to two measures of firm performance—longitudinal change in return on assets (holding prior return on assets constant) and firm goal achievement—and moderated the relation between process innovations and firm performance. Copyright © 2003 John Wiley & Sons, Ltd.