There is now a substantial body of research examining the relationship between human resource management (HRM) and organisational performance. Much of this research has focused on a empting to specify ‘bundles’ of human resources practices or HRM systems that have an identifiable effect on firm performance. These systems have o en been denoted ‘high performance work systems’ (HPWS). While researchers have consistently found a significant relationship between HRM and performance, the mechanisms that give rise to this relationship remain poorly conceptualised. Building on the work of Barney and Wright (1998), Ferris et al. (1998) and Bowen and Ostro. (2004), we suggest that the social context in which such practices are implemented provides the basis for specifying these transmission mechanisms. Workplace climate provides a key social context that induces high levels of effort and dynamic efficiency. Using data from a sample of traditional manufacturing and emerging sector firms we find that workplace climate significantly influences the relationship between HRM systems and performance.