Past decades have witnessed the rapid advancement of new technologies, the development of new business models, and the evolution of cohesive organisational cultures. These factors have transformed the business environment in such a way that firms must collaborate and compete globally and seamlessly. Being able to promptly adapt to a changing environment by engaging in innovation is thus vital for all levels of business enterprises to stay competitive and even to survive in their particular industry. Such a statement also applies to the construction industry, where innovation is not only a source of a firm’s competitive advantage, but also an essential strategic component for accommodating rapid changes embodied in complex products and processes. Realising the significance of innovation, a large number of organisations have expended a lot of resources in an effort to acquire various forms of innovation with the aim to improve their competitiveness. Some of these organisations have been successful, whilst many have not. This inconsistent result has led many built environment scholars to conduct numerous research studies in an attempt to answer the question as to how, why and what causes such a success or failure. Innovation, in its many forms, generally evolves by means of adoption and/or generation, and its successful development and/or implementation are reliant upon an effective diffusion process. Theoretically, diffusion is a process by which innovation is disseminated through communication channels among members of a social system over time. The diffusion of innovation within an organisation has thus been viewed as hinging upon a complex sociopsychological process among the organisation’s members. Such a process can manifest itself in the form of the ‘climate’ in an organisation, which is a critical determinant of people’s motivation and behaviour. In particular, ‘climate for innovation’ has been emphasised by management researchers as having an important role in stimulating innovation. To a large extent, past research studies have provided valuable knowledge regarding the factors that affect the adoption and/or generation of innovation within construction organisations. However, there is still a demand for more empirical studies that focus on the actual implementation and diffusion of such innovation, particularly, from a social perspective. Moreover, despite the fact that design is an important phase of a construction project life-cycle where innovation invariably takes place, the study of innovation within this particular context has not been carried out extensively. In response to such research demands, this study was conducted with the purpose to provide greater understanding on the interrelationships among key socio-psychological constructs that constitute a climate for innovation, and their associated outcomes, within the design organisation environment. Therefore, the main aim of this study was to empirically develop a model that depicts the relationships between the various climate constructs, as well as their influence on the outcomes of innovation diffusion and subsequent business performance within Architectural and Engineering Design (AED) firms. To achieve the above-mentioned research aim, a conceptual model encapsulating three climate constructs, namely, leadership for innovation (LFI), team climate for innovation (TCI), and organisational culture for innovation (OCI), along with two outcome-orientated constructs addressing innovation diffusion outcomes (IDO) and business performance (BPM), was developed. These model constructs were logically linked by hypothetical relationships represented by seven hypotheses. To verify the developed conceptual model, this study employed a sequential mixed method research design, incorporating quantitative and qualitative analysis approaches. The first phase of the study employed a quantitative research method to assess and refine the developed conceptual model, based on the data collected from a questionnaire survey targeting design professionals employed in Australian AED firms. This phase utilised a series of multivariate statistical techniques, specifically, Exploratory Factor Analysis (EFA), Confirmatory Factor Analysis (CFA), and Structural Equation Modelling (SEM). EFA and CFA were initially carried out to uncover robust model structures. SEM was then performed to assess and refine the conceptual model by evaluating the hypothesised relationships between the constructs. The results unearthed five statistically significant causal linkages: LFI ? TCI; LFI ? OCI; TCI ? OCI; OCI ? IDO; and IDO ? BPM, which formed an essential part of the final empirical model. Based on the above results, a qualitative research method was employed as a second phase of the analysis to further support the validity of the empirical model. In doing so, explanatory case studies were conducted with five Australian AED firms, primarily through semistructured, face-to-face interviews with a number of design professionals. The primary purpose of this phase was to determine whether the empirical model can be explained (i.e. validated) by the qualitative data collected from actual firms under real-work settings. This was achieved through the ‘pattern matching’ technique, whereby the patterns of relationships between the constructs depicted in the empirical model were compared with those identified from the case studies. Overall, the pattern matching results demonstrated a good match between the patterns of relationships uncovered from the case studies and the relationships postulated in the empirical model. Therefore, the findings provided support for the validity of the model in terms of its ability to represent the actual phenomena within AED firms. Through the above validated model, this study provided fundamental contributions to the imperative research field of innovation diffusion from a social perspective, particularly within the AED context. Firstly, the study identified three critical socio-psychological constructs constituting the climate for innovation, namely, leadership for innovation, team climate for innovation, and organisational culture for innovation. Among these constructs, leadership for innovation was empirically found to be the most influential construct, impacting on the creation of both organisational culture and team climate for innovation. Secondly, the study provided empirical evidence that organisational culture for innovation directly influenced innovation diffusion outcomes, and also mediated the relationships between this construct with both leadership and team climate for innovation. Lastly, the study also provided empirical evidence that innovation diffusion outcomes positively contributed to business performance. From these empirical findings, the study has been able to offer a number of practical implications, which are beneficial to AED firms seeking to enhance their competitiveness through innovation. Firstly, to ensure that innovation will contribute to improved business performance, firms should try to achieve effective innovation diffusion by positioning itself to successfully harness and turn creative ideas into innovative design solutions, and promote the effective utilisation of design technologies/practices. Secondly, to create and sustain the effective diffusion of innovation, firms should ensure that the culture for innovation prevails. Within such a culture, creative ideas are more likely to be better transformed into innovative solutions. Likewise, the adopted technologies/practices are likely to be utilised more effectively to facilitate design activities. Lastly, to create and maintain the culture for innovation, firms should place an emphasis on developing leaders whose behaviours favour innovation. Directly, these leaders can shape an innovation culture by championing policies and practices that accelerate the diffusion of innovation. Indirectly, they can influence the improved climate for innovation among teams which will, in turn, become an important building block for a firms’ culture for innovation. In summary, this research study significantly expanded and improved upon the existing sociopsychological aspect of innovation management within the AED context. A most useful practical guide was developed, through a robust model that explains the mechanisms of the key climate-for-innovation constructs in enhancing innovation diffusion and improving business performance within AED firms.