We develop a model in which competitive pressure is a catalyst for organizational
change. In our model, commitment to a narrow business strategy is valuable because
workers need to coordinate their efforts to build a strategy-specific capability. We show
that a monopolist may not be able to commit to a focused business strategy. However,
introducing competition can make commitment credible, thus leading to organizational
change and greater operating efficiency. Our model sheds light on a number of questions
in the intersection between the strategic management literature and the organizational
economics literature, including the importance of leadership styles, the interactions
between strategic positioning and organizational capabilities and the existence of X-
inefficiencies.