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This paper contrasts the implications of structural hole and network closure theories for building efficient alliance networks. We study the effects of local organizational action resulting in the formation of direct ties by a focal firm (ego) or indirect ties between its partners (alters). Consistent with structural hole theory, a longitudinal study of alliance formation in the US telecommunications industry reveals that new direct ties that expand the number of separate clusters in ego’s alliance network enhances its performance, whereas new indirect ties bridging between previously separate clusters of alters have a negative effect on ego’s performance. Yet new indirect ties that merely strengthen the cohesion within an existing cluster of alters have a positive effect on ego’s performance, bringing partial support to closure theory. While the formation of ties between a firm’s partners can have a negative impact on its performance …