The team should be collocated (i.e. the team members should share the same office space), there are many studies and researches showing that performance can double.
For example: Bulte & Moenaert; The Effects of R&D Team Collocation on Communication Patterns Among R&D, Marketing, and Manufacturing; 1998 or Teasly, Covi, Krishnan, Olson; How does radical collocation help a team succeed? 2000 but see also the classic book The mythical man-month by Fred Brooks.
This is the optimal solution but there are many shades as we will see.
In the article by Teasly et al., the researchers were able to measure the medium- and long-term effects of collocation (including related practices such as using white boards) in productivity terms: it more than doubled and time to market was halved. The productivity was even almost doubled again when the researchers check some time later, demonstrating it was not a temporary initial improvement.
The reason is intuitive: team members can communicate easier, face-to-face therefore with less delays and ambiguities, can share more and have more spontaneous discussions that can lead to important insights. Team spirit also gains: it is much better to share a birthday cake in the kitchen than to send a generic greetings email …
All nice but unfortunately this is not always possible: especially large corporations have multiple offices, spread all over the world with distributed teams and projects, not only for cost reasons. Not talking about colleagues working from home or with flexible times. These are trends and it’s useless to fight them, better is to adapt the processes and make use of all the possible workarounds and tools that our modern technology gives us:
- organise team building events or trainings, especially at the beginning of a project; invite everyone for the kick-off
- instant messaging tools (there are dozens)
- video conference; avoid sophisticated solutions available only in one room that the team will find complex and cumbersome and will not use; more effective is to provide all team members with a wide-angle high-resolution webcam.
- one day we will have 3D holograms as avatars for ourselves.
- electronic whiteboard, maybe even synchronised with the physical whiteboards (with sensors) in the offices
- desktop sharing software (there are many)
- maintain an information radiator accessible to everyone, such as a wiki page.
- evolve the geographically dispersed teams to be feature teams.
- don’t encourage location-based roles. Don’t put all the QA people in only one office.
- modern engineering practices that foster collaboration, such as continuous integration and distributed configuration management.
As soon as you have more than one or two teams, or you have geographically distributed teams, you are no longer in the known agile practices so you need to explore, try and adapt whatever it works for you.
Bonus: do you say collocated, colocated or co-located? I opted the first (that’s used since the latin age) as the others seem just modern jargon. See the three terms comparison by Google n-grams: