The eye-opener in my personal experience of Conway's law was this:
A company with an IT department on the 1st floor, and a marketing department on the 2nd floor, where the web servers were managed by the marketing department (really), and the back end by the IT department.
I was a developer in the marketing department. I could discuss and change web tier code in minutes. To get a change made to the back end would take me days of negotiation, explanation and release co-ordination.
Guess where I put most of my code?
Inevitably the architecture of the system became Webtier vs Backend. And inevitably, I put code on the webserver which, had we been organised differently, I would have put in a different place.
This is Conway's law: That the communication structure – the low cost of working within my department vs the much higher cost of working across a department boundary – constrained my arrangement of code, and hence the structure of the system. The team "just downstairs" was just too far. What was that gap made of? Even that small physical gap raised the cost of communication; but also the gaps & differences in priorities, release schedules, code ownership, and—perhaps most of all—personal acquaintance; I just didn't know the people, or know who to ask.
Conway's Law vs Distributed Working
Mark Seemann has recently argued that successful, globally distributed, OSS projects demonstrate that co-location isn't all it's claimed to be. Which set me thinking about communication in OSS projects.
In my example above, I had no ownership (for instance, no commit rights) to back end code and I didn't know, and hence didn't communicate with, the people who did. The tools of OSS—a shared visible repository, the ability to 'see' who is working on what, public visibility of discussion threads, being able to get in touch, to to raise pull requests—all serve to reduce the cost of communication.
In other words, the technology helps to re-create, at a distance, the benefits enjoyed by co-located workers.
When thinking of communication & co-location, I naturally think of talking. But @ploeh's comments have prodded me into thinking that code ownership is just as big a deal as talking. It's just something that we take for granted in a co-located team. I mean, if your co-located team didn't have access to each other's code, what would be the point of co-locating?
Another big deal with co-location is "tacit" knowledge, facilitated by, as Alistair Cockburn put it, osmotic communication. When two of my colleagues discuss something, I can overhear it and be aware of what's going on without having to be explicitly invited. What's more, I can quickly filter out what isn't relevant to me, or I can spontaneously join conversations & decisions that do concern me. Without even trying, everyone is involved when they need to be in a way that someone working in a separate room–even one that's right next door–can't achieve.
But a distributed project can achieve this too. By forcing most communication through shared public channels—mailing lists, chatrooms, pull request conversations—a distributed team can achieve better osmotic communication than a team which has two adjacent rooms in a building.
The cost, I guess, is that typing & reading is more expensive (in time) than talking & listening. Then again, the time-cost of talking can be quite high too (though not nearly as a high as the cost of failing to communicate).
I still suspect that twenty people in a room can work faster than twenty people across the globe. But the communication pathways of a distributed team can be less constrained than those same people in one building but separated even by a flimsy partition wall.