Scholars and business leaders have long recognized that teams can be a competitive advantage. Yet it is easy to lose sight of the fact that the teams aren’t always needed. Sometimes, a quick and decisive decisions by one person is more appropriate. Moreover, some tasks are performed just as easily by one person as by a group.
A second problem is that teams take time to to develop and maintain. Scholars refer to these hidden costs as process losses-resources (including time and energy) expended towards team development and maintenance rather than task.
A third problem is that teams require the right environment to flourish. Many companies forget this point by putting people in teams without changing anything else. Teams require appropriate rewards, communication systems, team leadership and other conditions. Without these, the shift to a team structure could be a waste of time.
Perhaps the best-known limitation of teams is the risk of productivity loss due to social loafing. Social loafing occurs when people exert less effort (and usually perform at a lower level) when working in groups than working alone.
Social loafing is most likely to occur in large teams where individuals output is difficult to identify. This particularly includes situations in which team members work alone towards a common output pool (i.e. they have low task interdependence). Under these conditions, employees aren’t as worried that their performance will be noticed. Social loafing is less likely to occur when the task is interesting, because individuals have a higher intrinsic motivation to perform their duties. It is less common when the groups objective is important, possibly because individuals experience more pressure from other team members to perform well. Finally social loafing is less common among members with a strong collective value, because they value group membership and believe in working towards group objectives.
Source: Organizational Behaviour by Steven McShane and Tony Travaglione