If you're coming into a new organization where there is a problem employee your first task is to figure out why that person is called a problem. That may tell you as much about your predecessor or others in the unit as it does about the "problem" person. Be ruthless about getting to the reality of the situation.
Next, meet with the problem person. Have what I call a "Notice of Intent to Play Hardball" interview. Outline what good behavior is and the consequences of it. Outline the consequences of less acceptable behavior. What happens next depends on two things.
The most important thing is how the person responds to what you've outlined. They will either perform or not. It's then up to you to deliver consequences.
A wild card in this is how well previous "problem" behavior has been documented. Many times it hasn't so it will be up to you to satisfy documentation requirements from scratch if behavior is not acceptable.
Sometimes you're the boss in a group when a good employee suddenly quits performing at an acceptable level. This can happen for a variety of reasons, many of which have nothing to do with work.
The fact is that if your subordinate has been performing well and suddenly is not there is a proximate cause you need to identify. If the job has changed, that cause might be a training or resource isse. If the job has not changed, but motivation has, then it's time for a "Notice of Intent to Play Hardball."
In the inteview, you need to outline what behavior has changed and how. If you have not documented the change, you need to say that you've noticed it and will now document.
The reason for the change may be something you, and maybe even the subordinate, have no control over. Things like a divorce, serious illness of a loved one, and financial troubles come to mind. The boss's job is to manage behavior, not correct outside problems, so this is often a very distressing time for the boss.
At that point, company culture comes into play. Some cultures will "carry" folks who've proved their worth, while the circumstances affecting them are dealt with. This happens in various ways, but often takes a couple of years. In other cultures, it's perform or hit the highway.