Guidance & inspiration vs. directing & controlling.
Virtually all the management I've had to do involves people working independently, mostly because I can't bring myself to micromanage and control another person. The downside of this is that if someone isn't in touch with themselves, they can represent things the way they want them to be, rather than how they are. And when they are left to their own devices, they behave differently than what they represented.
I am then put in a position where I have to either (1) take over and start micromanaging/controlling or (2) give up whatever investment I have with that person and try to find someone else. Because of my nature, option 1 eventually fails and I end up with option 2; in recent times I've been trying to understand this well enough that I don't try to fix things and just realize that, for whatever reason, it hasn't worked out so I go as soon as possible (as soon as I can become aware) to option 2. This also follows the maxim "never consider sunk costs when making decisions."
I think this approach is also good for the person in question. As long as you are pretending that things are working OK, you are supporting that person in their illusions. What they actually need is help in moving on, so that they can discover whatever they are really good at.
If you have a company structure where managers are responsible for directing and controlling employee activities, those managers cannot do creative work; they are effectively lost to the needs of the corporate hierarchy. This seems like an unacceptable loss to me, both for the company and for the managers. (In Here Comes Everybody, Clay Shirky makes the case that electronic communication is disrupting the need for traditional corporate hierarchy).
In Outliers, Malcolm Gladwell shows how human-caused disasters never come from big, obvious events or mistakes, but are always an accumulation of small, apparently manageable errors and problems (usually about seven of these before everything goes pear-shaped). What I've been noticing lately is that relationship problems -- typically business relationships but I am starting to think also personal ones -- follow this pattern. People rarely do one big thing that makes it easy to see there's something wrong. In those cases, you don't usually have to wait for the big thing to happen, you see it coming long before (and it's often obvious enough that you don't hire the person in the first place). It's the small things that slip beneath your radar, where you say, "oh, that's just a little thing, I can let it slide" or "we can compensate for that" to the point where you have a bunch of small things causing problems, each of which you've kind of passed through and decided it wasn't a problem. The real failures, of course, are the ones that get past the Maginot Line of our attention.
I don't like command-and-control management, and I don't want to do it. To me it indicates a failure of team-building, and it wastes my time. The kind of management I want to do is the fun kind, where I can draw on my experience to help people do a better job, to inspire and guide. I've been fortunate that most of my consulting engagements have been like this. (Also note the similarity to Martin Fowler's discussion of software development attitudes).
Learning to move forward despite sunk costs is extremely difficult to do. People have an inherent concept of "investment" that makes discarding sunk costs hard.
One thing I've managed to do well (IMHO) is project forward the risks of moving on my current trajectory given past experiences. e.g: I think that in general if, when working with someone, things haven't gone well thus far, they're not likely to improve.