So there are a lot of responses here about laying down the law and such, but I'd like to take the Dale Carnegie approach here:
People want to matter
People have an inherent need to feel important. use this to your advantage. You may want to meet individually with team members, and again as a whole, to remind them of how important their contributions are to the company's goal.
Let them know that the company has not been meeting it's goals and objectives, which means bonuses, raises and the like are a bit tight right now (if this is true) and that you're here to help the team grow together and with the company.
When you meet with the individuals, mention that the perception is that productivity is at an all-time low, and ask why. Ask them, from their perspective, why certain deadlines haven't been met and if there is anything that can be done to improve the environment so that the team can more easily meet their objectives.
Doing this has a lot of benefits:
- They feel that you actually care about their perspective in this situation
- They feel that their opinion on how to improve is being heard and considered
- They are reminded that their contributions are important and that they have directly impacted the success of the business (albeit for bad reasons, but this might serve as motivation to improve).
- They will be more receptive to the changes if they think they were the pioneers of those changes.
You may consider starting a challenge. The reward can be as simple as catered food, or a happy hour or just friendly competition among teammates.
Let the team know that productivity is down, and that after having met them, you believe in them, and their abilities and set a goal to achieve some milestone that is mildly aggressive. If you achieve it, perhaps reward the bunch.
The above works in a lot of cases, but obviously firing people is occasionally unavoidable if some employee(s) absolutely refuse to be productive. If they have grown complacent at the company for far too long and are unwilling to adapt to changes and increase their work throughput then perhaps they would be better off in a new environment where they no longer associate work with a place to waste 8 hours.