Around 8 years ago, when I had a small company with around 10 employees, I experienced a bad reality: terminating an employee!!
it was a while I wasn't satisfied with his efficiency, and he didn't seem to be enough responsible regarding his duties. So I decided to terminate his contract. I think I made as many mistakes as I could!
first of all, when I started the discussion I tried to look so familiar and friendly, I was trying to tell him every minute that I know how he is feeling, while I really didn't!
I also was not so brief. It took around 20 minutes to describe him the condition, and then, we just started to argue about the matter! I really didn't handle it...
last mistake I made, was telling him lies about his capabilities. I bet it was better to tell him his weaknesses. He didn't need my nonsense!
by the way, try to be brief in such cases, trust your reasons when you are explaining the situation, expect some cries and uncomfortable conditions and at last, never tell your employee you know how he/she is feeling. You probably don't!

We are refreshing our organization chart at PersianBlog. I was interested in companies' structure and hierarchies always, feeling the classical management maybe. I like old styles.
being creative in your work place is great, but I think in most situations it's better to find the right answers from happened and experienced cases in other big (better say bigger) companies and firms. To be more frank, I think the art of solving management problems in small/middle size companies like ours (with around 50 employees) is in fact case study. Yahoo!, Google, AOL, Wiki etc... Doing reverse engineering to realize how they deal with problems and conditions. Also to find out the architecture and business algorithm.
I remember when we were studying on how we can build up our general portal, Zigur, Y!'s single sign on method looked so different from our model, but Google's approach to ring its sites was more similar to our system. Actually both side confirmation on a unique user ID (like your Gmail account in Google, Orkut, Adsense etc) is a great idea and really works!