Joel Spolsky, of Joel On Software, has a series on management styles.  He details three styles of management:  Command and Control, Econ 101, and Identity.  Command and Control is where management dictates everything that happens.  Econ 101 is where management uses economic incentives to get the right behavior.  Identity is getting people to do what you want by making them like you, personally.  These are all straw men and no one really uses only one style but they are useful to understand and help to shape a good mixture of styles.  The command and control model, at its extreme, is micromanagement.  It doesn't allow for any innovation in the leaf nodes.  The polar opposite is Econ 101 where the management identifies some outcomes and pays people to achieve them.  It does not, however, give much instruction on how to achieve that.  Identity is getting people to like you and the organization so they'll do what is best.  This has a similar pitfall as Econ 101 in that it doesn't necessitate helping employees. 

The best solution is a mixture.  Some people are motivated by money and rewarding people economically for contributing to the company can help them.  That cannot be the only motivation, however.  Internal motivation can be an even more powerful motivator.  If people like you, they'll give you their best.  If people are excited about the company's direction, they'll give it their all.  A little command and control can be useful too.  It helps to give the team more than direction.  A very experienced team can get by with only direction but most teams have inexperienced people and they will benefit from being told how to get things done.  The important thing is to make sure the instruction is done with an eye to making an independent worker rather than just getting the immidiate work done.  One of the biggest jobs of a manager is to grow his or her team.  Helping the team mature will help the individuals on the team but also help the output of the whole team.