I finally wrapped my head around the fact that people volunteer or intern because they want a good experience, and a manager who's afraid to tell an intern what to do will ruin that experience.
That's not all - as a manager, you have to be ready to fire an intern who isn't working out. Just because they don't get paid doesn't mean you have to keep them on forever. Keeping someone who isn't helping your office wastes your time and lowers morale on the part of other interns.
Keep track of intern productivity
Any good manager should keep good track of his subordinates' productivity, but people managing interns sometimes don't think of themselves as "real" managers. Face it - you're a manager whether your subordinates are paid or not, and you need to do a good job.
Tracking productivity is less about knowing when to crack the whip and more about knowing when and how you can help your subordinates be productive. Studies have also shown that most people quickly lose interest in a job if they get the impression their manager doesn't care what they do, or whether they do a good job. Show that you are paying attention, have high standards, and believe your subordinates are capable of meeting those standards.
Is it your fault?
If an intern isn't productive, first make sure there isn't something you can do to help the intern be productive. As a manager who is still learning a lot about how to manage and lead people, I realize that if someone is ineffective under my supervision, there's probably something I can change to help them be more effective. Sometimes you're actually at fault (i.e. you have neglected your duties, and as a result the intern is ineffective). Other times, you're doing things well, but by giving the intern more support or resources, you can help them out.
In any case, look first to yourself, and seek some small change that can make the intern effective, before firing them. (See below for suggestions based on why the intern is ineffective.)
Lazy? Or Incompetent?
I've dealt with a number of interns who didn't quite seem to work out. Some are lazy or unreliable; others are simply incompetent. (The vast majority of the interns I've managed have ranged from good to excellent, though.) You need to be aware of whether you're facing a motivational problem, or a problem with the intern's abilities.
It's easiest to help an intern who just lacks a certain skill. Often a little training, a bit of mentoring from another intern, or a change in job duties will help this intern become more effective.
I always maintain a list of varied tasks, and set aside easier tasks for interns I know are less skilled, or who are still learning the ropes. I also talk to interns about their strengths. One of our interns who was a very poor writer turned out to be an excellent caseworker, and it would have been a huge mistake to fire her, or force her to spend hours trying to improve her writing.
It is possible to help an intern improve skills, but there is only a certain amount anyone can learn within a short period of time, and if an intern appears to be plateauing at a level of skill that isn't satisfactory, consider having them work on other tasks.
One of our interns, whom I'll call Clay, was incompetent at everything we assigned him. His writing quality was poor; he was uncertain and tremulous on the phone; he was inattentive to detail. If the intern truly isn't good enough at anything you need them to work on, or if they are so poor that they would be a liability to the office, you need to ask them to consider taking a job or internship elsewhere, where they can learn the skills necessary in this office. Your interview process should prevent these sorts of interns from getting into your office in the first place, but if one does get in, don't drag your feet. Holding off will not do the intern any justice, and it certainly won't help your office. Asking a well-intentioned intern to move on can be difficult, but you should do it as soon as you recognize they can't be of help. You can suggest that they may still be interested as a volunteer for events or projects where you need people for unskilled help, if you think they want to stay involved somehow. In Clay's case, it was a huge relief to our entire office when we finally asked him to move on. Your office should help interns learn new things, but you should get rid of an intern who isn't also helping your office.
Unmotivated interns
Dealing with unmotivated interns is an entirely different animal. As before, first make sure that the intern's attitude isn't a result of your own management habits. If they're disengaged because you never check up on them, that's your fault; firing them won't solve anything, and you'll continue to produce disengaged interns.
If you are showing attention to the intern's work, but this doesn't solve the problem, it's time to have The Talk. Speak to him in private, and explain that while you have a high opinion of his abilities, he hasn't been coming through with results. Ask him if there's anything you can do to help him be more effective.
Most interns are embarrassed to have The Talk. They know they aren't being productive, and they'll usually agree to shape up. Not all interns who promise this actually will, however, so it's important to extract a concrete commitment to be more productive. I spoke to one intern, who I'll call Alfred, after a couple of weeks of being unproductive. I was still a new manager, and this was the first intern I had had to confront. (I should have confronted him earlier.) He was extremely embarrassed, and had been so unproductive that I told him I'd assign him tasks along with the amount of time I expected they should each take. This way I would be able to notice immediately if Alfred was slacking off.
If an intern shapes up, you may be able to loosen any restrictions you put on him. If he doesn't, fire him immediately. Alfred didn't improve at all, so I spoke to him again and asked him to leave the office.