I would suggest you to have a monitoring system in place.
Train and motive the employees.
Establish Performance improvement plan. Set goals, timeline.
Conduct periodical team building games.
Have regular one to one sessions. Get their feedback.
Make them understand that they are responsible for their work.
Introduce Reward system like Best performer, employee of the month. Praise them in open work station. Appreciate good ideas, Celebrate Birthdays.
Going by the contents of your post, it emerges that there is less discipline in your company. Your problem is not lacking productivity as such. Lack of discipline is the problem and cause of this indiscipline is poor leadership of the Project Manager (PM).
The manager may be friendly but at the same time, he should be able to create a deterrence. He must come down heavily on the wayward juniors. The manager must know how to exercise his/her authority. A manager who is unable to do this is not a manager at all. But then please make sure that the manager clearly understands the difference between creating deterrence and being coercive. He should never exercise coerciveness.
Tell the PM to all the meeting of all his members and let the manager give a brief to them on their duties and responsibilities. Let them be told that this is a final warning and no more warning will be given. Those who go astray, let the manager issue him a warning letter. If there is no improvement then just sack 1-2 persons. Others will fall in line automatically.
Though I have proposed all this, I do not know what is the interference from the top management in day-to-day administration is. Therefore, you and the PM may discuss about your plan with the top leadership. He must delegate sufficient power to the PM, else nothing will work. Your top leadership should not interfere in the routine work of the PM.
Earlier I have given replies to the similar posts. Click the following links to refer those:
Of course, there is a solution to this kind of problems. As per your narrative, there is a serious issue of organisational culture. The one line solution would be " Right person in the right place at the right time."
In my opinion, please take some corrective and preventive actions to set right the work culture of your organisation and focus on " Right person in the right place at the right time."
Please feel free to write for anything more.
I completely agree with my fellow learned contributors that it is a reflection of poor managerial capacity of the team leader/manager.
Now, I believe you are from HR department, if that is so then how did you come to this conclusion that overall productivity is going down?Kindly elaborate on this point , as it may throw up some more insights about this problem.
I shall be sharing my observations accordingly.