I would have a sit down face to face meeting and put employee interactions at the top of the agenda. I would ensure there were lots of coffee and donuts so the meeting was a success. Then work the issue on a white board. Don't be afraid to float some outrageous thought balloons, this is the brain storming portion of the exercise. Be sure to get input from everyone, not everyone speaks up, people have different ways of expressing themselves. Be sure to have plenty of metrics available to make some concrete decisions. Don't give in to the easy way out, sometimes work is just work! When things are worked out between you two, its helpful to have an post mortem of the situation, and go over lessons learned. Consider implementing a program like Sixth Sigma.