Some tough solutions and a little heresy.
The organization does have some additional options.

Foremost is stop hiring the incompetent. Many failed attempts have been made to retrain individuals whose heart, mind and skills lay elsewhere.

A common excuse for hiring the person is that we will loose the line position believing that productivity is simply a matter of training. High performance is not one-dimensional but is the product of a multi-dimensional set of assets brought to bear on a problem.

Hire the incompetent and a fast-forward will reveal a department filled with individuals without appropriate degrees, skills, and motivation. The new manager that you are talking to is a product of that effort. Try explaining that a degree is necessary when the person across from you …

Across the board raises rarely work. The conversation goes something like this, "We need to raise salaries to attract higher quality personnel." Sound familiar?

Salary raises enacted across the board give a lot of mediocre performers a very good reason not to go elsewhere. Fix your problem, and then enact raises.

Enter the Scapegoat, stage left.
If necessary, bring in the organizational scapegoat. Seriously. Heresy? Read on.

Many organizations know exactly what is needed but internal politics and the informal organization have created substantial barriers to change. A well-known consulting maxim states that if you listen, your client will tell you what is needed within 15 minutes. The problem lies in the implementation, not in the analysis.

Your external agent – your future scapegoat - can recommend the needed changes. When questions arise, the cogent response is, “well our very expensive and prestigious firm recommended… (the lateral move, the reorganization, etc.)

Understand that I’m not recommending this approach as much as acknowledging that implementation, not analysis, is the issue, especially when mediocrity is involved.

Scapegoats take many forms. For one large multinational firm in Kansas City the yearly downsize is code for annual employee house cleaning ... reducing lawsuit exposure, etc.

Either approach may reveal the presence of a weak formal vs. a strong informal organization.  However, as oft stated, feel the pain and do it anyway.

Anything else? Once, and as you clean house, do not loose control again. Put an end to the unwritten mediocrity contract that goes something like this... I won’t point out your weakness if you will do the same. The inane has learned to embrace the inane.

Finally, eliminate information asymmetry and goal incongruence. The former refers to an unequal level of knowledge between key participants (you and IT). The latter refers to those situations where the project manager determines that their best interest is not to reveal missed features. Their individual goals are not congruent with the organization. Neutral third parties work.

The Departmental toolbox (page 3)