Pearce took his side to local rivals Derby County on Saturday with serious questions being asked of his position at the City Ground.
After enjoying a bright start to life back in familiar surroundings, a club favourite from his playing days saw the wheels come off a promotion push in spectacular fashion.
Forest arrived at the iPro Stadium with just two wins taken from their last 20 outings in all competitions.
They were able to find a spark at the home of their East Midlands foes, with late drama seeing them snatch a 2-1 victory, but ex-England international Mills feels his former boss at Manchester City will struggle in the long run as he lacks key skills every top manager needs to succeed.
He told BBC Radio Five Live: "I'm not surprised it has happened for him. Stuart Pearce came into Manchester City and had a fantastic 'Honeymoon Period' and then went wrong - and did the same with the England Under-21s.
"He comes in, everyone says 'wow, it's Stuart Pearce, legend! Psycho' and all of that and he has that instant respect. He gets teams going but after a while, players aren't stupid, they're not naive and they start to suss him out. He doesn't have the depth of football ability to back it up.
"Actually, he is not a great coach, he's not a great tactician, he's not a great motivator and he struggles with big players who question his authority."
Pearce spent two years at the helm of Manchester City, but was relieved of his duties at the end of the 2006/07 campaign after winning just 34 of his 96 games in charge.
He enjoyed considerably more success with the England U21 side – guiding them to the final of the 2009 European Championship – but saw the Football Association opt against extending his contract in 2013.
A return to management has been made at Forest but despite taking them to the top of the Championship table early on, his win percentage is back in the 30s and his coaching ability is being questioned again.