This error occurs when you do not specify the cache directory or when there is a reference to an invalid cache directory in your service configuration.
Cache directories store caches of prerendered tiles that map or globe services can use for faster display. You need to specify a valid cache directory for this tool to generate cache tiles. If you do not have any cache directories registered on your server, you need to first add at least one valid cache directory before you run this tool. If you have a valid cache directory specified, make sure that the cache directory path is accessible by all SOC machines hosted by ArcGIS Server. It is also a good practice to examine server log files for any errors. The log files are located at <ArcGIS Server Installation directory>\server\user\log on the SOM machine.