Why observe? Because people will do things they never will tell you. This is what we preach in our user centred design workshops. Take this video for example, shot at our regional airport. Very few, if any passengers, would actually lodge a complaint about these luggage carts, but clearly this is not a good user experience.
[QUICKTIME http://www.designinnovation.ie/blog/wp-content/uploads/movies/cart.mov 320 256]
My favorite detail is when the woman reaches out with her foot for leverage and finds no bar. It was probably removed for safety so people wouldn’t ride the carts.
You need to get out and observe users in the act of interacting with your product or service if you want to achieve design innovation.