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Almost all companies today compete to some degree on the basis of continuous innovation. And many turn to customers for information to guide that innovation. The problem is that customers'' ability to guide new product and service development is limited by their experience and by their ability to imagine and describe possible innovations. How can companies identify needs that customers themselves may not recognize? A set of techniques Harvard Business School Professors Dorothy Leonard and Jeffrey Rayport call empathic design can help resolve those dilemmas. Its basic principle is observation--watching customers use products or services. But the critical twist is that such observation is conducted in the customer''s own environment--in the context of normal, everyday routines. In such a context, the company is privy to a host of information that is not accessible through other observation--oriented research methods such as focus groups or usability laboratories. This article explores a new way for companies to spark innovation--a new way for them to identify consumer needs, and thus design successful new products to meet those needs. The techniques of empathic design-- effectively gathering, analyzing, and applying information gleaned from observation-are familiar to top engineering/design firms and a few forward-thinking manufacturers, but are not common practice.