Innovation happens at the junction between business and customer needs, not from lonely geniuses or executive brainstorms. So says Scott Cook, founder of Intuit, which makes Quicken and Quickbooks. To create a culture of innovation, he urges you to observe your customers. For example, in the 1940s and ‘50s, cargo transportation companies were racing to build faster and faster ships. But trucker Malcolm McLean, watching people unload his truck, realized that the biggest delay was the loading and unloading of goods to and from trucks. He concluded that loading the entire truck trailer on the ship would save a tremendous amount of time. This was the seed idea for the invention of the container, which has reduced cargo loading costs from $6 to $.16 per ton. It all starts with observing your customers, said Scott at last month’s CHI 2006, an international conference for human-computer interaction. He offered some ways to foster creativity and innovation. First, recognize that inventions come from mindset changes, and those come from seeing things differently. Savor surprises as a learning tool. Focus managers on customer metrics, which need to be as strong, well defined, and decision-driving as financial metrics. Finally, nurture and protect your innovation teams. In short, observe, incubate new ideas, celebrate failure—and stay out of the way.