Interviews and Observations are field study methods like contextual inquiries.  in both cases, you should visit the participant "in the wild" to better understand how they get their work done in the context of their work.  

Field Study Tips

These tips are relevant for any type of user sessions you run but are particularly relevant for interviews and observations where you typically meet with individuals.

From Jakob Nielsen, Field Studies Done Right: Fast & Observational

Interviews

Strengths

Weaknesses

For more details creating interview questions and running interviews see:

Nondirected Interviews: How to Get More Out of Your Research Questions

Face to Face With Your Users: Running a Nondirected Interview

Observation

"Users are perfectly capable of expressing their latent needs.  They just can't do it verbally.  That's why we do ethnography and empathic research" - Rich Sheridan, Menlo Innovations

Strengths

Weakenesses

For more on observation technique see:

Usability Net's definition

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