Incremental innovations add or sustain value by improving existing products and services. These incremental changes can be in response to evolving customer needs, or the result of ideas emerging from research labs or elsewhere. Most product and service innovation is incremental in nature. Incremental improvements enhance the efficiency and effectiveness of existing processes and practices. They are based on improving current business and management processes, such as planning, design, manufacturing, production, marketing and administration, supply chains, and communications. Despite the fact that many literatures have been done on incremental innovation, not much has been documented about how it affect a firm’s competitive advantage in telecommunication and banking industries. The main purpose of this analysis was guided by its main objective which is to investigate the effect of Incremental innovation on a firm’s competitive advantage. Explanatory research design was employed in this study. The unit of analysis comprised of selected service industries which entail 30 commercial banks and two telecommunication industries based in Eldoret, Municipality. A census survey technique was used to get the target population which consisted of a branch manager and four departmental heads from the selected service industries. Questionnaires were used to collect data and reliability was measured using Cronbach alpha coefficient which was above 0.80 for internal consistency. Descriptive and inferential statistics were used to test the hypotheses and analyze data collected. The results showed that, incremental innovation (β=.463, p<.05) did not support the null hypotheses indicating that incremental innovation is an important determinant of firm’s competitive advantage. Managers are encouraged to be the lead-innovators and to employ the staffs who have passion to their work so as to yield greater creativity.

Keywords: Competitive Advantage and service Industries, Incremental innovation