Grades don't tell you how well someone is going to work in the real world, only how they worked in an educational environment, and even then they only tell you how they did in that snapshot of time. Someone might do better or worse in that environment or at that moment. Someone might be good at memorizing and taking tests, and the course might be poorly designed so that is sufficient. And it can happen at famous schools just as easily as anywhere else.
UC Santa Cruz didn't have grades until 2000 and was despite this famous in several disciplines including its CS program. They only really stopped under pressure from educators who complained that increased class sizes made it difficult to actually know all of the students as individuals. From this we can see that the only reason to use grades is to do a shit job.