Meritocracy is fundamental to the success of any ecosystem

This is the Chapter 15 of my e-book Silicon Valley for Foreigners, that can be downloaded for free on www.siliconvalleybook.com or purchased for $2.99 on the iBookStore and Kindle. A new chapter will be posted on this blog every week.

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Meritocracy is a system in which the talented are chosen and moved ahead on the basis of their achievement. At the company level, meritocracy accelerates decision making and fosters a culture of experimentation and iteration, boosting competitiveness. In product development, meritocracy means the adoption of the most efficient solutions to problems, the improvement of processes, and the creation of better user experiences.

Meritocracy seems to have served well the Silicon Valley ecosystem over the past decades by creating trillions of dollars of wealth for companies, entrepreneurs, and investors in the region. The largest and best tech startups of all time have grown anchored on the tenets of meritocracy.

Apple, Facebook, and Google, for example, took good care of their corporate culture and continue to be super productive and innovative even at a large scale. Usually, when the original founders remain at the helm, companies are able to keep the flame of meritocracy alive. Interestingly enough, meritocracy is not compatible with democracy. The most innovative and efficient companies are benevolent dictatorships.

In other cases, true meritocracy becomes harder to implement, and many times it may be replaced by bureaucracy and internal politics. Some of the Valley’s most traditional startups such as Hewlett Packard, Silicon Graphics and Yahoo have been plagued by large company maladies that destroyed their capacity of innovating. Lack of meritocracy is a capital sin in technology, and it may drive companies either to irrelevance or bankruptcy.

Unfortunately, even with all the evidence that meritocracy works, it continues to be an alien concept in many parts of the world due to cultural traits, conservatism, and tradition. These characteristics impede the adoption of meritocracy and threaten local ecosystems.

In large developing countries, such as Brazil, Russia or Indonesia, meritocracy is still a myth. For historical and cultural reasons, local entrepreneurs tend to cut corners and hedge their success by developing relationships with the rich and the powerful. Corruption, favoritism, and intimidation become the weapons of success.

Other advanced economies, like Korea and Japan, have an excellent talent pool and a strong engineering culture, but the old guard still in power favors seniority, loyalty, and hierarchy over meritocracy. It is no wonder that both countries, once heralded as the next bastions of innovation, are lagging in key areas such as big data, artificial intelligence, biotech, and manufacturing. Changing cultural values imprinted in people’s psyche for hundreds of years is no easy task.

Smaller countries use a more pragmatic approach to stay competitive. Singapore and Chile’s strategy, for example, is to bet on economic incentives, a solid legal system, lower taxes, and a high quality of life to attract foreign startups and IT talent. Their governments want to mix up locals with people from other countries to foster entrepreneurship and give birth to a true meritocracy that is not dependent on ethnicity or relationships.

China is the one country that has been relatively successful in creating a culture of meritocracy by using a mix of social Darwinism, government incentives, and wild capitalism. Their formula is original and fits the country’s unique culture and history.

However, I would argue that, although Chinese entrepreneurs have evolved exponentially in the last decades, and are among the world’s best, their success is still tied to connections with the Communist party, corruption, and a protected market. Chinese companies will struggle for many years to be competitive in free markets like the United States or Western Europe.

The lessons I have learned from other ecosystems reinforce the importance of meritocracy as a competitive strategy. Silicon Valley’s formula for success is going to become more and more important in the coming decades as technology increases in complexity and starts to drive other areas of the economy.

Any entrepreneur willing to create a solid global business should be inserted into a meritocracy driven ecosystem or use meritocracy to run their companies.