The week In Search of Excellence reached # 1 on The New York Times list of best-selling nonfiction books, all hell broke loose at a small, white frame house in Palo Alto, about 40 miles south of San Francisco. It was an ordinary house, with a nice garden and blue trim, but the first floor happened to be occupied by Thomas J. Peters, who, with Robert H. Waterman Jr., wrote the book. That week, it seemed as though much of the corporate world was reaching out to touch Peters -- the phones rang constantly. And every day, the mail brought 10 to 15 requests for speeches and consulting work. There were a few crank letters -- clipped-out headlines with words circled in red. Then, too, there were the customary accolades accorded the winner in the best-seller sweepstakes: the magnum of Dom Perignon and the Eastern Onion singing telegram from Harper & Row; the congratulatory telegram from the second-place finisher, in this case John Naisbitt, author of Megatrends.

But most of the letters and calls came from America's major corporations, as well as from some of the country's fastest-growing smaller companies. In the messages, moreover, one could sense something special -- a new hope for American business and a belief that this man, Tom Peters, could help the rest of corporate America understand what companies like IBM Corp. and Procter & Gamble Co. had known all along.

The book confirms what some observers of American management have long suspected -- that the key to the survival and prosperity of American companies, large and small, lies not in the rational, quantitative approach to problem-solving so popular in the 1960s and '70s, but rather in a commitment to irrational, difficult-to-measure things like people, quality, and customer service.

It points out that many professional managers have forgotten how messy, sloppy, and irrational the real world really is; that they have come to think of people as variables that mess up the model; that, too often, they regard customers as uncooperative factors that refuse to perform as rational analysis dictates; that they see quality as an attribute a well-managed company can afford only so much of.

But Peters and Waterman show that some managers -- specifically, the managers at 62 of America's "best-run" companies -- have been different. These "excellent" companies (as they are referred to in the book) believe in the importance of superior quality and service, and they value people as individuals. They consistently exhibit certain core characteristics, which the two consultants codify into eight attributes of excellence:

* A bias for action

* Closeness to the customer

* Autonomy and entrepreneurship

* Belief in productivity through people

* A hands-on, value-driven operation

* A tendency to stick to the knitting

* A simple form and a lean staff

* Simultaneous, loose-tight properties -- autonomy at the shop-floor level combined with fanatic adherence to certain ideals

These characteristics make up a way of looking at the world that is both radical and mundane. It is radical in that two consultants from one of the world's most prestigious and pragmatic consulting firms, McKinsey & Co., abandoned their quantitative tools and endangered their reputations as rational men to focus on issues many of their peers thought were better left to sociologists. And it is mundane because the ideas are vaguely reminiscent of the kinds of things your mother used to say about why she went to a particular gas station or bought from a butcher two miles out of her way. It isn't the validity of the characteristics that the book's critics are inclined to doubt, but rather their importance.

As the authors themselves point out, most of it has been said before -- to little effect. Chester Barnard, once president of New Jersey Bell Telephone Co., was talking about good managers as value shapers in the 1930s, and others had followed his lead. Few managers, however, had been listening.

But, 40 years after Barnard's ground-breaking work, perceptions of the United States as an industrial power have changed. The rational model clearly is not working. U.S. conglomerates are having trouble competing in international markets; economic growth has slowed; productivity is declining. People have begun to question the orthodox axioms of management. Some U.S. companies -- Hewlett-Packard, Tandem Computers, and Apple Computer, for example -- seem to be developing a new corporate model, and little by little, the gray-suited organization man of the 1950s is giving way to the informal, innovation-oriented entrepreneur of the '80s. But, until Peters and Waterman came along, no one seemed able to pull all these threads together.

Peters and Waterman developed their book through a process curiously similar to that followed by the companies they describe. As with any successful enterprise, timing and chance played a role. So did vision, persistence, and the willingness to take risks. Indeed, Peters himself comes very close to being what the new vocabulary calls a "champion."

Peters and Waterman say that a champion is not necessarily a dreamer or an intellectual giant, but one who gets things done. In many of their talks they refer to The Nobel Duel, a study of Nobel prize winners, which describes the case of two researchers who received the prize for discovering a brain-hormone release mechanism. The scientists had made the discovery by carrying out an experiment their peers had written off as an "intellectually barren exercise." When asked why these two had won the Nobel prize, a colleague replied that they alone had had the perseverance to "grind up the miliions of pig brains and sheep brains necessary to get the job done."

This is a central theme of the book -- that there are individuals who persevere against all odds, long after everyone else has given up hope. In speeches, Peters and Waterman return again and again to the metaphor of grinding up pig brains. It is a mermorable phrase, as well as a peculiarly apt description of the entrepreneurial process. As it turns out, Peters himself had to grind up some pig brains in order to succeed where others had failed.

Tom Peters used to barrel down the halls of McKinsey & Co., a bear of a man in baggy crewneck sweaters and khaki pants, with stacks of paper the thickness of several Manhattan phone books under his arm. He had returned to McKinsey in 1977, after a leave of absence, to work on the project that led to In Search of Excellence, but he was rarely in his San Francisco office. His life was a series of meetings in New York, London, and Munich, connected by night flights. He was consumed by this odd project that had very little to do with the market analyses, acquisition recommendations, and reorganization strategies put out by most McKinsey consultants. His reports used garbage cans as metaphors for organization and talked about excellence in major companies. They contained cartoons und such words as "quality" and "service" that rarely appeared in other McKinsey documents.

The man did not fit the mold. He had two engineering degrees from Cornell University; two business degrees from Stanford University; five years in the Navy rebuilding bombed bridges in Vietnam and at work in the Pentagon. a year as the White House drug-abuse adviser; and stints as a consultant for Peat, Marwick, Mitchell & Co. and at McKinsey. Yet he was not what his background might suggest. He was messy, disorganized, and in a hurry. He did not seem the sort who might foment any kind of management revolution. In fact, some people weren't sure that his work had anything to do with management at all.

Peters had returned to McKinsey to conduct a study of corporate structure. It was a minor project. He was not a mover and shaker at the firm, and those who were tended to think of organizational issues as a little "flaky." The heavy-weights were huddled over another project, on strategy, which was bigger and directed by higher-ups in New York.

The truth was that Peters himself found structure boring, but he was intrigued by certain aspects of his research. The people he interviewed kept talking about organizational "style" and the leaders responsible for it, and about what Peters calls "mundane change tools," the daily events that maintain strategic themes and accomplish goals. They seemed to be saying that structure per se did not have much to do with the way companies actually got things done.

Then, in April 1978, fate intervened. Shortly before Peters was to give a presentation to a McKinsey client, the computerized financial analysis system crashed, locking up the data needed to support his report. Peters walked into the office of John Larson, managing director of the San Francisco office, and said, "What do we do?" They decided to talk about "good management," a subject for which they would need no hard data. They put together eight or nine pages on the topic and called the paper "Excellence." Peters doesn't remember much about the content of the report, but he does recall that the client "glommed on to it."

Peters began talking to other clients about good management, and they liked what they heard. McKinsey's ruling fathers, Ron Daniel and Warren Cannon, thought enough of what Peters was coming up with to assign another man to the project, San Francisco director Bob Waterman. Soon, the "Excellence" paper grew to 14 or 15 pages, and Peters and Waterman took it on the road.

McKinsey's clients found the content fascinating. Somehow it rang a bell. Excellent companies they knew of did have informal cultures, legends about their founders, and a "do it, fix it, try it" approach to new ideas and products. They had seen the advent of shirt sleeves and open collars, heard stories about Forrest Mars throwing poorly wrapped candy bars at his vice-presidents and about Hewlett-Packard's practice of fiddling with new product ideas. They knew as well that the language at top-performing companies was different, that employees talked about their company as a family and called each other by their first names. The excellent companies realized that all this stuff was important, but they had never heard anyone, especially an outsider, talk about it in quite the sameway.

The enthusiasm was not universal, however. At McKinsey, the theme of "excellence" got little respect as the project progressed, according to Peters. But there were some advantages to focused elsewhere, the climate was perfect for developing what the book calls a "skunk works," a small band of mavericks monomaniacally working to get a particular task done. Peters believes that the majority of innovations take place in the bushes off the main corporate track -- in start-ups or small companies, or in the nooks and crannies of large companies. Peters was happy to develop his theory in the same manner.

His own skunk works included Waterman and another McKinsey cohort, David Anderson. They unleashed themselves on 35 well-run U.S. companies to ask "simple, dumb, naive, basic questions" about how things got done. They asked mostly wrong questions at first, says Peters, about such things as the organization of the sales force and the planning of product development. But they kept coming back to the simple fact that the excellent companies "felt different." In regard to Hewlett-Packard, for example, Peters had heard about its method of "management by wandering around" -- and, lo and behold, the managers really did wander around. It was completely alien to my six years experience as a consultant," he says. "If you haven't walked around a GE or a Westinghouse, I'm not sure you can appreciate how different [it feels]."

The observations led to an interesting discovery: The companies that were also excellent by traditional standards of asset growth, equity, and sales were similar in ways that the analytic focus of the 1960s and '70s overlooked. They had long tables in the company cafeterias to promote interaction among the people who worked there. They had small staffs, and they spent a lot of time talking to their customers. They set up "universities" to teach people about company values. They shared no particular structure but rather a practice of regularly and continually reorganizing. Whatever the company's particular goal, each company exhibited an almost fanatical intensity about broadcasting it to employees. Moreover, all the companies had climates that encouraged taking risks and allowed mistakes.

It was tricky stuff to report. It was very difficult to define and almost impossible to quantify. Peters and Waterman found themselves explaining everything in stories -- not always successfully. In May 1980, Peters gave a speech on the subject of excellence to PepsiCo Inc. executives. He distilled the findings into the eight basic attributes that later appeared in the book. "It bombed," says Peters.

Shortly thereafter, Peters had lunch with Lewis H. Young, the editor-in-chief of Business Week, who encouraged him to submit an article to the magazine. Peters was flattered, but he didn't think anything would come of the invitation. Nevertheless, McKinsey s new communications director sent along the PepsiCo speech. To Peters' utter astonishment, Young said he would like to edit and publish it.

The piece appeared in July 1980, and, almost at once, Peters' telephone began to ring. His calendar was blackened with speech dates. "The response was just amazing," he says. Among the responses was a query from a woman at Harper & Row, asking if Peters was interested in doing a book. "It took me about 30 seconds to sign a contract," he says. Writing the book was another matter, however. Indeed, he might never have gotten around to it, if fate had not intervened again -- this time in the form of an automobile accident.

In the fall of 1980, Peters was on a tear, with speeches scheduled nearly every day. Word about the excellent companies was out, and Peters was flying all over the place in an effort to keep up with response. Then, one Sunday night in November, he found himself in the hospital with a severely injured Achilles tendon, several cracked ribs, and a dislocated shoulder -- the result of a car accident. For the next two weeks, he had plenty of time to think about what he was going to do with his life. "It was mid-life crisis time," he says, only half joking.

He realized that he had been tired and under enormous stress, that it was time to slow down. It was time to write the book. In order to develop the book's theoretical base, he had to go back to motivational theory he had not looked at since he was in graduate school. He surrounded his hospital bed with "eighty-seven hundred books" and read.

By the time he left the hospital, Peters was ready to start drafting the book. He and Waterman had already put together a summary of their findings for McKinsey, a 120-page report that became known as "The Orange Book," for the color of its cover. With this report in hand, Peters thought that drafting the book would be "a piece of cake."

He was wrong. He spent months sifting through the material. At times, he admits, he himself wondered whether the information was really common sense degenerated into trivia, but he plugged on. He passed his outpouring to Waterman, who went through it chapter by chapter then passed it back.

The draft went back and forth between Peters and Waterman and a McKinsey research librarian, Jennifer Futernick, and it ultimately was sent to an editor, John Cox. It was handed to Harper & Row in January 1982.

That spring, the co-authors parted ways. Waterman stayed on as a director at McKinsey, but Peters left to set up Palo Alto Consulting Center. McKinsey had been a good platform, and its reputation had provided access to some of the world's best-run companies, but Peters really was not comfortable there. Moreover, he felt ready to go out on his own. He decided to focus his consulting practice on what he loosely called helping companies achieve, rekindle, or maintain corporate excellence.

Meanwhile, Harper & Row was preparing to bring out the book. The publishing house liked it well enough, but it was management theory, after all, not a category that sold particularly well. A first run of 15,000 copies was planned for the fall of 1982.

The book appeared on time, with little fanfare. Almost at once, it was clear that Harper & Row had miscalculated. The first printing sold out in just a few weeks, well before Christmas. The second and third printings went as quickly as the first, and word about the book began to spread through corporate skunk works across thecountry.

As the book climbed the best-seller list, the pace grew even more frenetic. Harper & Row signed up Peters and Waterman for a seven-city, 10-day, book promotional tour. Then each went out alone to do eight more cities. There were radio shows and morning TV shows, book signings and interviews with local newspapers. Like a gambler on a roll, Peters wanted to do it all. He started placing private bets that In Search of Excellence would not make it to the top. He told a class he teaches at Stanford that, if it did, he would never wear a tie again. And every Wednesday he would rush down to the local bookstore to check the book's progress in The New York Times Book Review.

Meanwhile, his office, the little white frame house in Palo Alto, served as Peters' personal skunk-works clubhouse. A radio played music. There was beer in the refrigerator. Against one wall stood a roll-top desk he has had since he was eight. Against another was a seven-foot, papier mache statue of an old man in a sleeveless undershirt, shorts, and tennis shoes. Now and then, a cat walked across everybody's papers. The place was chaotic, but Peters could relax there, and he never had to wear a tie. Somehow everything important seemed to get accomplished.

By the third week in April, Peters got the news that In Search of Excellence was going to be # 1. More than 340,000 copies of the book had been sold, and the people who had bought them kept calling and writing. Meanwhile, Peters himself kept on the move. At 6:30 that Monday morning, he was driving to Monterey in his yellow VW Rabbit convertible for a presentation to the senior personnel managers from Syntex Corp., the pharmaceutical company. At noon, he was heading back to Palo Alto in time to receive the Eastern Onion singing telegram from Harper & Row and to talk to someone about possible TV or film treatments of the book. He went home for dinner, but by 11:30 that night he was on his way to San Francisco airport for a night flight to Chicago, where he was giving a speech to the senior partners of Touche Ross & Co.

Wherever he goes, people want to talk to him and tell him stories about skunk works and champions in their own companies. They ask him serious questions: How does a company not blessed with the eight attributes of excellence develop them? "That's the next book," says Peters. The key component, he says, seems to be the presence of "a persistent son-of-a-gun who hammered on the theme over and over -- someone like Andy Pearson at PepsiCo" or Willard Marriott Sr.

And if the company doesn't have a Pearson or a Marriott?.

"I don't know."

Mainly, however, Peters answers questions with more questions. As he does, one of the key differences between this and other theories becomes apparent. This theory is consciously question-raising rather than answer-giving. Rather than new structures or strategies for the '80s, it offers patterns, habits of questioning, and the perception that the answers to business questions are found the same way as the answers to other kinds of questions, by thinking and feeling one's way into a situation. It marks a new earnestness in American business, a new emphasis on old-fashioned values like respect for people, product quality, and serving the customer well. It is truly radical, yet some people have known it all along.