(FORTUNE Magazine) – MANAGING/COVER STORY 56 HOW McKINSEY DOES IT The world's most powerful consulting firm commands unrivaled respect -- and prices -- but is being buffeted by a host of new challenges. Here is a report from behind the rarely lifted veil of one of the best-known yet least understood organizations, a firm elitist by design. by John Huey

| 66 IS McKINSEY OVERPRICED? When it comes to charging for its services, McKinsey subscribes to the maxim ''If you have to ask, you can't afford it.''

THE WORKPLACE 83 YOUR PAYCHECK GETS EXCITING Believe it or not, you can earn more than ever in the new world of pay-for- performance. But your company will demand superb results for those fat bonuses. by Shawn Tully

CORPORATE PERFORMANCE 101 HOW A HIGH-TECH BET PAID OFF BIG Faced with a crisis in its business, General Instrument took a risk with a promising technology and now stands to win big in digital TV. That has helped put the onetime middling conglomerate among the biggest LBO moneymakers. by Thomas A. Stewart

105 COMPANIES TO WATCH Begun by pioneers in electrodialysis, Ionics has expanded beyond desalination in the $30-billion-a-year water treatment market. by John Labate

INFORMATION TECHNOLOGY 109 WHEN TO MURDER YOUR MAINFRAME That old computer system is too inflexible to serve many future needs, but its data and customized programs are too valuable to toss. FORTUNE looks at your options. by Peter Nulty

123 TECHNOLOGY TO WATCH Researchers bring the science of anatomy into the information age by translating a cadaver into billions of bytes of computer memory. by Gene Bylinsky

DEPARTMENTS 6 EDITOR'S DESK 9 INDEX 12 NEWS/TRENDS Detroit's exports take off, Baby Bells branch out, dodging snipers for the long term, fast-track B-school, Uncle Sam's new charge card, and more.

21 FORTUNE FORECAST The economy crawls out of the mire. by Rob Norton

Economic Intelligence: The Latin way to boost savings, a tax that companies might like, and more. $ 29 PERSONAL INVESTING Why growth and value investors like some of the same stocks. by Richard S. Teitelbaum

Also: A strategy for boosting income and Portfolio Talk with Sandra Shrewsbury of Piper Jaffray.

50 LETTERS TO FORTUNE

159 BOOKS & IDEAS Fictive financial skullduggery and bizarre but brilliant futurology set in California, plus a feisty guide to mutual funds from Vanguard's curmudgeonly founder, John Bogle, out to improve his own industry.

161 KEEPING UP Zapping the national growth rate (ask Mr. Statistics), the price of free trade, punctuation on the bench, and other matters. by Daniel Seligman

164 ENTREPRENEURS Thinking big is the hallmark of the entrepreneur. But as Tony Frederick learned when his New England hotel business went under, it can also be a curse. by Charles Burck

ASIA/SPECIAL SECTION 126 THE BATTLE FOR ASIA The vibrancy of this growth arena is seductive in a lethargic global economy. by Louis Kraar

128 JAPAN HITS THE WALL The seemingly unflappable Japanese are adrift in political and economic sea changes. But Japan is still Asia's flagship. by Brenton R. Schlender

137 CHINA: STRUGGLE FOR CONTROL Racing to become an economic superpower, China has stumbled. An unofficial new leader is trying to help it find its feet. by Louis Kraar

145 THAILAND: JAPAN VS. THE U.S. To see how the battle for Asia is going, take a close look at a booming country where Japanese and American companies have been investing for years. by Emily Thornton

150 WHAT RICE MEANS TO THE JAPANESE Rice is not just a commodity but a symbol of independence to a nation that can't produce much of the food it eats. The shortfall in this year's crop will mean the first imports in almost a decade. A picture portfolio. by Brenton R. Schlender

Frieze PHOTOS BY: Forrest Anderson (Gamma/Liaison), Mary Beth Camp (Matrix), Mike Yamashita (Woodfin Camp), Dilip Mehta (Contact), Greg Girard (Contact), Paul Chesley, Peter Charlesworth (JB Pictures), Chris Rainier (JB Pictures), Laurie Sparham (Network-Matrix)

McKinsey looks to hire people who are ''very smart, insecure and thus driven by their insecurity, and competitive.'' Members of the McKinsey team in London (above) and New York City (on the cover). Photos by Dudley Reed (Onyx).