I have several years experience of both internal and external consultancies. From an internal perspective I was the OD Director of a 1,0000 person internal consultancy (£50m turnover)- so have a fair amount of experieince of both the set up, running and development. I am now a director of a small external consultancy...so have sat on both sides of the fence!
Short term benefits:
Internal clients come to appreciate the cost (and value) of what work they need doing. In particular they become better at specifying what they require and ultimately produce much tighter specifications. They recongnise that 'time is money' and so projects are tighter than they might have been before.
From the internal consultants perspective they develop a new set of skills and learn to form client relationships. They also become better at scoping work and managing for deliverables.
Both in the short and long-term there are much better value projects as a result. In addition the company benefits by not needing to use so many external consultants - and it puts a pressure on the external consultants to deliver better value - and skills/experience that the internals don't have. If the organisation ensures that internals work alongside externals then skills transfer is an added benefit.
In the long-term:
Development of higher value, more cost effective change projects.
From an organisation development perspective knowledge share and knowledge growth can become a much more explicit outcome of working in a consulting style. If this is coupled with the use of technology then this is of enormous benefit to the company as a whole. From a global perspective this is invaluable - and also helps to strengthen the glue and cohesion across different geographies.
If the internal consultancy is well connected to the strategy development of the company then, in the longer term, they can gear up to deliver projects that stretch out beyond the planning cycle - and offer advice and feedback from their learning.
A further possibility is to cycle people in and out of the consultancy to spread the new knowledge and skills back into the organisation.
You didn't ask about the problems! It seems to me that internal consultancies are inherently unstable. The main problem is the political climate of the organisation. Forming client relationships, particularly at a high level, can be difficult. Also - objectiveity can be hard to maintain. You are both a 'supplier' to the organisation, while being a member of it....and subject to the need to survive political pressures!
If you need any further info then please e-mail me.