I will show here how I have made this image from scratch, using simple techniques like clipping masks and layer blending modes. The tools I used were basically the brush and the smudge ones; I also used the fibers filter to make some texture.
Once you have a clear idea of what you want to get, it is always useful searching for some references. We need to create an old tree and a woodpecker for the image. Looking for some pictures of the elements I wanted to create was very helpful for me before doing anything else.
There are a lot of pictures of woodpeckers and old trees at SCX. Look for some woodpeckers pictures. The things you have to take into account are the proportions and check the colors. Look also the usual positions of this birds on the tree. In order to help you to create the tree you can search for some old trees on the web and check of the trunks forms and shapes. Check also how the bark fits into the trunk to have a clear idea of what you should paint.

Step 1
Let's go
Now open a new document, Use a standard landscape ISO A4 (297x210mm.) at 300 DPI.
Fill in the background with 50% black to make the sketch work more comfortable.
Make a new layer and begin drawing the figures with your favorite
brush. It is useful to make the sketch on a new transparent layer to
enable it without hiding the rest of the image since you will use the
sketch as a reference a lot during your work.
Don't worry about the color at this point. Just try to make the figures the more convincing as possible and a good composition
Just some advice before going further with this work, name each layer
you create and/or use groups for each element of your drawing. This is
very useful for not getting lost when you have a lot of layers.
I don't usually name the layer (dumb me!) but it is always useful for
me putting them into a group. I show here the layer structure of the
final image looks like.
To make a new group you only need to click the folder icon in the
bottom of the layers panel. Then you only need to drop the layers you
want into the new folder. This can be done selecting the layers you
want (hold shift or ctrl) and then dragging and dropping them into the
little folder icon.

Step 2
Once
you are happy with your sketch, draw the basic shapes using a hard
brush (100% opacity). Use the layers you need in order to keep the
things with enough separation and pick a base color to work with later
I personally used one layer for the sky and another one for the
background (second plane), one for the tree, and four layers for the
bird (bark, head, wing and body-tail).
The bird is the more complex figure so we need to put more attention on
it. In order to draw the feathers use a 9px brush with 20% opacity,
Begin drawing the elements keeping in mind that the brush strokes
should go in the same direction that the feathers of a real bird. Work
like this until you are satisfied with the shape of your bird.
Pick a 5px hard brush to make the beak shape, at this time with the opacity at 100%.
On a new layer (normal mode) pick another color and add some brush
strokes. Don't care about blending it; just make them rough where you
want to add color.
Now blend those strokes, pick the smudge tool and smudge the new color added in the same direction of the feathers.
Complete the head in the same way of the wing's feathers adding now
some darker colors. Draw the black and white zones of the eye and blend
them again with the smudge tool. Pick a smaller brush for this zone
because these feathers should look thinner than the ones of the wings.
Draw the eye to complete the bird with a thin brush. The 5 px. one
should be enough. Only some strokes are needed here until you get
satisfied, crtl+z and ctrl+alt+z can be your best friends here.

Step 3
Time to explain how a clipping mask works:
When you have a layer, the tree shape in this case, and you want to
draw over it but keeping the borders of the layer with the shape, the
best way of doing it is creating another layer over the shape one and
then clicking in the middle of both holding the alt key.
This means that you are using the previous layer as clipping mask and
everything you draw/paint on the new layer will only be visible into
the shape of the layer used as clipping mask
Here the snapshots made with the clipping mask disabled to show better
the effect and the work done but remember to use it always. You can
also specify when you want to use a layer as a clipping mask selecting
the layer and then Menu > Layer > New > Layer...
(Ctrl+shift+n). On the new screen check the box "Use previous layer to
create clipping mask"
It's time to do with the tree now. You have to fill a lot of space here and a texture is always useful in these cases.
Enable the sketch layer and put it on the top (if isn't there). Make a
new layer (ctrl+shift+n) and place it over the tree shape; pick a dark
brown for the background color and a light one for the foreground. Fill
in the layer with one of these colors.
Go to Menu > Filters > Render > Fibers. Play around with the
variance and strength to get the result you want. I personally used the
defaults, Variance = 16 and strength = 4
Now rotate the layer to match the tree direction and with the smudge
tool wrap the texture around the trunk, do it gently with soft and
short strokes displacing the texture to make some convincing wrinkles.
The front nose part has no sense with this texture so paint a bit on
the layer with the light brown you picked for the filter. this step is
very important because a texture is completely useless if you don't
wrap into the thing you want.
The texture still looks too flat. You have to duplicate the layer,
desaturate it (ctrl+shift+u) and set the mode to overlay, now go to
Menu > Image > Adjustments > Brightness/Contrast..., play
around with it until you get a good result, Here I raised the contrast
to the max and lowered the brightness a bit. You can also check the
"Use legacy" box to make this effect more extreme. In this case was not
needed.

Step 4
With
the sketch layer still enabled create a new layer in multiply mode,
pick a dark brown color and make a linear gradient to add a general
shadow an then pick a thin brush (9px.) and use the same color to draw
the face details and add also the darker shadows with this brush.
Change the brush to a bigger and softer one (100px.) and improve the shadows in the darker zones.
Finish this step with a big brush (300px. and bigger) and low opacity to make some subtle shadows
Here you can do your work in many ways. If you want to redo part of
your picture the best way of not losing hours of work is creating one
layer for each point you have made but your document will increase the
size quickly. If your computer slows down too much you can always save
your document, merge some layers and then save again with a different
name. You can always open the previous document to go back in your
work. In this picture I used four layers. This can also be done on one
layer, in this case ctrl+z, ctrl+alt+z and the history panel will be
your best friends.

Step 5
Time
for the overlays now, make a new layer and a pick a very light brown
color, close to white. With a soft big brush with low opacity begin
painting the zones that should be highlighted. be careful with those
thin branches and use a small brush to highlight the border.
We still have to create some holes on the tree surface. Remember the
clipping mask layer? Select it and mask or erase the zones needed
The final image shows how the tree looks using the shape layer as clipping mask.

Step 6
Make
a new layer behind the tree one. Paint it in white in the eye zone, now
pick a dark color and a big brush and on a new layer add some strokes
far enough from the border for only painting a smooth gradient on the
white zone. Then change the brush to a harder and thinner one (19px.)
and draw the pupil, change the color to white and low the opacity to a
30% to blend the pupil and add some light reflection.
For the other holes just copy a piece from the upper part of the tree
and paste on a layer behind the tree one. Go to Menu > Image >
Adjustments > Hue/Saturation... and decrease the lightness slider to
darken the piece used for the mouth.

Step 7
The
tree is almost done, but we need to place it on a field so we need to
create some grass in the foreground and in the background.
Create a new layer somewhere in front of the grass shape layer and
behind the tree. Pick the "Rough Round Bristle", go to the brush
presets menu. In the brush tip shape section modify the spacing percent
to a 70 - 80%. Enable also the scattering box for this brush since you
need to create random strokes with no sense, just some kind of rough
texture.
With the 100px. soft round brush select the smudge tool and smudge the
strokes done before to make the background grass. We don't need to
create details here, just smudge randomly.
Use the 13px. hard round brush to smudge the grass on the foreground,
begin smudging the zones closest to the background to end with the top
front part. You need to be more careful here, try to smudge in
different directions and with different length on the strokes to make
some convincing grass.
We need also to create a layer in front of the tree to create the grass
in the zone where the root meets with the ground. Create the grass on
this layer in the same way.
Create a new layer, choose a darker green and repeat the entire process to add some depth.

Step 8
The
grass is not finished yet, repeat the smudging process in two different
layers and make the green lighter and yellowish for each one of these
layers.
The sky looks flat and simple. Pick a big soft round brush with low
opacity (10%), add some strokes to create some clouds, reduce the brush
size and paint over the horizon line to blend it
On a new layer in overlay mode paint with white to improve the light on
the tree. Some light needs to added to the dark zone of the tree to add
an isometric light effect, not too much, the wood does not reflect too
much light.

Step 9
Use
a new layer in overlay mode to improve the light on the background and
finish blending the skyline. Use a very light color but not white, in
this way you can give the highlights the tone you want, in this case I
used a very light yellow (close to white)
The shape and the size of the bird can be improved. In my case the
layers used for the bird were flattened but this was not a problem I
had flatten the layers used for it but in this case this wasn't a
problem. I transformed and warped it a bit to give it a more natural
bird looking.
The sky still looks very flat. Darken it a bit in some zones with a big brush and a dark blue to add some depth.
The leaves were painted on a new layer with a thin brush first to make
the shape. Then use a darker green and a softer brush with low opacity
to add some details/shadows. Finish with a lighter green and the same
brush to add the highlights.
Create a new layer for the claw and draw the shape. This time do not
use this shape a clipping mask because the zone we want to draw/paint
is very small and simple.
Instead of using the shape layer as clipping mask go to the layers
panel and click in the small icon to lock the transparent pixels. With
this icon enabled on a layer the program only allow us to paint over
previously painted zones keeping the transparent zones untouched. This
is very useful when you want to paint keeping the borders.
Paint some details with black and highlight the zones needed with a light gray to make a convincing claw.
Create a new layer under the one of the claw and paint the shadow of the claw/bird.

Step 10
When
I had almost finished the picture there was something in the light that
did not convince me. The tree was too dark comparing with the
background, I tried to dark the background but the result was still
unconvincing.
The solution in this case was adding some light to the tree. On a new
layer in the top and in overlay mode begin painting with white with a
very big (>600px.) soft round brush and do not use too much opacity.
In the case you end with a too bright image you can also lower the
layer opacity or use the eraser tool in the zones you want.

Step 11
Finished

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