Shy dogs are unsure of themselves and lack confidence. Anything that builds that confidence will improve the dog's behavior.
Desensitization can help a shy dog gain confidence. Slowly and gradually, from a distance, introduce the things he's afraid of. Allow him to advance at his own pace. Let him know that you won't push him past his comfort level.
If he's afraid of people, have a friend help you desensitize him. At first, the friend must ignore him and avoid looking at him. That way the dog can approach in his own time. If the friend sits or lies in the floor, he will appear smaller and not as frightening. Have the friend turn their back to him, their hands behind them, palms up, holding treats that he really loves. Allow him to investigate and take the treats this way for several training periods. The second step will be for the friend to speak to the dog and then progress to looking at the dog and finally attempting to pet the dog on the chest. If, at any point, he shows uncertainty, go back to the previous step.
Obedience training using positive methods can help the dog to understand that you are in charge and that he can trust you to keep him safe. Keep training periods short, upbeat and fun. Reward desirable behavior and ignore wrong behavior. Helping the dog feel a sense of accomplishment is a great confidence builder. If you enroll him in obedience classes, make sure the trainer uses positive training methods. Talk to them about your dog's shyness.
Obedience classes can also be an ideal way to socialize your dogs with other people, other dogs and new experiences. Take him for neighborhood walks or to Petsmart or to the park. Introduce him slowly and gently to new experiences. Make sure not to overwhelm him. Praise him when he shows confidence.
Exercise is a proven stress buster. Take your dog for a walk; praise him along the way. Play a game of fetch or lead him over hurdles, and praise him for doing a good job. Making the shy dog feel good about himself is a great confidence builder.
Patience is essential. Your dog may need months of therapy. He may never be outgoing but he can become a confident pet.