Motivated by the experimentally observed shear-induced destabilization and reorientation of smectic A like systems, we consider an extended formulation of smectic A hydrodynamics. We include both, the smectic layering (via the layer displacement u and the layer normalp) and the director n of the underlying nematic order in our macroscopic hydrodynamic description and allow both directions to differ in non equilibrium situations. In an homeotropically aligned sample the nematic director does couple to an applied simple shear, whereas the smectic layering stays unchanged. This difference leads to a finite (but usually small) angle betweenn andp, which we find to be equivalent to an effective dilatation of the layers. This effective dilatation leads, above a certain threshold, to an undulation instability of the layers. We generalize our earlier approach [Rheol. Acta 39 (3), 15] and include the cross couplings with the velocity field and the order parameters for orientational and positional order and show how the order parameters interact with the undulation instability. We explore the influence of various material parameters on the instability. Comparing our results to recent experiments and molecular dynamic simulations, we find a good qualitative agreement.